United States. Congress. House. Committee on Inter.

U.S. interests in South Asia : hearings before the Subcommittees on International Economic Policy and Trade and Asia and the Pacific of the Committee on International Relations, House of Representatives, One Hundred Fourth Congress, first and second session, December 5, 1995 and April 18, 1996 online

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Online LibraryUnited States. Congress. House. Committee on InterU.S. interests in South Asia : hearings before the Subcommittees on International Economic Policy and Trade and Asia and the Pacific of the Committee on International Relations, House of Representatives, One Hundred Fourth Congress, first and second session, December 5, 1995 and April 18, 1996 → online text (page 9 of 19)
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nance Monmohan Singh and Under Secretary of State Joan Spero
formed the U.S. -India Economic Subcommission.


These activities have brought together business and government
in a partnership to work on furthering trade and investment liber-

I would also like to mention the transformation of the U.S. De-
partment of Commerce and our embassies overseas into real advo-
cates for U.S. business as another positive change. In particular,
Ambassador Frank Wisner and his staff at the U.S. Embassy in
New Delhi are a model of how business and government need to
work together to pursue our commercial interests.

The India Interest Group has encouraged the government of
India to maintain the momentum of its reforms to increase the flow
of U.S. trade and investment. Moreover, we have recommended
that the Indian central government reforms be supplemented by
complementary measures at the state level to create a uniform
pace of reform throughout the country. In this connection, we have
been honored to host a number of Chief Ministers of important In-
dian states here in the United States, and their visits have helped
to highlight opportunities at the state level and the commitment to
reforms by these state governments.

Mr. Chairman, the Indian Interest Group has focused on a num-
ber of areas, and I would like to go through several of them and
some of the key issues that we see.

In the area of trade and investment, we have seen significant re-
ductions in Indian import tariffs and import licensing restrictions,
a liberalization of the foreign exchange market, and the virtual
elimination of quantitative import controls. We have encouraged
the government of India to build into its current budget significant
tariff cuts, especially on capital equipment, and to achieve greater
transparency and predictability in India's import regime.

In investment, we have witnessed the elimination of government
monopolies in the power, transportation, and telecommunications
sectors, automatic approval for 51-percent foreign equity invest-
ments, and the opening of capital markets to foreign investors. We
have encouraged the government of India to eliminate or reduce
central and state agency clearances on new investments, and we
believe the time has come for the United States and India to nego-
tiate and sign a bilateral investment treaty.

In energy and power generation, the demand for power is in-
creasing exponentially in India. The World Bank estimates that
India will require 100 gigawatts of power capacity by the year 2000
to sustain its current growth rates. India's electric power load
growth is forecast at 10 to 13 percent per year over the next few
years. A significant portion of the capacity growth is expected to
come from independent power production requiring billions of dol-
lars in new capital investment.

The electricity rates in India differ dramatically from state to
state, typically, with large subsidies for agrarian areas. Below-mar-
ket rates in certain states are serious deterrents to foreign invest-
ment or other participation in the sector. The Indian Government
is undertaking electricity rate reform by setting up national and re-
gional boards to draft transparent rates for each state and by de-
veloping a two-part tariff system based upon private power project
capital costs and operating expenses.


The India Interest Group has been discussing with our counter-
parts in India a six-step approach to reform of the power sector in
India. Jointly, we made a series of recommendations, which include
reform and restructure of the state electricity boards (SEBs), fur-
ther streamlining the clearance process, promoting an effective
competitive bidding process, development of a national fuel-man-
agement plan, and the promotion and renovation of existing power
plants. I will not go into detail on pending power projects. Suffice
it to say, there has been progress on the fast-tracks projects, most
notably, the Dabhol Power Project; we are looking to see that be
relaunched sometime in the next several months.

In the transportation sector, India is currently unable to keep up
with its economic growth. India's growing population, coupled with
increased urbanization, have contributed significantly to India's de-
teriorating transportation system. As investment drives growth in
India, the need for improvements in roads, seaports, airports, and
railways must be focused on preventing bottlenecks in the trans-
portation of goods.

Unless corrective measures are initiated soon, economic growth
will suffer. U.S. companies are ready and willing to assist with cap-
ital know-how in addressing this challenge, as evidenced most re-
cently by a group of some 10 companies led by McDonell Douglas
that visited a number of port and other infrastructure sites in an
effort to assess what American companies can do.

As part of the overall liberalization process, India's Ministry of
Surface Transportation has taken steps to liberalize rules and pro-
cedures relating to maritime transport. Seaport capacities, how-
ever, are being stretched beyond their limits. Most of India's ports
are working well above capacity. These limitations are major
sources of congestions and delays. Internationally, ports usually op-
erate at 55 to 65 percent of capacity utilization. However, in India,
most ports operate above the 100-percent mark.

There is tremendous opportunity for American companies to
enter India and participate in developing needed infrastructure.
India must import large road-building equipment if road construc-
tion is to take place in all parts of India. Tariffs should be waived
or at least reduced on this equipment and spare parts and provi-
sion made to allow this equipment to be reexported or sold within

My colleague, Jack Shaw, has, I think, dealt very effectively with
the telecommunications and information technology sector. Let me
conclude by saying a word on consumer goods.

With the emerging middle class of 100 to 250 million people in
India, coupled with the rising rate of personal consumption, the de-
mand for consumer goods is quite high. The potential for American
companies in this area is quite large. There are, however, a num-
ber of serious limitations on U.S. companies' abilities to participate
in this market.

Most consumer product imports, including processed foods, con-
tinue to be restricted through a negative list or a restricted list.
Many products on the restricted list have industrial and commer-
cial applications, yet are designated as consumer products and thus
restricted. Even if India's imports restrictions were removed, most
consumer products would face prohibitively high tariffs. In the cur-


rent 1995-1996 fiscal year, India's unweighted average tariff rate
of 42 percent is still among the world's highest. Additional import
charges add significantly to import costs and often are applied to
goods not produced domestically.

In the 1995-1996 India budget, continued liberalization that was
begun in 1991, as the average import- weigh ted tariff was reduced
from 33 percent to 27 percent, with some exceptions tariffs were re-
duced on capital goods, semi-manufactured imports, and imports
for electronics required for local production rather than on finished
consumer goods. The maximum peak tariff was reduced from 65 to
50 percent. Moreover, some consumer products were removed from
the restricted list and added to the open general list.

Nevertheless, most finished consumer goods continued to be
barred, and tariffs remain among the highest in the world. As stat-
ed by the World Bank in 1995, "Restrictions on imports of
consumer goods and trade of agricultural commodities are still im-
portant obstacles to the full integration of India into the world

We are discussing with Indian businesses and the Indian Gov-
ernment ways to reduce these barriers, sensitive to the inherently
political and controversial nature of this sector, but mindful of the
importance of progress in this area to two-way growth.

Mr. Chairman, thank you for inviting me to testify. We believe
American business and American workers have an important stake
in India's continued economic growth, with its positive impact on
two-way trade and investment. The progress India has made to
date has been impressive. The India Interest Group is pleased to
be part of this effort to generate growth and jobs in India and in
the United States, and we look forward to a positive exchange of
ideas with you and the members of the subcommittee. Thank you.

[The prepared statement of Mr. Gadbaw appears in the appen-

Mr. Bereuter. Thank you very much, Mr. Gadbaw, for your tes-
timony. We really appreciate it.

Next, I would like to call Mr. Vinod Gupta, chief executive officer
of the American Business Information, Inc. Vin, you know India
well, and with your own dramatic business success in the United
States, I think you are in a good position to give us your thoughts
about the opportunities for American businesses, large and small,
in India. I look forward to your testimony. You can proceed as you


Mr. Gupta. Thank you, Mr. Chairman, for inviting me to the
subcommittee. This is my first time at such a hearing, and I find
this fascinating and also a learning experience for me and also my
fiance, Crystal Grow.

Mr. Chairman, my name is Vinod Gupta. I am the founder and
chief executive officer of American Business Information, Inc. based
in Omaha, Nebraska. I grew up in a little village in India called
Rampur Manhgyaran. It is about 90 miles from New Delhi. This
village had no roads, no electricity, no telephone, no cars, and vir-


tually no conveniences of any kind. But it did have a high school,
which I attended. So I can say that I know India from its villages.

I then went on to receive my bachelor's of technology degree in
engineering in 1967 from a college known as the Indian Institute
of Technology, Kharagpur.

I left India that same year with $58 in my pocket and came to
the University of Nebraska at Lincoln to pursue my master's de-
gree in engineering, which I received in 1969. I then went on to re-
ceive my M.B.A. in 1971 from the University of Nebraska. You
might recall that Nebraska was No. 1 in football 2 years in a row
at that time, just like 2 years now.

In February 1972, I founded American Business Information, Inc.
with an initial investment of $100, which I borrowed from the local
bank. Today, it is a publicly held company with $100 million in rev-
enue and employing more than 800 people, mostly in Nebraska and

When I was a young boy, I was told that America was the land
of opportunity, and now I know firsthand that they were not kid-

Mr. Chairman, today, I want to take this opportunity to thank
the people of the United States and especially the people in Ne-
braska for allowing me to come to this country and giving me the
opportunity for success. The happiness, the satisfaction, which I
probably would not have been able to get anywhere else in the
world. Furthermore, Mr. Chairman, I have three lovely boys — Jess,
Benjamin, and Alex — who will grow up to enjoy the same benefits
that I have had since I moved to the United States, and I am grate-
ful for that.

It is also my pleasure to introduce to this committee, my fiance,
Dr. Crystal Grow, right behind me here, who has been my partner,
counselor, and my best friend for the last 2 years.

As you know, I am not the only immigrant who has found for-
tune in the United States. Over the years, millions of immigrants
have come to this country seeking opportunity and a better life,
and they, too, have found happiness. They have started families,
and they have a similar story to share.

Mr. Chairman, today, the term "second world" has pretty much
disappeared from our vocabulary. And why? The need for bread,
butter, housing, and clothing, which I call basic necessities, have
won out over the idealism of communism when the threat of com-
munism and socialism was finally exposed.

The collapse of communism in the Soviet Union and Eastern Eu-
rope in 1991 sent a message to the entire world that democracy
and a free-market economy will prevail in the long run. One of the
regions where this message was heard the loudest was South Asia.
India, which is the largest country in the region, both in size and
in population, had a long infatuation with state socialism. The
former Soviet Union was India's largest trading partner and ally.

But by 1991, India was nearly bankrupt. Its foreign reserves had
dwindled to less than $1 billion. This forced India to make a major
reassessment of its economic policies. In the new world order,
Prime Minister P.V. Narashima Rao and Finance Minister Man
Mohan Singh proposed a series of economic reforms which turned


India toward a market economy. And we all know the results of
those reforms. I will not go into the details here.

Even though we have heard about internal problems in India,
let's not forget that thousands of peaceful protesters were killed or
wounded in Tiananmen Square in China and corporate executives
were stunned when a McDonald's franchise in Beijing was sud-
denly revoked by the government.

And, of course, our government has been deeply disturbed by
China's recent war games against Taiwan, as well as the illegal
transfer of M-ll missiles, missile technology, and ring magnets to
Pakistan and Iran.

Our business community is now waking up to the fact that India,
which has more than 900 million people and a consumer class of
almost 200 million people, offers an alternative to China as the
most important emerging market for the next decade and beyond.

India also has the same qualities that were so attractive to cor-
porate America in the past: a strong work ethic, competitive labor
rates, and a strong commitment to education, particularly in the
sciences. But India has attributes that China does not, which are
vital to the United States and other countries in terms of long-term
safe investments: a common-law legal system, property rights, free-
dom of press, freedom of religion, open elections, and English as a
language used to conduct business.

And let me just kind of reiterate about freedom of press. Two
years ago, I was in Kashmir, and I read the local paper, which was
blasting India and the government and the people, and I thought
I was reading a Pakistani paper. So I asked my uncle. I said, 'Is
this paper from Pakistan?" He said, "No, it's an Indian paper." So
that is the kind of freedom the press has in India. And the same
with the freedom of religion, where we have had or India has had
a Moslem as a President and chief of army staff and senior execu-
tives and senior bureaucrats, that freedom is there in India.

Despite China's early lead in the search of U.S. corporate invest-
ment and trade, I am confident that India will prove to be a better
choice in the long run.

Mr. Chairman, I would like to end on a personal note. There are
numerous success stories in America businesses today that have
started in India. For example, Mr. Rajat Gupta, the chairman of
McKinsey & Co., was born in India. So was Mr. Rakesh Gangwal,
the president of U.S. Air. And there are many other Indian entre-
preneurs who have founded their companies in the United States,
and they have provided millions of jobs for Americans. And I, too,
have been blessed here in America.

All of us who have been successful in America have done so be-
cause the United States promotes individual entrepreneurship and
freedom. I believe similar success stories are waiting to unfold in
India, and I have personally seen some of them. The economic re-
forms being implemented in India today will most certainly
produce a level of productivity and creativity that has never been
experienced in South Asia.

In fact, my own family and college friends are negotiating with
U.S. companies over large investments in India. It is vital that our
government does not do anything that could endanger those re-
forms and the economic benefits they are producing.


We must recognize that India, the second most populous nation
on earth and the world's largest democracy, deserves the strong
and undivided attention of the American Government as well as
our private sector. We must put the baggage of the cold war behind
us. Unless we do, the United States will miss an important oppor-
tunity in South Asia.

Mr. Chairman, it is my dream that someday the words "third
world" will also disappear from our vocabulary. Thank you very

[The prepared statement of Mr. Gupta appears in the appendix.]

Mr. Bereuter. Thank you very much, Mr. Gupta. I appreciate
your testimony very much. And, finally, we would like to hear from
Mr. Sreedhar Menon, board member, U.S. -India Business Council.

Mr. Menon, welcome. Thank you for coming today. You may pro-
ceed as you wish.


Mr. Menon. Thank you, Mr. Chairman. I am speaking to you
today in my capacity as a member of the board of the U.S. -India
Business Council, as well as managing director in the Emerging
Markets Group at Lehman Brothers, with whom I have been asso-
ciated for the last 2 years.

I think that it is important for me to say that prior to being with
Lehman Brothers, I spent 32 years with American Express Bank,
the last position being deputy president and member of the board
of American Express Bank. And in that capacity I had the oppor-
tunity of interfacing with India for the entirety of my 32 years
when the country was a completely closed economy and it was look-
ing at foreign investment, when she was encouraging bilateral
trade to the extent possible, and the trade was defined as one-way
trade as opposed to two-way trade.

Personally, being a native Indian, I am delighted to say that the
reforms that have been issued in 1991 are a historic landmark, and
despite the obstacles I have faced in operating in American Express
Bank and Lehman Brothers, I must say that India was the largest
profit-making country for American Express for a decade in the fi-
nancial services sector.

Finally, India has eased opening up its markets. It has a lot of
problems; there are issues. The nexus of the program of the sys-
tematic economic and industrial forms being now implemented are,
I would say, intended to globalize India and open the market for
foreign investment, not only from the United States, but from other
countries, but the scope of maximum investment being from the
United States because of the close affinity between India and the
United States which has existed at least among the people and,
more importantly, the educated people.

The 1991 reforms involved foreign exchange and trade liberaliza-
tion, total abolishment of the industrial licensing system, encour-
agement for promotion of foreign investment, and reduction in tax

Of course, there were pockets of resistance. The pockets of resist-
ance are because, I think, in my view, India is passing through an
economic and political transition. In my view, it is a mistake to


look at India as one economic entity in today's environment. And
if we look at India as one economic entity, for those who do not
know India well, it will continue to be a puzzle.

I think, in my view, there are more than two economic entities
in India, and in that extent it is probably comparable to European
economic community, with the objective being promotion of the in-
vestment trade in each state, while at the same time encouraging
intrastate rivalry for business, inflow of capital, and attraction of
technology. In fact, the United States is already seeing this rivalry
being healthy, being promoted by the visit of six Chief Ministers
from Bengal and with the Chief Ministers from all the opposition
states in India or most of the opposition states in India and

Never before in the history of the relationship between the two
countries have we witnessed the inflow of six Chief Ministers want-
ing to tout American companies to attract foreign investment and
capital into their respective states.

Why is India going through a political and economic transition?
I have heard comparisons with China and the opportunities in
China, etc. But it is important to remember that unlike China, the
reforms in India started at the center. As far as China was con-
cerned, the reforms were initiated in the neighboring cities, with
neighbors Indonesia, Taiwan, and Hong Kong, whereas the reforms
in India started at the center.

Never before in the history of the Indian Constitution, the state
Chief Ministers would want any kind of a part in framing the in-
dustrial policy. And, in fact, industrial policy never figured even in
the agenda of the Council, which was attended by Prime Minister
Rao as well as the Chief Ministers of the various states.

So the role of the states in those days was simply to provide
land, electricity, and other infrastructure facilities to industries
often at prices with the states incurring the losses.

I am delighted to see that this is changing. I am delighted that
the industrial production in India has grown up at 11 percent con-
sistently over the last two decades, slightly smaller than what we
have witnessed in China and in Asia, but the highest in the past
decade, with even exports increasing at about 20 percent.

Another thing which we are reminded of, irrespective of what is
going to be the outcome of the forthcoming elections in India and
who forms the Cabinet on May 10 when it happens, it is important
to remember that each of the political parties, whether it is Con-
gress or whether it is BJD, or whether it is National Front, Left
Front, is firmly committed to the reform program, and they have
made it very clear that they are committed to the reform program.
There may be a certain lack of consensus in the process, in the
speed, and the procedures for implementation, but they are com-
mitted to the reform process.

I personally feel, from interacting with India for a number of
years and leading the Lehman Brothers initiative in India since 2
years, that despite its young age and pockets of resistance, India
is committed to adopt a market-oriented economy. Does it offer
challenges? There are huge challenges. There are huge challenges
for American corporations to be patient, to be flexible, to be respon-
sive, to be adaptive, and sometimes to be resilient, as we are seeing


in the case of whether it is KFC, whether it is Enron, and a few
other companies.

But the most important thing to remember is that competing
companies who are competing with U.S. businesses, such as
Unilever, Siemens, and Nestle, the major companies of these coun-
tries are making it a substantial success of their operations in
India understanding the country, understanding the system, and
being able to work with the government and other interested par-

I think the reform program, which will continue, in my mind, of-
fers major opportunities for U.S. companies, and the maximum op-
portunities are likely to come in the hydrocarbon sector; the electric
power, as explained by Mike; the telecommunication sector, as ex-
plained by Jack Shaw of Hughes; and infrastructure and financial

If you take the hydrocarbon sector alone, in gas production today,
it is only about 35 million tons of crude; it is expected to go up to
about 45 million tons maybe in the next 10 years. But it would not
be out of place to mention here the complete demand in the next
10 years for oil production will be 155 million tons, and this will
involve a total investment of $130 million over the next decade;
and that is only one oil and gas sector. I will not touch upon the
electric power, which has been outlined already.

How do you make these? We can talk about telecommunications,
we can talk about the hydrocarbon sector, we can talk about elec-
tric power, and we can talk about the infrastructure, but unless the
financial services and the financial sector responds to the initia-
tives in this sector by making the necessary changes needed to at-
tract investment capital, that is going to be a hindrance; and I
must say that the government is very alive to the issue of creat-
ing — I would not say "reforms" — innovations in the financial serv-
ices sector, because that is considered as an engine of growth.

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Online LibraryUnited States. Congress. House. Committee on InterU.S. interests in South Asia : hearings before the Subcommittees on International Economic Policy and Trade and Asia and the Pacific of the Committee on International Relations, House of Representatives, One Hundred Fourth Congress, first and second session, December 5, 1995 and April 18, 1996 → online text (page 9 of 19)