India needs to look at ways to up FDI limit in multi-brand retail, defence: CII-USIBC report

India should look at ways to hike foreign direct investment (FDI) caps in sectors such as multi-brand retail, defence and insurance as these are the areas where US technology and expertise could help bring in much needed resources and infrastructure, a CII report said.

It also said that both India and the US must take a long-term and comprehensive view on issues pertaining to e-commerce sector by taking all concerns into account before finalising any policy.

India's e-commerce policy has engendered a whole host of issues that impact both domestic and foreign players, including definition of private versus community data; prohibition on cross-border data sharing; mandate to establish data centres; and domestic versus Indian product definitions, the CII-USIBC report said.

"India should review the feasibility of increasing FDI caps or additional provisions for foreign ownership in sectors like defence (49 per cent except in specific cases where the foreign company is bringing a high end or sensitive technology), insurance (49 per cent but with control remaining with the domestic partner), multi-brand retail (though 51 per cent foreign ownership is allowed, onerous additional provisions have inhibited growth in this sector)," it said.

It added that these are high growth areas in India, where US technology, expertise and know-how could help bring in much needed resources, capacity building, infrastructure, and consequent job creation.

On data, it said, cross-border flow of data is a reality as well as necessity in the hyper-connected global information and communications technology ecosystem and supply chain, most visible in the way the internet operates.

"India must also bear in mind that such a policy could prompt reciprocal action by the US and other countries which may demand that the data for their citizens stay within the confines of their geographical boundaries," the report said.

This could have an enormous deleterious impact on Indian IT and BPO companies that have grown over the past several decades essentially by processing, analyzing and storing sensitive health, financial, insurance.

Both sides, it said, must take a long-term and comprehensive view on this issue, taking all concerns into account before finalising any policies that have a bearing on one of the most dynamic, growing and innovative industries in India.

The report also said that India should consider bringing down the import duty on high end motorcycles (that include Harley Davidson motorcycles) to zero for both Complete Built Up (CBU) units and for Completely Knocked Down (CKD) units.

"The zero per cent rate could apply to all motorcycle imports being sold in India over Rs 5 lakhs (about USD 7,100)," the report.

Regarding price controls on medical devices, it said the issue needs to be taken up in a comprehensive manner with domestic firms and MNCs to come to consensus on a pricing mechanism that balances access to healthcare with enabling innovation and competitiveness amongst private sector firms.

On the politically sensitive dairy sector, it suggested that considerate understanding and detailed dialogue on production, classification and labelling norms could help the US producers comply with existing regulations and lead to a feasible solution.

The report stated that the reinstatement of GSP benefits, an export incentives given by America to about 1900 Indian products, by the US will not only allow the small businesses in India to remain competitive, but it would be a symbolic win for the relationship.

Further non energy sector, it said the US should look to be a larger crude oil and shale gas supplier to India, but also look at ethanol for export expansion.

"In the meantime, waivers from US sanctions for importing oil from Iran and Venezuela should be granted to India to allow it time to diversify its energy sources without impacting its economic progress in the process," it suggested.

The report further said that a formal defense dialogue involving private sector is needed.

"It would help provide a formalized avenue of engagement for defence and aerospace companies and relevant government officials in both countries. If co-production and co-development is to happen in a meaningful way, the private sectors of both countries must have an opportunity to network and become familiar with each other's systems and processes," it said.

On a proposed mini trade deal, it said concluding a deal in the short term – even on a very limited basked of issues – would send a positive signal to the business community and pave the way for more comprehensive trade talks down the road.

"India and the US should consider launching a comprehensive consultation process, involving sustained dialogue with industry, to examine all facets of the US India partnership to determine the best course of action regarding a formal trade agreement," according to the report.

Given the enormous consequence of India’s geopolitical, strategic and economic future for the US, a trade architecture that serves both countries well is of utmost importance, it added.