We Don't Need A Lecture

Is the U.S. bullying India? That issue has provoked rising tension between the two countries since last month, when the U.S. singled out India as the sole target on a hit list of unfair trading partners. The U.S. trade deficit with India last year was only $851 million, or 2% of the imbalance between the U.S. and Japan. But Japan and Brazil, the two other countries cited last year along with India on the same hit list, were removed this year as a reward for entering into talks with the U.S. to lower some trade barriers. India, however, has refused to negotiate on the grounds that it should not be "intimidated or policed," declared Commerce Minister Arun Nehru.

For all the tough rhetoric, U.S.-India trade has grown briskly since 1987, after then Prime Minister Rajiv Gandhi launched a program to open up the country to greater foreign investment. His successor, V.P. Singh, has promised to continue the process. Trade between the U.S. and India reached $5.8 billion last year, an increase of 45% from 1987.

Even so, the U.S. contends that at least two of India's trade practices are unfair. For one thing, the Indian insurance business is controlled by government-run corporations that allow no competition. For another, the U.S. objects to the Indian government's restrictions on all new or expanded investment by outsiders. In most cases, foreign investors are limited to a 40% equity stake in an enterprise, and they must agree to export more than they import, among other requirements.

India's indignation about foreign economic pressure has deep historical roots. In the mid-1700s the English East India Company subjugated the region and ran it as a private domain for a century. "The U.S. must realize it's a question of national pride," says H.S. Singhania, co-chairman of the Indo- U.S. Joint Business Council. "We cannot have the U.S. dictating our economic policy."

Ironically, India has found an ally in a U.S. company. After four years of negotiations, PepsiCo last week began to sell its soft drinks in India. Over the next ten years, PepsiCo and its Indian partners are expected to invest $1 billion in their joint venture. As a result, Christopher Sinclair, president of Pepsi-Cola International, has urged U.S. Trade Representative Carla Hills not to impose any economic sanctions against India. Says Sinclair: "We feel that punitive actions by the U.S. would only derail things." Hills has until July 16 to make her decision.