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Bounce in investment ties with US

New Delhi, July 14: India and the US are likely to take important steps in the coming months to strengthen bilateral ties.

India is looking to announce FDI reforms later this month, besides finalising a bilateral investment protection agreement (BIPA) with Washington and clinching a deal with US-based nuclear reactor maker Westinghouse this autumn.

The US, on the other hand, will continue to facilitate the movement of Indian software professionals, despite the visa restrictions proposed in its immigration reform bill, and help India to tap the US financial markets.

These, according to North Block officials, are some of the key takeaways from recent interactions between the two governments.

Top Indian officials led by finance minister P. Chidambaram and commerce minister Anand Sharma held talks with US government and business leaders there last week.

New Delhi feels the White House will tone down the bill passed by US Senate last month. The proposals in the bill threaten to increase visa costs and restrict Indian IT personnel from working on US customer sites.

India is also keen to tap the US financial markets by issuing sovereign or quasi-sovereign bonds. Oil firms wishing to raise capital for exploration abroad may also float small issues.

“India plans to decide upon and announce a series of FDI reforms later this month and this has been made clear to the US side. Work on a BIPA, which is already going on, will also be wrapped up as early as possible. We also understand that it may be possible to sign a deal between Westinghouse and NPCIL as early as September,” officials said.

India will now focus on additional technical negotiations to finalise the BIPA. India has a model investment protection pact, but the American side has sought a number of changes, officials said.

India has signed the BIPA with 82 countries, including the UK, Germany, Russia and China. The reworked pact with the US will ensure that New Delhi does not take proactive steps to take over the Indian assets of US firms to pay for any uncontracted liability.

US industry wants the removal of the clause on expropriation of investments, except under due process of law and accompanied by full compensation. Indirect expropriation by measures “tantamount to expropriation” should also be prohibited, according to the Americans.

Both Washington and New Delhi are keen that the Westinghouse deal with Nuclear Power Corporation of India Ltd (NPCIL) is pushed through despite US reservations over India’s nuclear liability law. Westinghouse could be signing a deal with NPCIL to supply reactors to its Bhavnagar plant in Gujarat as early as September. Officials said the Narendra Modi-led Gujarat government is also believed to be pushing for the deal.

NPCIL and Westinghouse had signed a memorandum of understanding for the first of the six units of the 1000MW project at Bhavnagar. The cost for the entire plant, once it goes onstream fully, will be around $10 billion.

The other area of key interest for the US is India’s plans for FDI reforms. With general elections next year, the Indian government has to announce the measures quickly.

Officials said they were still examining proposals to allow foreign direct investment up to 100 per cent in telecom on a case-to-case basis and up to 49 per cent in defence industries in the light of the objections raised by security agencies and the defence ministry.

India permits up to 74 per cent FDI in telecom and 26 per cent in defence.

“Telecom FDI could be allowed up to 100 per cent on a case-to-case basis with strict riders on key personnel being Indian, remote control of mobile telephony switches as well as riders on the sale or transfer of ownership,” officials said.

Similarly, the government plans to try and work its way around defence minister A.K. Antony’s refusal to increase the cap on foreign direct investment in defence to 49 per cent on a case-to-case basis, while allowing up to 26 per cent FDI on more relaxed terms, though after clearance by the Foreign Investment Promotion Board.

 
 
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