Investment Incentive Agreement

In News

• The Government of India and the Government of the United States of America have signed an Investment Incentive Agreement (IIA) at Tokyo, Japan.

Background

• 1997: This IIA supersedes the Investment Incentive Agreement signed between the Government of India and the Government of the United States of America in the year 1997.
• Development Finance Corporation: Significant developments have taken place since the signing of the earlier IIA in 1997.
  • It includes the creation of a new agency called DFC, a development finance agency of Government of USA, as a successor agency of the erstwhile Overseas Private Investment Corporation (OPIC) after the enactment of a recent legislation of USA, the BUILD Act 2018.
• Additional investment support: IIA has been signed, to keep pace with the additional investment support programmes, offered by the DFC, such as debt, equity investment, investment guaranty, investment insurance or reinsurance, feasibility studies for potential projects and grants.
• The Agreement is the legal requirement for DFC: to continue providing investment support in India.
• Investment support: DFC or their predecessor agencies have been active in India since 1974 and have so far provided investment support worth $5.8 billion of which $2.9 billion is still outstanding.

Significance of Development Finance Corporation (DFC)

• DFC invests in development projects primarily in lower and middle income countries: It is a successor agency of the former Overseas Private Investment Corporation (OPIC) after the enactment of a recent legislation of the USA, the BUILD Act 2018.  
  • The Better Utilisation of Investments Leading to Development (BUILD) Act of 2018 reformed and strengthened American development finance capabilities into the DFC to help address development challenges and foreign policy priorities of the US.
• DFC has provided investment support in sectors that matter for development such as COVID-19 vaccine manufacturing, healthcare financing, renewable energy, SME financing, financial inclusion, infrastructure etc.
• Development: It is expected that signing of IIA would lead to enhanced Investment support provided by DFC in India, which shall further help in India’s development.
• In India: the DFC has been involved in funding the expansion of vaccine manufacturing capabilities under the vaccine partnership of the Quadrilateral Security Dialogue or Quad.

India- US Relations

• About:
  • India and the US shared values of democracy, rule of law, human rights, religious freedom that bind the countries together.
• Bilateral engagement:
  • India and the United States enjoy a comprehensive global strategic  partnership covering almost all areas of human endeavour, driven by  shared democratic values, convergence of interests on a range of issues,  and vibrant people-to-people contacts.
  • Regular exchanges at the leadership-level have been an integral  element of the expanding bilateral engagement.
  • Despite COVID-19 pandemic, India-U.S. cooperation witnessed  intense engagement under various bilateral dialogue mechanisms in a wide  range of areas including defence, security, health, trade, economic, science  & technology, energy and people-to-people ties.
• Defence and Security: 
  • India-US defence cooperation is based on “New Framework for IndiaUS Defence Cooperation”, which was renewed for a period of ten years in  2015. 
  • In 2016, the defence relationship was designated as a Major  Defence Partnership (MDP). 
    • The MDP recognizes a shared desire to build  a comprehensive, enduring and mutually beneficial defence partnership. 
  • Several defence agreements have been signed in recent years. These  include:
    • Logistics Exchange Memorandum of Association (August 2016) 
    • Memorandum of Intent between the U.S. Defence Innovation Unit (DIU) 
    • the Indian Defence Innovation Organisation – Innovation for Defence Excellence (2018)
    • Communications Compatibility and Security Agreement (September 2018)
    •  Industrial Security Agreement (December 2019);
    • Basic Exchange and Cooperation Agreement (October 2020).
  • Bilateral military exercises and defence exchanges are important  aspects of deepening military-to-military cooperation.
    • In addition to a number of service-to-service exercises, in 2019 a tri-services exercise– Tiger Triumph– was conducted in November 2019. 
    • Bilateral and regional exercises include: Yudh Abhyas (Army); Vajra Prahar (Special Forces); RIMPAC; Red Flag. 
    • In November 2020, the Royal Australian Navy joined the U.S.-India-Japan MALABAR Naval Exercise held in the Bay of Bengal and the Arabian Sea. 
    • Both sides have conducted  a number of PASSEX with the US carrier groups in the Indian Ocean Region
• Quad: 
  • The four Quad partners (India, Japan, United States & Australia) first formed a “Core Group” in 2004, to swiftly mobilise aid during the joint response to the 2004 Tsunami. Since 2017, Quad engagements have increased and intensified. In 2019, the first Quad Foreign Ministerial Meeting was held in New York (December 2019).
• Counter Terrorism Cooperation:
  • Cooperation in counter-terrorism has seen considerable progress  with information exchange, operational cooperation and sharing of counterterrorism technology and equipment. India-U.S. Joint Working Group on  Counter-Terrorism oversees the expanding CT cooperation.
• Cyber Security Cooperation:
  • The India-US Cyber Framework signed in September 2016, provides for expanding cooperation in the cyber domain.
• Trade & Economic Relations: 
  • The rapidly expanding trade and commercial linkages form an important component of the multi-faceted partnership between India and the United States. 
  • The U.S. is India’s second largest trading partner and a major destination for our exports of goods and services. 
  • Bilateral trade in goods and services stood at US$ 146 billion in 2019.
  • During the financial year 2020-21, India received the highest ever foreign direct investment amounting to USD 81.72 billion, as per data published by the Ministry of Commerce and Industry, Government of India. 
  • The US replaced Mauritius as the second largest source of foreign direct investment into India during 2020-21 with inflows of USD 13.82 billion. 
  • The US is one of the top 5 investment destinations for Indian FDI.
• Energy sector:
  • India and the US have a strong bilateral partnership in the energy sector.
  • In 2010, bilateral Energy Dialogue was launched. 
• Science and Technology:
  • India-US cooperation in Science and Technology is multi-faceted and has been growing steadily under the framework of the India-US Science and Technology Cooperation Agreement signed in October 2005, which was renewed for a period of ten years in September 2019.
  • ISRO and NASA are working together to realise a joint microwave remote sensing satellite for Earth observation, named NASA ISRO Synthetic Aperture Radar (NISAR). 
• Education partnership: 
  • It is an important pillar of India-US ties and both the countries share strong linkages and history of higher education collaborations.
  • The United States Educational Foundation in India (USEFI)  was set up after a bilateral agreement on education exchange was signed between India and the US on February 2, 1950
• Indian Diaspora: 
  • About 4.2 million Indian Americans/Indian origin people reside in the US. The Indian Americans [3.18 million] constitute the third largest Asian ethnic group in the US

Frictions in India- USA relations

• Trade Deal: 
  • The USA is worried about the trade deficit it has with India.
  • Further, India’s benefits under the Generalised System of Preferences (GSP) scheme were terminated by Trump in 2019.
  • The GSP provides preferential, duty-free access for over $6 billion worth of products exported from developing countries to the US.
• Different cases/ disagreements at WTO:
  • India’s domestic component clause was a bone of contention.
  • Similarly there is lack of consensus over the IPR regime and evergreening of patents.
  • Peace Clause and Public Procurement Policy
• H1B visas: 
  • The US has ramped up H-1B denials under the executive order “Buy American and Hire American”.
• Digital Data:
  • The US, Japan, etc support Free Flow of Data with Trust whereas India has raised red flags on it.
• Agriculture:
  • The US has long demanded greater access to American agriculture and dairy products. 
  • For India, protecting its domestic agriculture and dairy interests was a major reason to walk out of the RCEP agreement.
• US-Pakistan Equation: 
  • The US has often shown a soft corner for Pakistan due to dynamic equations in Afghanistan. 
• USA tensions with Iran, Russia: 
  • Putting unilateral curbs on Russian and Iranian imports into India through CAATSA would impinge on India’s relations with Iran, Russia, both relations in which India has strong stakes.
• Russian attack on Ukraine 
  • India’s strategic partner, the U.S., warned of consequences for any country, including India, which conducts local currency transactions through Russia’s central bank or constructs a payment mechanism that subverts or circumvents the U.S.’s sanctions against Russia. 
  • India’s consistent neutral position on Russia’s invasion of Ukraine, informed by its choices, has antagonised many countries, including the U.S. 
  • The Biden administration has been not too happy about India sitting on the fence when it comes to the Russia-Ukraine conflict. 
    • India has consistently abstained from voting in the UN meetings, refusing to take a stand in what it sees as a conflict between the two blocs.

Way ahead 

• The 2+2 meeting is an opportunity for the two countries to further discuss their differences over Russia and elaborate on the bilateral agenda in terms of the progress that has been made on new initiatives. 
  • Though behind closed doors, they’ll have an opportunity to have deep discussions about Russia. 
  • It is well timed, and the tenor of those talks will be a good indicator of the overall direction of the strategic partnership and will tell us whether the strains of the sharply divergent views over Russia are going to have a long-term impact on the partnership.
  • The 2+2 meeting is a good opportunity to work on other aspects of this relationship while exchanging views quietly, as strategic partners should, in areas where they may not see eye to eye.

• Participation of US entities in Industrial collaboration and partnership in research and development will be critical for the success of India’s ‘Atma Nirbhar Bharat’ campaigns.
  • India’s desire for increased investments by US defence companies in India under the ‘Make in India’ programme. 

Source: AIR