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Well, as an Indian now living in the US and having worked with US Companies in India, I want to share a couple (two or three) experiences:
1) When John Deere started exploring the possibiltiy of setting up manufacturing facilities in India in 1994, they hired me as a Business Development Manager and I was part of the multi-national team involved in project feasibility studies. While screening vendors for parts the Deere management was very particular about whom they did business with.
No child labor should be involved. The vendor should pay workers a competitive and fair wage, workers must wear factory uniforms and shoes (many small scale manufacturers in India enploy very poor people who come barefoot to work).
John Deere did not want to be associated with "sweat shops". They were willing to pay more but not compromise on certain business ethics.
2) Lay Americans may be ignorant of India but the business men are not. They are extremely knowledgeable about the business environment, the bureaucracy, the legal system, the financial and tax structures and so on. In fact, to make the project "tax-efficient", we had two attorneys from Moline, Ill and Waterloo, Iowa come to India and advise us to incorporate the Company in Mauritius (a tax haven) as this would not only avoid dual corporate taxation at the hands of the Indian and US Revenue authorities, but also significantly reduce manufacturing taxes (excise/customs).
So to infer the Americans are green is not wholly accurate.
Sure, there are companies in the US willing to employ "slave" labor but most are not like that.
Today, there is such a lot of stigma attached to child-labor in India that virtually no multinational company would take the risk of associating with these sweat shops for fear of adverse publicity. China may be different.
Another reason that US foreign policy has veered in favor of China is that India has a strong democracy which will not bend at US pressure. Nuclear non-proliferation has been a major thorn. Indian position is that if you want to inspect our facilities, we would expect reciprocity. If you want us to open our nuclear power plants to your inspections and safeguards, you must allow us to inspect yours.
The same has been repeated for space technology. US administration's foreign policy uses economic arm-twisting when necessary. India has never succumbed to this and perhaps this has created a barrier.
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