US economic experts are warning that a sharp increase in visa application fees could sour relations with India as it is a direct snub and send the wrong signals about US attitudes to global markets.

‘Regrettably, what might be good politics is bad policy for America,’ according to Jacob Kirkegaard and Arvind Subramanian, senior fellows at the Peterson Institute for International Economics.

‘It is unlikely to raise revenue, will inflict damage to American competitiveness, sour US relations with India, and above all send the wrong signals about US attitudes to open global markets,’ they write in Foreign Policy magazine.

‘Without explicitly saying so, the law clearly targets India, home of the world’s fastest growing IT services companies. Despite US President Barack Obama’s endless declarations that the US-India strategic partnership will continue to grow, this is a direct snub to India’s most powerful domestic advocates of economic liberalisation,’ they say.

They point out that Indians received about half of all H-1B and L-1 visas in 2009, and comprise most of the roughly 50% of all H-1B and L-1 recipients who work in computer related occupations in the US.

‘The Obama administration should tread carefully. If India shifts its economic orientation away from the US, the costs would far outweigh any of the political benefits or fiscal revenue from this visa fee policy,’ they add.

Possible scenarios include India retaliating by buying more Airbus planes from Europe, importing more cars from Japan, or moving toward a trade agreement with the European Union that discriminates against US exporters.

‘So when Obama lands in New Delhi on his upcoming trip this fall, he could find himself in the middle of an ugly trade skirmish with a rising Asian superpower,’ they conclude.

Indian Commerce and Industry Minister, Anand Sharma, has told US Trade Representative Ron Kirk that ‘protectionism kills growth and innovation’ during the seventh ministerial session of the US-India Trade Policy Forum (TPF) in Washington, DC.

He Sharma said the Indian IT industry has created 250,000 jobs in the US in the last three years and also expressed concerns about the state of Ohio banning the outsourcing of jobs offshore by government departments.

Sharma added that there is a need to provide greater avenues and cooperation between the two countries in the services sector.

‘Protectionist tendencies are unhealthy and negative and lessons from the past make it abundantly clear they end up deepening the recession, they do not help in recovery of economies,’ Sharma said.

‘Any mindset, which is isolationist and inward looking ends up hurting the economies and societies,’ he added.