Stronger partnership

Following their first formal meeting on September 30, Obama praised the Indian PM for his energetic approach to addressing India's challenges since taking office. Modi, who swept to power in May after a landslide victory at the polls on promises to revive the flagging Indian economy, told reporters in the Oval Office: "We already have the foundation of a strong partnership. We now have to revive the momentum and ensure that we get the best out of it for our people and for the world."

Modi received a warm welcome in the United States, despite being denied a visa in 2005 over deadly riots in his home state of Gujarat three years earlier. During his five-day visit to the country the Indian leader gave dozens of speeches, attended meetings with top CEOs, addressed the UN General Assembly and an Indian-American community reception at Madison Square Garden, and had a private dinner with President Obama.

The trip also provided the opportunity to improve bilateral trade ties, especially given that US foreign direct investment (FDI) flows into the South Asian nation have slowed down in recent years.

Rajiv Biswas, Asia-Pacific Chief Economist at the analytics firm IHS, says in a DW interview that Modi's US trip has set the foundation for a renewed strong partnership between the two large democracies not only politically, but also in terms of trade and security.

DW: PM Modi and President Obama vowed to set a new agenda between the two nations. What will this agenda look like?

The new agenda is focused on two main themes: strengthening joint security co-operation and boosting bilateral economic relations. The strengthening of joint security co-operation will include improving bilateral intelligence information sharing, combating terrorism and law enforcement co-operation. At present, a key focus will be on dealing with the threat from "Islamic State" as well as al Qaeda which recently announced it was establishing a terrorist cell in South Asia.

Another crucial part will be increasing Indian purchases of US defense equipment and more US-Indian manufacturing joint ventures to build up the Indian defense industry. The groundwork for this has already been laid through the establishment of the US-India Defense Trade and Technology Initiative agreed upon in 2012. The visit by US Defense Secretary Chuck Hagel to India in August 2014 also helped strengthen bilateral defense relations, with advanced negotiations for a 2.5 billion USD deal for the Indian purchase of Apache and Chinook helicopters.

In terms of the bilateral economic relationship, trade in goods and services has already reached 93 billion USD, and PM Modi is keen to boost investment inflows from US multinationals into key sectors, notably manufacturing, energy, infrastructure, smart cities and urban development.

How would you assess Modi's success in terms of luring US investment?

Modi's visit has succeeded in highlighting to the US government and private sector multinationals, that India's new administration will be much more dynamic in terms of its approach to boosting economic growth and attracting foreign investment. Key priorities for PM Modi are to bolster US investment into the Indian manufacturing and infrastructure sectors, with the US expected to play a key role in the modernization of India's defense industry. The high level summit between President Obama and PM Modi has set the foundation for a renewed and strong partnership between the two large democracies.

PM Modi also met with nearly a dozen top CEOs of US companies. How successful were the talks in terms of boosting foreign investment?

PM Modi held a breakfast meeting with CEOs of leading US companies, as well as a series of individual meetings with the heads of some of the largest US multinationals, such as Boeing, GE and IBM. Many of these firms already have a strong presence in India, so the focus of his meetings will have been to emphasize that India's BJP-led government will be much more dynamic and will implement policies that will result in stronger long-term growth in the Indian economy.

The premier also highlighted that he wants to transform India into a manufacturing powerhouse, and that the Indian government will play an enabling role by laying down a red carpet for foreign investment, unlike the previous Indian government which had a reputation for putting up red tape that slowed down and discouraged foreign investment.

This relates to many different aspects of Indian governance, including the tax treatment of foreign multinationals, which the previous government had turned into a minefield for foreign investors with capricious and retrospective tax determinations affecting foreign investment inflows, as well as very protracted government approval processes for new foreign investment proposals.

What reforms must Modi enact to keep his promises to attract more investment?

India remains a very uncompetitive country by global standards as measured by the World Bank's Ease of Doing Business Index for 2014, at 134th in the world behind most other major emerging markets such as Malaysia, Thailand, China, and even Vietnam, the Philippines and Indonesia. Therefore PM Modi has a lot of work to do to reduce regulatory red tape in India, improve infrastructure for power and transport, and to remove key bottlenecks for industry such as lack of electricity.

Another key priority of PM Modi is to introduce a Goods and Services Tax in India, and to remove the patchwork of different sales taxes in different Indian states which is a barrier to trade within the country. There is much work to do but PM Modi has brought a sense of urgency to the task and has already shaken up the Indian bureaucracy to get better productivity and faster project approvals.

Why is the US-Indian economic partnership so important?

For India, the US is a crucial economic partner as the US is the world's largest economy and US multinationals are a key source of global outward investment, as well as a source of leading-edge technology. PM Modi wants to revitalize India's manufacturing sector; US multinationals will be key partners as a source of new investment into locating manufacturing plants as well as service sector offices and R&D hubs in India.

US multinationals already have a strong presence in India for both manufacturing and in the service sector, so encouraging expansion of these existing relationships will be a key priority for the BJP government.

The US also offers a key source of technology in key areas such as PM Modi's plan to modernize the Indian defense industry, with US defense firms such as Boeing already key defense technology partners for India. PM Modi also has a vision to build 100 smart cities in India, and US firms such as GE, Cisco, EMC and IBM are global leaders in smart city technology, and will be important partners for the development of Indian smart cities.

From the US perspective, India offers one of the world's fastest growing consumer market opportunities over the next decade, with IHS forecasting that the size of Indian consumer expenditure will increase from 1.1 trillion USD in 2013 to 4.3 trillion USD in 2023.

This offers considerable opportunities for rapid revenue growth for US multinationals in the Indian market across a wide range of industries, ranging from commercial aviation, power equipment and autos to service sector industries such as banking, insurance, logistics and tourism. Therefore there is strong mutual commercial interest in building up bilateral economic ties.

Rajiv Biswas is Asia-Pacific Chief Economist at IHS, a global information and analytics firm. He is responsible for coordination of economic analyses and forecasts for the Asia-Pacific region.