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Originally published May 26, 2014 at 5:07 PM | Page modified May 27, 2014 at 6:57 AM

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New Indian prime minister inherits trade tension with U.S.

Newly elected Indian Prime Minister Narendra Modi, who was once barred from the U.S., inherits disputes with India’s largest export market that cloud prospects for scaling up $65 billion in annual trade.

Bloomberg News


Sworn in Monday, Indian Prime Minister Narendra Modi now faces the task of easing trade spats with America ranging from protectionism to patent rights.

Modi, who was once barred from the U.S., inherits disputes with India’s largest export market that cloud prospects for scaling up $65 billion in annual trade. In the backdrop is the U.S. denial of a visa to Modi over his handling of deadly riots in 2002 in Gujarat, the state he headed, a decision scrapped after he swept to power in parliamentary elections this month.

“Relations with such a big and complex trading partner aren’t all going to be sorted out in one day,” said Neelam Deo, a director of Mumbai think tank Gateway House and a former consul general for India in New York. The disputes are some of the worst with the U.S. in about two decades, she said.

Modi, who’s denied wrongdoing over the riots, led his Bharatiya Janata Party (BJP) to India’s first single-party majority since 1984, fanning optimism he’ll use his experience to revive economic expansion and spur trade ties.

At the same time, India faces a U.S. review of copyright protections and an American complaint at the World Trade Organization alleging barriers to solar-industry imports.

India said May 1 that it’s open to talks with the U.S. on trade and patents. Yet the government has since escalated friction by recommending duties after claiming U.S. companies such as First Solar Inc., as well as Asian solar-equipment makers, dumped products locally.

In April, U.S. Trade Representative Michael Froman said there are heightened concerns that India’s protection of intellectual property is deteriorating. An annual review cited counterfeit goods, piracy of music, movies and software, and challenges in securing and enforcing patents in the pharmaceutical, agrochemicals and green-technology industries.

The review kept India on a priority watch-list of 10 countries. The $1.86 trillion economy could face trade sanctions if another U.S. assessment later this year designates India a so-called priority foreign country.

The Federal Aviation Administration in January lowered India’s airline-safety rating to the same level as Zimbabwe’s, a move that stops Indian carriers Jet Airways and Air India from adding flights to the U.S.

In pharmaceuticals, more than a dozen Indian companies are on the U.S. Food and Drug Administration’s import alert list over violations of manufacturing practices. Shipments are banned from four Ranbaxy Laboratories plants.

President Obama called Modi after votes were counted May 16 to congratulate him and invited him to visit Washington.

The new prime minister posted gratitude on Twitter for felicitations from several nations. His post to Obama said they discussed strengthening relations. It didn’t say thanks.

“This is downright revealing,” said Sumit Ganguly, a professor of political science at Indiana University in Bloomington. “Modi may be pragmatic, but we don’t really know what his sentiments are about the humiliating manner in which he was denied a visa.”

For some, the development agenda of Modi’s party boosts the odds of better trade relationships and economic gains. That’s spurred a 17 percent climb in the S&P BSE Sensex index in 2014, while the rupee has strengthened 5.3 percent versus the dollar.

India last year became the largest market for U.S. defense exports by companies such as Boeing.

“We hope such a clear mandate for the incoming government will enable them to take decisions faster,” said Boeing India President Pratyush Kumar. “Timely decisions will rekindle economic growth and strengthen India’s defense services. We look forward to working with the new government.”

Modi has vowed better governance to spur growth. Morgan Stanley predicts India’s gross domestic product will rise 6.5 percent in the year through March 2016, up from a near decade-low of 4.9 percent last fiscal year.

Still, obstacles remain.

Wal-Mart Stores has said India’s entry barriers for foreign retailers “aren’t workable” even after the previous government eased rules. The BJP has taken a tougher stance, saying it won’t allow foreign direct investment in supermarkets selling multiple brands. But the party has said it welcomes foreign investment in other areas as needed.

Merck and Bristol-Myers Squibb face threats to patents from rules allowing local manufacturers to copy drugs under certain conditions. A 2008 U.S.-India civil nuclear pact is stalled over concerns about who would pay for accidents.

While Modi’s focus on faster development could create commercial opportunities, U.S. companies can’t assume they’ll be first in line, according to Indiana University’s Ganguly.

“Modi may be quite pragmatic, but I don’t think he’s in any hurry to accommodate the U.S.,” Ganguly said. “If the U.S. seeks to strong arm him, he’s a tough bargainer.”

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