India's Modi can boost foreign investment by protecting IP

India is a natural ally of the United States. The two countries share an inheritance of the English common law tradition and institutions, and India has been a stable democracy since its founding as a republic in 1950. In fact, India is the world’s most populous democracy, with over 1.2 billion people.

The United States shares India’s commitment to representative democracy and economic growth. Immigrants from India have contributed substantially to the U.S. economy, and the University of Mumbai has graduated more eventual billionaires than any other university outside of the United States.

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And (not to put too fine a point on it) India is a valuable ally in a part of the world where we could use more allies. India shares our wariness regarding Pakistan, and her commitment to democracy and rule of law should make India a legitimate competitor with China’s rapid rise. Arguably, the United States should have invested much more in our relationship with India up to this point.

But even friendly nations have occasional squabbles, and the United States has a major one with India: Respecting the intellectual property of U.S. companies. The United States is one of India’s largest trading partners, yet India has refused to recognize otherwise widely recognized patents on some pharmaceuticals, and it has inappropriately issued compulsory licenses on some pharmaceutical and biotech products.

A compulsory license is essentially a license to steal—when a country can’t buy a particular pharmaceutical product at the absurdly low prices it insists upon, the country simply declares a license and begins manufacturing the product. International agreements give countries permission to file compulsory licenses under certain conditions, such as health emergencies, but India has pushed the envelope and is using compulsory licenses not only to provide products to its citizens, but also to fuel a massive generics manufacturing and exporting industry. In other words, India is becoming supplier to the world of stolen U.S. pharmaceutical and biotechnology.

This behavior has landed India on the U.S. Trade Representative’s Special 301 report, which is a rogue’s gallery of U.S. trading partners that do not comply with their obligations to respect intellectual property. In fact, India is on the Special 301 Report’s Priority Watch List, so egregious have been the problems.

This is why the U.S. eagerly welcomed the recent election of Prime Minister Narendra Modi, who holds economic and development views much more in line with the U.S., and who is making his first official U.S. visit this week. In his Independence Day speech, Modi called for international businesses to increase their investment in India, which of course is crucial for India’s continued economic growth.

But India’s hostility to intellectual property rights has been a key obstacle to such foreign direct investment (FDI).  Numerous studies demonstrate what should be common sense: Companies are more inclined to build infrastructure and otherwise invest in a country if they can be assured that their intellectual property will be protected.  And they certainly aren’t going to reward a country that steals their property with increased investment.

In order to fully realize its potential for economic growth, India must reform policies that actively inhibit foreign investment. Chief among those reforms should be a commitment to respecting the intellectual property of its trading partners, especially in the pharmaceutical and biotech sectors.

India will claim that this action would raise health care costs, but average per-capital health care spending is only $55, which is among the lowest rates in the world, and lower than its BRIC [Brazil, Russia, India and China] peers. Being able to spend more on health care is one of the urgent reasons why India must increase economic growth in the first place, so protecting intellectual property now, ironically, should lead to more economic growth and an ability to pay for higher health care spending in the future.

Sadly, it’s nothing new for developing countries to recognize their need for increased foreign investment but never get around to implementing the policy changes that will make that happen. If Modi truly is a different kind of leader for India, one way we’ll know is whether he spearheads a move toward greater respect for India’s trading partners.

Giovanetti is president of the Institute for Policy Innovation (IPI), a national, independent, nonprofit public policy organization.

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