Strong Ties With India Goal of Trip by Geithner

Heather Timmons and Vikas Bajaj,|The New York Times

Timothy F. Geithner, the Treasury secretary, arrives in New Delhi on Tuesday for a two-day trip to inaugurate a new economic and financial partnership between two of the world’s largest and oldest democracies.

Timothy Geithner

It is a return of sorts for Mr. Geithner, who lived for five years in New Delhi as a child.

Mr. Geithner has his work cut out for him, economists and policy analysts in both India and the United States say. Reaching economic agreements between the two countries has traditionally been an arduous task.

“On principle, they both agree on everything,” said Jahangir Aziz, chief India economist at J. P. Morgan in Mumbai. “It always comes down to the nitty-gritty and that’s where things get stuck. Part of the problem is neither of them wants to give the other side an inch.”

It took nearly 20 years for the United States to lift a ban on imports of Indian mangoes, for example, and a deal to allow energy-strapped India access to American nuclear technology, agreed to in principle four years ago, still has not cleared all the legal hurdles that would let American companies sign contracts here. The two countries remain far apart on American farm subsidies and India’s unwillingness to open its markets to foreign farmers, because they both want to protect their agricultural sectors. The countries’ disagreements there helped to scuttle global trade negotiations in 2008.

Indian officials expressed cautious optimism about Mr. Geithner’s visit.

“There is good reason to believe that there will be real economic outcomes to match the avowed ambition of such engagement,” Rahul Khullar, India’s commerce secretary, wrote in an e-mailed response to questions.

This should, in theory, be a fertile time for India and the United States to forge a new economic relationship. American companies, facing moribund sales at home, continue to flock to India, where the economy is projected to grow 8.5 percent this year.

United States businesses also remain the largest customers for India’s marquee information technology industry. India, for its part, needs billions of dollars in infrastructure, and could benefit from American technology.

Some companies like Google and Facebook, which have either left or been banned from China, have captured huge audiences in India.

“This doesn’t mean everything is perfect in India, but the challenges firms are facing in China are certainly causing companies to take a second look — with the benefit accruing to India,” said Ron Somers, president of the United States-India Business Council, a group based in Washington that promotes business ties between the two countries.

Those ties have grown significantly since India began to open its economy in the early 1990s. Bilateral trade has tripled in the last 10 years, to $37.6 billion. American private investment in India is worth $16.1 billion, about 10 times what it was in the late 1990s.

But India still lags far behind the United States’ most important economic partnerships.

Moreover, political leaders in Washington and New Delhi have often struggled to establish trust with each other. The Bush administration won over many Indian leaders because it championed the nuclear deal and was seen as tough on terrorism. But many Indian politicians and newspapers have a less favorable view of President Obama because they think that his administration is pushing India to open negotiations with Pakistan prematurely.

“This issue has generated doubts in Indians’ minds that makes it a lot more difficult to reach the comfort levels we achieved during the Bush administration,” said C. Raja Mohan, an Indian academic who is the Henry Alfred Kissinger scholar at the Library of Congress.

India and the United States need to have a “total tectonic shift” in the way they look at each other, suggested Amit Mitra, the secretary general of Ficci, India’s main chamber of commerce. From a business point of view, that means removing India from a list of countries that cannot be sold numerous American-made technologies, among other things, he said.

“Americans aren’t in the big picture in the big projects in India,” he said. Japanese and Korean companies, for example, are collaborating to build a nearly 1,500-kilometer (930-mile) freight corridor between Delhi and Mumbai.

Some of that work should be going to companies from the United States, he added.

During a briefing last week, Treasury officials said trade would not be high on the agenda during Mr. Geithner’s visit. But he is expected to discuss infrastructure financing.

He is also expected to encourage Indian officials to raise the limits they have placed on foreign banks and insurance companies, but New Delhi seems reluctant to allow more foreign banks into the country unless the Federal Reserve allows more Indian banks to set up branches in the United States.

Any argument Mr. Geithner makes for a greater opening of financial markets is likely to be quickly shot down by Indian officials, who have said that the country’s conservative regulations helped it avoid the worst elements of the recent crisis that started on Wall Street and engulfed many Western financial markets.

“He should not publicly press India to open its financial sector,” Arvind Subramanian, of the Peterson Institute for International Economics, wrote on the institute’s Web site. “India will open up its financial sector but at its own pace,” he said.

One executive in Mumbai said policy makers in both countries needed to open up their economies. While India limits foreign investments in several industries, American immigration policy restricts the free flow of people. “Policy makers in both countries will need to combat internal barriers and expedite action on pending reforms to open up new sectors,” said Harshal Shah, chief executive of Reliance Venture Asset Management, an investment firm based in Mumbai.

Recently, the Indian authorities have given new banking licenses to Credit Suisse and the Australia and New Zealand Banking Group. But India has not allowed most American and European banks to open many new branches in the country.

Mr. Geithner appears to understand the nuances of the Indian-American relationship.

Speaking to Indian reporters in Washington before he left, he praised Indian policy makers for their management of the economy. He also said the United States could help the country set up a corporate bond market. Prime Minister Manmohan Singh has said that India needs a well-functioning bond market to help finance $1 trillion in infrastructure investment.