Interview with Knowledge@Wharton

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Interview with Knowledge@Wharton


Interview
Robert O. Blake, Jr.
Assistant Secretary, Bureau of South and Central Asian AffairsPhiladelphia, PA

April 22, 2011




QUESTION: Robert Blake, thank you very much for joining us today.
ASSISTANT SECRETARY BLAKE: Thank you. It’s a pleasure.
QUESTION: Today at the Wharton India Economic Forum you indicated that President Obama’s visit to India last November was one of the most successful trips ever taken by an American President to South Asia. You also spoke about the global strategic partnership between the U.S. and India. What do you think are the principal business opportunities for American and Indian companies that arise from this partnership? And how would these differ from those that would have existed before?
ASSISTANT SECRETARY BLAKE: That’s a very good question. First of all, the global strategic partnership that I talked about was that the United States and India increasingly are working together to address some of the world’s biggest challenges, from things like non-proliferation to climate change to trade. But then increasingly now we’re also working at the bilateral level on specific issues in specific countries. I mentioned, for example, that we’re working now in Africa to help develop agricultural production in African countries. So this is the first trilateral cooperation between the United States, India and Africa. We’re doing the same in Afghanistan in promoting women’s empowerment and also agriculture which is a very high priority for the United States as a way of encouraging rank and file Taliban to give up the fight and go back to their families and to good employment which in this case agriculture provides a very good source for that.
I don’t see that there are huge business opportunities in those kinds of things because frankly, these are for the very very poorest of the poor. The greater business opportunities are to be had in just the tremendous growth that is taking place now in India where despite some of the shortcomings that we talked about -- things like corruption and infrastructure problems and so forth -- the Indian government is very much committed to dealing with those and in fact those themselves present some quite significant opportunities, just to take infrastructure.
I made the point that 80 percent of the India of 2030 is yet to be built, so there are going to be vast opportunities in areas such as the development of airports, regional airports, of railway networks, of fiberoptic networks. I think there will also just be tremendous new start-up opportunities that will come about as a result of the new educational partnerships that we’re going to seek to establish and the fact that so many young people in India will be coming through the educational system and the higher educational system, and will I think have access to capital for the first time. And because of their ingenuity and because of the things that they will learn in American universities and vice versa, there will be a tremendous fertile ground for new projects and new ways of thinking that we’re seeing in the United States and we’re beginning to see in India as well.
If you go to a place like Hyderabad or Gurgaon, you see, again, these kinds of petri dishes of innovation that are now taking hold in a very exciting way in things like nano-technology and biotechnology and so forth.
QUESTION: Do you see any actual deals in the works so far, or is this still at the level of aspiration?
ASSISTANT SECRETARY BLAKE: There are deals taking place all the time, yeah. Far more than anything that the United States government could ever track. Again, we’re in the business of creating the environment for these deals to take place -- not to actually conclude them ourselves. And I think they are taking place as can be seen by the doubling of our trade over the last several years and the quite significant rise of investment both in India and in the United States from India.
QUESTION: In a sensitive area like defense, for example, are things now possible that were not possible before? And what are the new opportunities there?
ASSISTANT SECRETARY BLAKE: They are possible. As I mentioned, the Defense Research and Development Organization has come off the Department of Commerce’s entities list, so for the first time we’re going to be able to work with them and that’s the research arm of the Ministry of Defense, just as our own DARPA in the Department of Defense in Washington has been responsible for some of the great innovations that have taken place. We can now begin to work together on some of those things. So there are tremendous sort of synergies that can be exploited from that. I think when you add in the private sector, which is already very well developed both in India and the United States, the synergies are magnified. So I do see a lot of opportunities, and of course as American companies compete and hopefully win big contracts like the medium multi-role combat aircraft contract, there will be quite significant offset requirements that result from that, so they will be looking for investments. There will be many many opportunities for them to start to invest in those kinds of areas, so that will be a very positive offshoot from somebody’s contracts that will develop. And I think there will be some quite interesting co-development and co-production opportunities that will result from those.
QUESTION: What about clean energy? You also spoke positively about the opportunities there. What do you think can --
ASSISTANT SECRETARY BLAKE: Again, this is an area of I think tremendous head room and room for growth. First of all, our own administration is committed to developing clean energy opportunities and President Obama has put an enormous effort into this, even in the face of some of the fiscal constraints that we have. I think he has made this a priority. And quite right because we want to reduce, as India wants to reduce, its reliance on foreign oil and foreign gas.
We, for example, have made tremendous forward progress in the area of developing shale gas, and we’re helping India to develop that as well. In our case we found such significant quantities that we’ve actually dramatically reduced our imports of gas. I think the same can probably be the case for India. So our U.S. Geological Survey and other experts are working with your experts to see what the real opportunities are, and I believe that they’re going to be quite significant.
On other kind of clean energy types of things, again, we see that there are tremendous synergies because many of the companies that are doing the kind of advance work in the United States are already active in India. And quite frankly, some of the leading innovation that’s taking place around the world is in India. India itself has become a real node of innovation in part because it never really stopped, whereas we kind of missed the boat for a while, frankly, under some of the previous administrations who weren’t as committed to developing clean energy. So we lost that momentum. Whereas India has sustained it, and as a result of that you see companies like Vestas and others that are some of the world leaders now in both solar and wind technology. So there’s a lot we can learn as well from the Indians as well. Again, that’s part of our incentive.
QUESTION: What are some of the risks that could undermine these opportunities, and how could those be hedged?
ASSISTANT SECRETARY BLAKE: I’d say one of the principal risks that a lot of people worry about is simply that the momentum that has been established now in our relations will not be sustained. Particularly people are worried about the situation inside India itself, and the fact that many of the projects that we’re trying to sort of get underway have been delayed a little bit because of the political divisions that exist, particularly in the Indian parliament. I think that the vast attention that has been given to the corruption controversy has really crowded out a lot of the opportunities that could have taken place.
Let’s take the Education Bill, which we had hoped might be passed last fall but in fact is still pending. Here we are now many months later with no real end in sight of when it might be passed. I think there are a number of examples like that. Of course the same is true on our side. We ourselves I think are consumed by the need now to focus on our own fiscal realities and to try to get our own economic house in order and try to bring more discipline, and that’s certainly a very high priority of our President’s, but also of the Republican leadership as well.
So I think both of our countries need to just keep our eye on the ball and remind our leaders of the importance of this relationship and to continue to make progress.
I think the one advantage that we have that perhaps other countries might not have together is that our private sectors are moving ahead very smartly, regardless of what the governments do. It’s something that I always remind my colleagues inside of government, that despite sometimes slow progress in our own bilateral let’s say trade negotiations, the private sector is moving out very smartly. Our trade has doubled over the last five years or even less than that, in fact. And it’s likely to double again in a very short period of time regardless of what our governments do. Of course if we can actually get some progress on our own, that will help even more.
The point is now the private sector has eclipsed what the government is doing, and that’s a good thing. That’s exactly what we’d like to see happen.
One should never be too pessimistic because I think a lot of good things are happening, regardless of what happens inside our governments.
QUESTION: One of the examples you referred to as a good thing happening was the civil nuclear deal.
ASSISTANT SECRETARY BLAKE: Yes.
QUESTION: You have said in the past that it opens the way for U.S. companies to supply billions of dollars’ worth of civil nuclear reactors for India’s growing energy market.
Have recent events in Japan led you to rethink any aspects of the nuclear deal? And what can be done to ensure that India doesn’t face any nuclear disasters?
ASSISTANT SECRETARY BLAKE: It hasn’t caused us so much in the government. Of course our main purpose is to support our companies in this. I think that some of our industry leaders have pointed out that this is a setback for their industry, and that this is going to cause a lot of people to take a new and fresh look at the nuclear industry overall.
Now I have to say in the United States there haven’t been new nuclear power investments in a long time, so in a way, that’s nothing new. And for us, the importance of India is that in fact there are quite significant nuclear investments. That’s why there’s such strong interest on the part of General Electric and Westinghouse and other companies because they see huge upsides to our cooperation in India. And from India’s perspective, they have a strong interest in diversifying their energy supplies and to access clean energies as much as possible. Not just renewables, but also nuclear energy. So again, there’s a very strong upside for India as well.
But there will have to be a good, honest discussion about the safety issues. I know you have such an open society in India already that in a way that debate is already happening. There have been demonstrations in several of the nuclear plants, and I know that the Lok Sabha and others will be looking closely at this issue. Again, that’s a good thing. That’s what should happen after a calamity like this, is that people take a hard look so that in fact what we’re doing makes sense and is in our interest.
I think there probably realistically will be a little bit of a slowdown, but I agree with what the Prime Minister said, that this is still very much in India’s interest to proceed with these projects and it is likely to do so.
What’s most important from our perspective is that the two governments have done almost all that we need to do to allow the companies to then make the decisions about whether they want to go forward with this or not. And in India’s case, it signed the Convention on Supplementary Compensation and is now committed to ratifying that within a year from November. A far as we know, that remains on track and that remains their intention. And then at that point it will be up to the companies to undertake these contract negotiations and of course they will make their own decisions about this and I think what’s happened in Japan will affect those to a certain extent. But it’s hard for me, I’m not really an expert to gauge to what extent that will happen.
QUESTION: Again, this seems like one of those issues that given a lot of political polarization that already existed earlier, is the kind of thing that would surface political tension again.
ASSISTANT SECRETARY BLAKE: Exactly.
QUESTION: To take a somewhat different issue, recently in Hainan, Prime Minister Manmohan Singh and other leaders from Brazil, Russia, China, and South Africa called for a new global monetary order in which the U.S. dollar would play a less prominent role. In your view does an initiative like this advance or undermine the strategic partnership between the U.S. and India?
ASSISTANT SECRETARY BLAKE: I don’t see that it has a major impact one way or another. I will say during the President’s visit Manmohan Singh expressed strong confidence in the dollar and strong confidence in the economy. And I don’t see this as something that’s anti-American or directed against the United States. I must say I didn’t hear very much of a reaction, as I’m responsible for India, I never heard a reaction from some of my colleagues about this. So I don’t think it’s had any particular negative impact that I’m aware of.
QUESTION: You also referred today to the bottom of the pyramid strategy companies refer to. Have you seen any such initiatives in the works between American and U.S. companies?
ASSISTANT SECRETARY BLAKE: I think a lot of American companies are already in India, are pursuing such a bottom of the pyramid strategy. They understand that there are in fact quite interesting opportunities to market to the very poor, because it’s a matter of packaging, really, of getting small, slightly smaller packaging. Because you’re selling to such a large market, your margins are going to be perhaps a little smaller but the overall benefit is quite large.
I think many of our companies have seen that and are doing well by it.
The other point to make is that many people are, because of India’s growth, are coming out of poverty now. So the bottom of the pyramid is (diminishing), and the levels of income are getting higher and higher. Those people, in fact, are slowly moving up the chain of the kinds of products they’re able to buy. And increasingly, those are things that American companies would like to offer.
QUESTION: The next presidential election in the U.S. is still some time away. Some preparations are already starting up. Given the fact that unemployment in the U.S. is still high and economic recovery has been weak, to what extent do you expect outsourcing of high tech jobs to India to become, on what issue? And will it have a serious impact on U.S.-India business relations?
ASSISTANT SECRETARY BLAKE: Outsourcing is always a hot button issue around elections, particularly when unemployment is high. People naturally take a look at these kinds of things. But the point I would make about our economic relations with India is that they’re increasingly balanced. The kinds of off-shoring is the word I would prefer to use, that is taking place is an economic reality around the world now, and that all companies have plants in China, and in India to basically be able to avail themselves of whatever the opportunities are in those countries. Every country has slightly different opportunities and advantages to offer.
So a big company like GE is going to have research centers all over the world to capitalize on, and because of the internet they can bring all their scientists and engineers together in one big web and pool that knowledge and those ideas and to create something really interesting.
That’s what’s happening. I think that that’s the competitive edge that every company needs, and that’s true of India, too. India’s doing exactly the same thing in reverse. The Infosys’ of the world, and Tata and others are setting up their own centers in Iowa and Michigan and places like that. That’s the point I always make to American audiences is that yes some of this is happening, but this is part of keeping these companies in business and secondly, the Indians are doing the same in reverse. A lot of new Indian investment is coming in and the pace is quite dramatic. It’s 50 percent increase every single year. So we’re going to see a lot more of this coming over time. That’s a very good thing for us.
ASSISTANT SECRETARY BLAKE: I made the point also about tourism. That one of the really interesting manifestations of the rise of the middle class in India has been that for services like, of course IT, but even tourism -- 650,000 Indians visited the United States last year. That itself represented a 20 percent increase from the year before, and they are now the 10th largest source of foreign travelers into the United States, which is a very good thing. Again, I expect that to rise as the middle class continues to grow in India we’ll see much more of that, and we very much welcome that. And of course Americans for centuries have been going to India because it’s such a lovely and glorious place to visit.
QUESTION: One last question. This year marks the 20th Anniversary of economic reforms that Prime Minister Singh initiated in 1991 when he was Finance Minister. With 20/20 hindsight, no pun intended, what do you think has been accomplished by these reforms, and what are the biggest tasks that still remain to be accomplished?
ASSISTANT SECRETARY BLAKE: I think the reforms have had a profound effect on India. Not just economically, but in terms of India’s entire outlook.
When I first arrived in India, India was still slightly inward-looking but was just beginning to change. I think as a result of the economic reforms, growth began to generate resources and those resources gave the Indian government and Indian society the wherewithal to expand their strategic horizons and to expand their strategic ambitions. And India in the last seven or eight years has really stepped into that space in a very significant way, in partnership with the United States in part.
You really see now that India wants to play a global role and wants to exert its very positive influence around the world. That’s one of the most important new dynamics that’s taking place I think in the early part of this century. That’s why President Obama wants to partner with India, precisely that India wants to work with us, it wants to be a responsible member of the international community, has the resources to do so, and it has the will to attack some of the really tough issues like global governance issues and climate change and non-proliferation, and to work in tandem with the United States to do that. That is a very very important development for the United States and that’s why President Obama says that India’s going to be a defining partnership of ours in the 21st Century.
QUESTION: Robert Blake, thank you so much for speaking with us today.
ASSISTANT SECRETARY BLAKE: Thank you. It’s a pleasure.
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