Swamy Gets It Wrong On Arvind Subramanian
Nothing in India’s Chief Economic Advisor Arvind Subramanian’s statement made at U.S. Congressional hearings in 2013 and 2014 suggests he is anti-India or batting for the other side. The testimonies are a healthy critique of the economy in 2013 and have a fairly strong pro-India stance, on issues that bear repeating.
Subramanian has been accused by a Bharatiya Janata Party Rajya Sabha Member of Parliament (MP) Subramanian Swamy who said, “There was this American Congress Committee for pharmaceutical purposes and they held a hearing to figure out India’s opinion on the matter. There he said in a statement that India was not working according to America in this matter and for that, they should be taught a lesson in WTO. How can we can such a person an advisor here?”
His next tweet:
Who said to US Cong on 13/3/13 the US should act against India to defend US Pharmaceuticals interests? Arvind Subramanian MoF !! Sack him!!!
— Subramanian Swamy (@Swamy39) June 22, 2016
Was AS deposing before US Cong Committee against India as a US citizen or Indian? Does any PT know?
— Subramanian Swamy (@Swamy39) June 22, 2016
Actually, Subramanian gave two testimonies–one in March 2013 and the other in March 2014. In the first one, he was speaking in the context of U.S.-India trade relations and in the second, on U.S.-India Intellectual Property Rights. On both occasions, he was Senior Fellow at the Peterson Institute for International Economics.
It appears that Swamy has cherry-picked from both testimonies and used the tone of the first, which is a little more harsh in the context of India’s economy at that point, to highlight an issue from the second, which is to do with intellectual property.
On the matter of IPR, Swamy’s claim is the exact opposite of what Subramanian said
First, let us look at the 2013 testimony.
The testimony before the Ways & Means Committee of the U.S. Congress highlighted the data on India’s rapid GDP growth, at about 6.5% for over three decades and close to 9% in the previous decade.
The testimony viewed India from the point of U.S. business and pointed out that the dynamism has expanded opportunities for American business. U.S. exports to India increased 700% in the previous decade and U.S. foreign direct investment (FDI) increased from $200 million to $6 billion.
Subramanian then pointed to the severe turbulence in the economy (this is in early 2013 and referring to the period before that) and talked of growth slowing from 9% to 4.5% and other macroeconomic ‘vulnerabilities’ such as high fiscal deficit (9% of GDP), stubbornly-elevated inflation (double-digit) and deteriorating external balance (over 4% of GDP).
He then added that the Government had undertaken, since late 2012, major domestic economic reforms including opening up FDI to foreign financial investors. “Indeed, since the global financial crisis, few countries have opened up to foreign capital to the extent India has,” he said.
He also added that, reflecting a domestic bipartisan consensus, there has been no macroeconomic reversals of opening to foreign trade and capital. “These reforms have come against the backdrop of longer-term trend of surging Indian trade and FDI, with enormous benefits for foreign and American business,” said Subramanian.
He highlighted challenges facing U.S. and all foreign businesses–weak and uncertain regulatory tax environment that affects the civil nuclear industry, infrastructure, pharmaceuticals and more broadly the operation of foreign multinationals in India.
He talked of India increasing resource to localisation, in banking, telecommunications, retail and solar panels–among others–favouring domestic providers of inputs and equipment over foreign providers.
He concluded this part by saying broad trade and macroeconomic policies towards foreigners are moving in the right direction but sectoral policies have experienced setbacks.
Now, on trade conflicts, he said the U.S. should address frictions, especially where Indian policies are demonstrably protectionist through multilateral (WTO) dispute settlement procedures.
“The U.S. should not be reticent in this regard. India has an excellent record of compliance with WTO rulings against it. And one of India’s most sweeping trade reforms occurred after a U.S.-initiated WTO dispute panel found that India’s broad quantitative restrictions on consumer goods violated WTO rules.”
So Arvind Subramanian was giving a logical piece of trade advice and was actually making a strong case for India’s ability to respect its trade obligations.
He further argued there is merit in initiating deeper bilateral trade integrations between India and the United States as a framework for giving recognition to the broader strategic imperative of closer co-operation between the two countries for pursuing further liberalisation in both countries and for reversing the discrimination that each is inflicting on the other.
He concluded the 2013 testimony by saying he projects the Indian economy would average a medium-term growth of 8-8.5% and that its trade in goods and services, then close to $1 trillion, would roughly double every seven years; so by 2018 will reach close to $2 trillion.
The 2014 testimony, written ahead of the May 2014 elections, is no less objective than the first. The criticism that Subramanian expressed about the state of affairs in 2013 was expressed by almost every commentator and business person in India at that point.
In the 2014 testimony, he argued that the United States Trade Representative (USTR) should desist from designating India as a priority foreign country.
This would mean placing India in the same category as Ukraine (for dumping unlicensed CDs in Europe) as the only post-WTO countries to be accorded priority foreign country designation and this, Subramanian argued, would spark adverse reactions in India and around the world and raise serious questions about the institutions and processes of US economic diplomacy.
A priority foreign country is that which denies ‘adequate and effective’ protection of intellectual property rights (IPR) or ‘fair and equitable market access’ to U.S. persons relying upon IPR protection under the Trade Act.
Subramanian pointed out that on May 16, a fortnight after the release of the USTR’s Special 301 report, a new government would take office in India, “intent on reviving the investment climate for domestic and foreign business, and keen on restoring US-India trade and economic relations”.
At such a moment of transition, potentially transformational, designating India as a priority foreign country would be a serious mistake and have a number of unfortunate consequences, he said in the testimony.
He made a strong case for the two countries that have common strategic and economic interest–substantial and long term–to work out matters bilaterally.
Subramanian elaborated on many points on the possible way forward for India to resolve intellectual property tensions in the pharmaceutical area.
India considering eliminating the additional efficacy requirement for patentability in Section 3 (d) of its patent law. Essentially saying India can use other policy tools to help address frivolous patenting.
India should give serious consideration to eliminating or severely narrowing the grant of compulsory licenses for nonworking. For India, the most important reason for using compulsory licensing is to ensure cheaper access to essential drugs, which a nonworking provision does not help accomplish.
- More importantly, India and US need to create a mechanism, possibly permanent, to discuss the broader issue of how and how much India should pay for the fixed costs that go into the larger process of R&D.
- A model of co-operation between global pharmaceutical companies and developing countries which should be watched closely is between the California based pharma company Gilead Sciences Inc and several Indian companies who are evolving partnership models based on effective protection of IP combined with tiered pricing.
- Finally, India may also have to consider using global best practices in the granting of patents to improve patent quality without the need to use blunt and unique provisions related narrowly to therapeutic efficacy of new chemical forms.
When suggesting the way forward to the U.S., Subramanian said that there must be a quid pro quo from the U.S. side on patents. “First, the U.S. could acknowledge the positive developments in India related to due process..the U.S. might also consider offering carrots and not just deploying sticks.”
Subramanian also reiterated what he said in his 2013 testimony about India taking its WTO obligations seriously and having a good track record of implementing WTO dispute settlement rulings.
He then said the U.S. should temper some of its demands on IPR issue, such as lengthy regulatory data protection, covering of dosage forms or minor chemical variations, or patent linkages, as demanded in U.S. free trade agreements with others, while respecting the WTO Doha Declaration on Public Health.
Finally, the United States could also consider giving appropriate incentives to its companies to enter into R&D collaborations with Indian companies.
While details of the two testimonies are not so important in addressing the immediate issue here, which is Subramanian Swamy’s evidently unresearched attack, it is interesting nevertheless to look back three years on how India’s economy was faring and perceived then.
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(Ethiraj is founder of factchecker.in)
This story first appeared on Boomlive.in. The story has been updated to clarify language that suggests the author's opinion.