Indian Diaspora

Intelligent Indian Diaspora: A case for Indo-US Free-trade-agreement

 

Give me your tired, your poor, your huddled masses yearning to breathe free,

The wretched refuse of your teeming shore.

Send these, the homeless, tempest-tossed, to me: I lift my lamp beside the golden door.

 

What Emma Lazarus said above has entrenched itself not just on the pedestal of the Statue of Liberty but in the lives of every single immigrant to have crossed those shores from lands far away. But of course more than the tired and the wretched, it was those yearning to breathe free who emigrated from India to the United States of America.

 

Vivek Wadhwa, an academic, entrepreneur and scholar has conducted numerous studies on immigrants in America and their entrepreneurial contributions. While the underlying theme of his studies were how America is losing entrepreneurs due to immigrant exodus, he implies that countries like India and China whose populace form the larger share of both the entrepreneurial activity in the US and of the exodus to back home, benefit from this phenomena by converting ‘Brain drain’ to ‘Brain Circulation’. Leaving the Chinese aside, the underlying assumption in the claim is that Indian state will be able to fully capitalize on the returning talent to the country, converting them into social gains which we couldn’t rap when these same people migrated to US for studies or career.  But this presumption is grossly misplaced. India ranks 123rd in the world in the economic freedom index[1] according to the Heritage Foundation, a Washington DC based think-tank. We lack good governance to an extent that frustrates those living here let alone those returning back from developed countries such as the US. Our labour laws are archaic, property rights are feeble and red tape is rampant. In short, the environment is not conducive to the point where returning Indians can utilize their potential to the maximum in entrepreneurial activities.

To be fair, the economic liberalization of the country has indeed been moving forward, even if by miniscule measures. Despite the exigent Indian political narrative with respect to foreign direct investments, economic situation of the nation has indeed made it an imperative to sustain the growth and avoid any possibility of a stagflation. Specific Indians states have indeed cultivated a reputation for governance favouring the development of entrepreneurship. Especially, Bengaluru in Karnataka and National Capital Region encompassing Delhi, Gurgaon, Noida and others have also witnessed growth of start ups amidst them. It is little perplexing that most of those returning to India from America with the intent to set up businesses are drawn more by the cheap labour costs than the local market, given that India is largely a consumer driven economy rather than investor driven.

The immigration exodus mentioned before shouldn’t lead to the conclusion that the Asian and especially Indian entrepreneurship in USA has dampened. On the contrary, according to a recent study by Kauffman Foundation[2] , based on a sample survey, about 33.2 per cent of the co-founders of engineering and technology companies incorporated in the US during the last six years were Indians. This is an increase of about seven percentage points from what a similar study that examined immigrant-founded companies between 1995 and 2005 found.

In the current scenario Indian government has a lot of stake in pushing for a two point agenda with respect to the topic of discussion. Firstly, the immigration and naturalization rules that are being tightened in the US especially for H1-B visas needs to be relaxed. As of now US allows a fixed number of naturalizations for India, this number has to be pushed north.  With the releasing of studies by Wadhwa et al, there is a potential opportunity to change the narrative of the immigrants in USA, especially the Indians. The re-election of President Obama has created mixed feelings in the Indian stands. While he continues to appreciate the contribution of immigrants and contribution of Indians and India towards USA’s global agenda, he nevertheless cannot ignore the local animosity towards jobs being taken away from natives through the twin-devils of immigration and outsourcing. Being only the second President to have been re-elected with the economy in such a perilous condition should give him the confidence to push for controversial yet beneficial reforms against popular sentiments. The question then is what India stands to gain from pushing for more Indian entrepreneurship in USA than promoting the Brain Circulation back to India? This is where the second point of the agenda comes into light. India’s second strategy should be to push for a Free Trade Agreement with USA. In a 2004 paper[3], the authors explored the various reasons from both offensive and defensive positions towards why India will benefit from a FTA with US than other multi-lateral or WTO driven market liberalizations. The paper focused on the IT sector but it has been 8 years since and the status quo has changed. With the rise of robotic-driven software services as offered by IPsoft Inc. and Blue Prism Ltd., the traditional Indian outsourcing firms are in peril of losing their USP: inexpensive labour. A greater danger is the lack of growth in labour-intensive manufacturing sector. This in turn has created a lack of alternate opportunity for labour released from agriculture if the sector were to be liberalized and hence leading to the continued protectionism. So what will FTA with USA do for India? Here I shall mention only that which is relevant leaving the rest to existing literature. Removing the high tariffs on the technology imports will facilitate technology transfer at a much cheaper price to Indians. The consequences of such a transfer are manifold. But mainly for India it will be renaissance of industrialization and boost to the labour intensive manufacturing sectors. The high cost of capital investment usually deters new entrants into the field but with the reduced import costs, we can see the rise of a new age of technology entrepreneurs. It will also boost the American business and hence adding new jobs to an economy that badly needs it. India is a consumer driver economy unlike China; this should stand in great advantage for India amidst the fear of shift in labour supply from US to India. Secondly, it will lead to greater labour welfare according to the factor-price-equalization. Given that USA and India have a Ricardian comparative advantage in technology and labour, we can expect the price of technology to fall and labour to rise in India. It is in the interest of India to show that the overall gain to the USA is positive. Thirdly, if studies by Wadhwa et al indeed show a potential trend for immigrant exodus to India, then opening up trade and establishing technology partnerships with American firms founded/co-founded by Indians will be of great long term gain to us. Since a rising number of these entrepreneurs wish to come back to India due to family ties and other personal reasons[4], there is a strong motivation to establish an entrepreneurial enterprise in India in view of future migration. Facilitating this process will help to establish a greater rapport with the Indian entrepreneurial community with India. Finally, these technology transfers have a huge potential to solve many of the prevailing social issues. As a concluding example, one can look at the problem of food wastage in India which is reported to be at the level of around 30% due to lack of proper cold storage distribution networks. But maintaining such cold storage chains come at a high cost in India due to the lack of power supply and hence reliance on diesel generators and other alternatives. The fuel cost for generators shoots up the market price of the farm produce thereby making it cheaper to let the food go to waste. But if one were to leverage new technologies such as Bloom Box by Bloom Energy Inc., there is a great opportunity to drastically bring down the operating costs in the long run for these chains and hence save the farm produce from destruction and wastage.

We are living in a world that doesn’t reward narrow perspectives based in protectionist agenda. A free trade agreement with US in the light of Indian technological entrepreneurship over there finally coupled with the immigration trends as verified by Wadhwa et al provides a strong case for renewed discussions on forging a free trade agreement between Indian and USA. The exigency of the situation can be simply put as, ‘sooner the better’.


[2] America’s New Immigrant Entrepreneurs: Then and Now, Kauffman Foundation

 

[4] The grass is indeed greener in India and China for returnee entrepreneurs: America’s new immigrant entrepreneurs: Part VI, Wadhwa et al.

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