us-india relationship

8/7/2019 US-India Relationship

1/19Congressional Research ServiceThe Library of Congress

CRS Issue Brief for CongressReceived through the CRS Web

Order Code IB93097

India-U.S. Relations

Updated April 6, 2006

K. Alan Kronstadt

Foreign Affairs, Defense, and Trade Division


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CONTENTS

SUMMARY

MOST RECENT DEVELOPMENTS

BACKGROUND AND ANALYSIS

Context of the U.S.-India RelationshipIndias Regional Relations

PakistanChinaOther Countries

Political SettingNational ElectionsThe Congress PartyThe Bharatiya Janata Party (BJP)

India-U.S. Relations and Bilateral IssuesNext Steps in Strategic Partnership and Beyond

High-Technology TradeCivil Nuclear CooperationCivil Space Cooperation

Security IssuesNuclear Weapons and Missile ProliferationU.S. Nonproliferation Efforts and Congressional ActionU.S.-India Security CooperationIndia-Iran Relations

Regional Dissidence and Human RightsThe Kashmir IssueThe NortheastNaxalitesGujaratHuman Rights

Indias Economy and U.S. ConcernsOverviewTrade and Investment

U.S. AssistanceEconomicSecurity


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Congressional Research Service The Library of Congress

India-U.S. Relations

SUMMARY

The end of the Cold War freed India-U.S.relations from the constraints of global bipo-

larity, but interactions continued for a decadeto be affected by the burden of history, mostnotably the longstanding India-Pakistan ri-valry and nuclear weapons proliferation in theregion. Recent years, however, have wit-nessed a sea change in bilateral relations, withmore positive interactions becoming the norm.Indias swift offer of full support for U.S.-ledcounterterrorism operations after September2001 was widely viewed as reflective of suchchange. Today, President Bush calls India anatural partner of the United States and hisAdministration seeks to assist Indias rise as amajor power in the new century.

In July 2005, President Bush and IndianPrime Minister Singh issued a Joint Statementresolving to establish a U.S.-India globalpartnership on a wide range of issues. Inrecent years, the United States and India haveengaged in numerous and unprecedented jointmilitary exercises. Discussions of possiblesales to India of major U.S.-built weapons

systems are ongoing. Plans to expand high-technology trade have become key bilateralissues in recent years. In the July Joint State-ment, the Bush Administration dubbed Indiaa responsible state with advanced nucleartechnology and seeks to achieve full civiliannuclear energy cooperation with India. Suchproposed cooperation is controversial andwould require changes in both U.S. law andinternational guidelines.

The United States seeks to curtail theproliferation of nuclear weapons and ballisticmissiles in South Asia. Both India and Paki-stan have resisted external pressure to sign themajor nonproliferation treaties. In May 1998,the two countries conducted nuclear tests thatevoked international condemnation.

Proliferation-related restrictions on U.S. aidwere triggered, then later lifted through

congressional-executive cooperation from1998 to 2000. Remaining sanctions on India(and Pakistan) were removed in October 2001.

Continuing U.S. interest in South Asiafocuses on ongoing tensions between Indiaand Pakistan, a problem rooted in unfinishedbusiness from the 1947 Partition and compet-ing claims to the Kashmir region. The UnitedStates strongly encourages maintenance of acease-fire in Kashmir and continued, substan-tive dialogue between India and Pakistan.

U.S. concerns about human rights issuesrelated to regional dissidence and separatismin several Indian states continue. Strife inthese areas has killed tens of thousands ofcivilians, militants, and security forces overthe past two decades. Communal tensions andreligious freedom have been another matter ofconcern. Many in Congress, along with theState Department and international humanrights groups, have criticized India for per-

ceived abuses in these and other areas.

India is in the midst of major and rapideconomic expansion. Many U.S. businessinterests view India as a lucrative market andcandidate for foreign investment. The UnitedStates supports Indias efforts to transform itsonce quasi-socialist economy through fiscalreform and market opening. Since 1991, Indiahas taken steps in this direction, with coalitiongovernments keeping the country on a general

path of reform. However, there is U.S. con-cern that movement remains slow and incon-sistent. See also CRS Report RL33072, U.S.- India Bilateral Agreements; CRS ReportRL32259, Terrorism in South Asia; and CRSReport RS21502,India-U.S. Economic Rela-tions.


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MOST RECENT DEVELOPMENTS

President Bush visited India in early March, the first such trip by a U.S. President in sixyears. The President was given a grand welcome in India, even as tens of thousands ofprotestors opposed to U.S. policies and to New Delhis partnership with Washington

marched in several Indian cities. On March 2, President Bush and Prime Minister Singhissued a statement expressing mutual satisfaction with great progress made in advancingthe U.S.-India strategic partnership. The statement, which reviewed bilateral efforts toexpand ties in a number of key areas, notably announced successful completion of Indias[nuclear facility] separation plan, a reference to ongoing and complex negotiations relatedto President Bushs July 2005 vow to achieve full civilian nuclear energy cooperation withIndia. The separation plan requires India to move 14 of its 22 reactors into permanentinternational oversight by the year 2014 and place all future civilian reactors underpermanent safeguards. The plan also would assure an uninterrupted supply of nuclear fuelfor Indias civilian facilities. On March 16, H.R. 4974 and S. 2429, to waive the applicationof certain requirements under the Atomic Energy Act of 1954 with respect to India, were, at

the Presidents request, introduced in the House and Senate. Pending legislation alsoincludes H.Con.Res. 318, which expresses concern regarding nuclear proliferation withrespect to proposed full civilian nuclear cooperation with India. Also, on March 15, theEnergy Diplomacy and Security Act of 2006 (S. 2435), which includes India-relatedinitiatives, was introduced in the Senate. Indias Foreign Secretary visited Washington inlate March to defend the nuclear initiative and, on April 5, Secretary of State Rice appearedbefore key House and Senate committees to press the Administrations case. (See CRSReport RL33072, U.S.-India Bilateral Agreements; CRS Report RL33016, U.S. NuclearCooperation With India; and CRS Report RL33292,Indias Nuclear Separation Plan.)

The India-Pakistan peace initiative continues, with officials from both countries (andthe United States) offering a positive assessment of the ongoing dialogue. In a March 24

speech marking the launch of a new bus service linking Indian and Pakistani cities, PrimeMinister Singh said India sincerely believes that a strong, stable, prosperous, and moderatePakistan is in the interest of India,and he envisioned someday entering into a Treaty ofPeace, Security, and Friendship with Islamabad. Pakistan cautiously welcomed thecomments while insisting that Kashmir remained the heart of conflict, mistrust, andhostility between the two countries (lethal separatist-related violence in Kashmir continues).For more information, see CRS Report RS21589,India: Chronology of Recent Events.

BACKGROUND AN D ANALYSIS

Context of the U.S.-India RelationshipIn the wake of the September 2001 terrorist attacks on the United States, India took the

immediate and unprecedented step of offering to the United States full cooperation and theuse of Indias bases for counterterrorism operations. The offer reflected the sea change thathas occurred in recent years in the U.S.-India relationship, which for decades was mired inthe politics of the Cold War and Indias friendly relations with the Soviet Union. A markedimprovement of relations began in the latter months of the Clinton Administration President Clinton spent six days in India in March 2000 and was accelerated after a


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November 2001 meeting between President Bush and Indian Prime Minister Atal BihariVajpayee, when the two leaders agreed to greatly expand U.S.-India cooperation on a widerange of issues, including counterterrorism, regional security, space and scientificcollaboration, civilian nuclear safety, and broadened economic ties. Notable progress hascome in the area of security cooperation, with an increasing focus on counterterrorism, jointmilitary exercises, and arms sales. In December 2001, the U.S.-India Defense Policy Group

met in New Delhi for the first time since Indias 1998 nuclear tests and outlined a defensepartnership based on regular and high-level policy dialogue. A U.S.-India Joint WorkingGroup on Counterterrorism was established in January 2000 and meets regularly.

U.S. and congressional interests in India cover a wide spectrum of issues, ranging fromthe militarized dispute with Pakistan and weapons proliferation to concerns about humanrights, health, and trade and investment opportunities. In the 1990s, India-U.S. relationswere particularly affected by the demise of the Soviet Union Indias main trading partnerand most reliable source of economic and military assistance for most of the Cold War and New Delhis resulting need to diversify its international relationships. Also significantwere Indias adoption of sweeping economic policy reforms beginning in 1991, a deepening

bitterness between India and Pakistan over Kashmir, and signs of a growing Indianpreoccupation with China as a potential long-term strategic rival. With the fading of ColdWar constraints, the United States and India began exploring the possibilities for a morenormalized relationship between the worlds two largest democracies. A 1994 visit to theUnited States by Indian Prime Minister Narasimha Rao marked the onset of improvedU.S.-India relations. Although discussions were held on nuclear nonproliferation, humanrights, and other issues, the main focus of the visit was rapidly expanding U.S.-Indiaeconomic relations. Throughout the 1990s, however, regional rivalries, separatist tendencies,and sectarian tensions continued to divert Indias attention and resources from economic andsocial development. Fallout from these unresolved problems particularly nuclearproliferation and human rights issues presented serious irritants in bilateral relations.

President Clintons 2000 visit to South Asia seemed a major U.S. initiative to improvecooperation with India. During his subsequent visit to the United States later in 2000, PrimeMinister Vajpayee addressed a joint session of Congress and issued a joint statement withPresident Clinton agreeing to cooperate on arms control, terrorism, and HIV/AIDS.Vajpayee returned to Washington in November 2001 and during the Bush Administrationhigh-level visits have continued at a greatly accelerated pace. Prime Minister Singh paid aJuly 2005 visit to Washington where a significant joint U.S.-India statement was issued, andPresident Bush visited India in March 2006. Today, the Bush Administration vows to helpIndia become a major world power in the 21st century, and U.S.-India relations areconducted under the rubric of three major dialogue areas: strategic (including global issuesand defense), economic (including trade, finance, commerce, and environment), and energy(see also CRS Report RL33072, U.S.-India Bilateral Agreements).

Indias Regional Relations

Pakistan. Three wars in 1947-48, 1965, and 1971 and a constant state ofmilitary preparedness on both sides of the border have marked six decades of bitter rivalrybetween India and Pakistan. The bloody and acrimonious nature of the 1947 partition ofBritish India and continuing violence in Kashmir remain major sources of interstate tensions.Despite the existence of widespread poverty across South Asia, both India and Pakistan have


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built large defense establishments including nuclear weapons capability and ballisticmissile programs at the cost of economic and social development. The nuclear weaponscapabilities of the two countries became overt in May 1998, magnifying greatly the potentialdangers of a fourth India-Pakistan war. Although a bilateral peace process has beenunderway for more than two years, little substantive progress has been made towardresolving the Kashmir issue, and New Delhi continues to be rankled by what it calls

Islamabads insufficient effort to end Islamic militancy that affects India.

The Kashmir problem is itself rooted in claims by both countries to the former princelystate, now divided by a military Line of Control (LOC) into the Indian state of Jammu andKashmir and Pakistan-controlled Azad [Free] Kashmir (see The Kashmir Issue, below).Normal relations between New Delhi and Islamabad were severed in December 2001 aftera terrorist attack on the Indian Parliament was blamed on Pakistan-supported Islamicmilitants. Other lethal attacks on Indian civilians spurred Indian leaders to call for adecisive war, but intense international diplomatic engagement, including multiple trips tothe region by high-level U.S. officials, apparently persuaded India to refrain from attacking.In October 2002, the two countries ended a tense, ten-month military standoff at their shared

border, but there remained no high-level diplomatic dialogue between India and Pakistan (aJuly 2001 summit meeting in the city of Agra had failed to produce any movement towarda settlement of the bilateral dispute).

In April 2003, Prime Minister Vajpayee extended a symbolic hand of friendship toPakistan. The initiative resulted in slow, but perceptible progress in confidence-building,and within months full diplomatic relations between the two countries were restored.September 2003 saw an exchange of heated rhetoric by the Indian prime minister and thePakistani president at the U.N. General Assembly; some analysts concluded that the peaceinitiative was moribund. Yet New Delhi soon reinvigorated the process by proposingconfidence-building through people-to-people contacts. Islamabad responded positively and,

in November, took its own initiatives, most significantly the offer of a cease-fire along theKashmir LOC (as of this writing, a formal cease-fire agreement continues). A majorbreakthrough in bilateral relations came at the close of a January 2004 summit session of theSouth Asian Association for Regional Cooperation in Islamabad. After a meeting betweenVajpayee and Pakistani President Musharraf their first since July 2001 the two leadersagreed to re-engage a composite dialogue to bring about peaceful settlement of allbilateral issues, including Jammu and Kashmir, to the satisfaction of both sides. A May2004 change of governments in New Delhi had no effect on the expressed commitment ofboth sides to carry on the process of mid- and high-level discussions, and the new Indian PM,Manmohan Singh, met with Musharraf in September 2004 in New York, where the twoleaders agreed to explore possible options for a peaceful, negotiated settlement of theKashmir issue in a sincere manner and purposeful spirit. After Musharrafs April 2005visit to New Delhi, India and Pakistan released a joint statement calling their bilateral peaceprocess irreversible. Some analysts believe that increased people-to-people contacts havesignificantly altered public perceptions in both countries and may have acquired permanentmomentum. Others are less optimistic about the respective governments long-termcommitment to dispute resolution. Moreover, an apparent new U.S. embrace of India hasfueled Pakistans anxieties about the regional balance of power.

China. India and China account for one-third of the worlds population and are seento be rising 21st century powers and potential strategic rivals. The two countries fought a


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brief but intense border war in 1962 that left China in control of large swaths of territory stillclaimed by India. The clash ended a previously friendly relationship between the two leadersof the Cold War nonaligned movement. Although Sino-Indian relations have warmedconsiderably in recent years, the two countries have yet to reach a final boundary agreement.Adding to New Delhis sense of insecurity have been suspicions regarding Chinas long-termnuclear weapons capabilities and strategic intentions in South and Southeast Asia. In fact,

a strategic orientation focused on China appears to have affected the course and scope ofNew Delhis own nuclear weapons and ballistic missile programs. Beijings military andeconomic support for Pakistan support that is widely believed to have included WMD-related transfers is a major and ongoing source of friction; past Chinese support forPakistans Kashmir position has added to the discomfort of Indian leaders. New Delhi alsohas taken note of Beijings security relations with neighboring Burma and the constructionof military facilities on the Indian Ocean. The two countries also have competed for energyresources to feed their rapidly growing economies.

Despite still unresolved issues, high-level exchanges between New Delhi and Beijingregularly include statements from exists no fundamental conflict of interest between the two

countries. During a landmark 1993 visit to China, Prime Minister Rao signed an agreementto reduce troops and maintain peace along the Line of Actual Control that divides the twocountries forces at the disputed border. Periodic working group meetings aimed at reachinga final settlement continue. A June 2003 visit to Beijing by Prime Minister Vajpayee wasviewed as marking a period of much improved relations. Military-to-military contacts haveincluded modest, but unprecedented joint naval and army exercises. In December 2004,Indias army chief visited Beijing to discuss deepening bilateral defense cooperation, and afirst-ever India-China strategic dialogue was held in New Delhi in January 2005. In April2005, Chinese Prime Minister Wen Jiabao visited New Delhi where India and China agreedto launch a strategic partnership that will include broadened defense links and efforts toexpand economic relations. In a move that eased border frictions, China formally recognized

Indian sovereignty over the former kingdom of Sikkim and India reiterated its view that Tibetis a part of China. Moreover, in January 2006, the two countries agreed to cooperate insecuring overseas oil resources. Sino-India trade relations are blossoming, with bilateralcommerce worth about $13 billion in 2004, more than five times the 1999 value. In fact,China may soon supplant the United States as Indias largest trading partner.

Other Countries. India has taken an active role in assisting reconstruction efforts inAfghanistan, having committed $550 million to this cause, as well as contributing personneland opening numerous consulates there (much to the dismay of Pakistan, which fearsstrategic encirclement and takes note of Indias past support for Afghan Tajik and Uzbekmilitias). The United States has welcomed Indias role in Afghanistan. To the north, NewDelhi called King Gyanendras February 2005 power seizure in Nepal a serious setback forthe cause of democracy, but India renewed non-lethal military aid to the Royal Nepali Armyonly months later. India remains concerned about the cross-border infiltration of Maoistmilitants from Nepal. The United States seeks continued Indian attention to the need for arestoration of democracy in Kathmandu. To the east, and despite Indias key role in thecreation of neighboring Bangladesh in 1971, New Delhis relations with Dhaka have beenfraught with tensions related mainly to the cross-border infiltration of Islamic militants andhuge numbers of illegal migrants into India. The two countries border forces have engagedin periodic gunbattles and India is completing construction of a fence along the entire sharedborder. Still, New Delhi and Dhaka have cooperated on counterterrorism efforts and talks


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on energy cooperation continue. Further to the east, India is pursuing closer relations withthe repressive regime in neighboring Burma, with an interest in energy cooperation and tocounterbalance Chinas influence there. The Bush Administration has urged New Delhi tobe more active in pressing for democracy in Rangoon. In the island nation ofSri Lanka offIndias southeastern coast, a Tamil Hindu minority has been fighting a separatist war againstthe Sinhalese Buddhist majority since 1983. More than 60 million Indian Tamils live insouthern India. Indias 1987 intervention to assist in enforcing a peace accord resulted in thedeaths of over 1,000 Indian troops and led to the 1991 assassination of the Indian PrimeMinister Rajiv Gandhi by Tamil militants. Since that time, New Delhi has maintainedfriendly relations with Colombo while refraining from any deep engagement in third-partypeace efforts. The Indian Navy played a key role in providing disaster relief to Sri Lankafollowing the catastrophic December 2004 tsunami.

Political Setting

National Elections. India, with a robust and working democratic system, is a federalrepublic where the bulk of executive power rests with the prime minister and his or her

cabinet (the Indian president is a ceremonial chief of state with limited executive powers).As a nation-state, India presents a vast mosaic of hundreds of different ethnic groups,religious sects, and social castes. Most of Indias prime ministers have come from thecountrys Hindi-speaking northern regions and all but two have been upper-caste Hindus.The 543-seat Lok Sabha (Peoples House) is the locus of national power, with directlyelected representatives from each of the countrys 28 states and 7 union territories. A smallerupper house, the Rajya Sabha (Council of States), may review, but not veto, most legislation,and has no power over the prime minister or the cabinet. National and state legislators areelected to five-year terms. National elections in October 1999 had secured ruling power fora Bharatiya Janata Party (BJP)-led coalition government headed by Prime Minister Vajpayee.That outcome decisively ended the historic dominance of the Nehru-Gandhi-led Congress

Party, which was relegated to sitting in opposition at the national level (its memberscontinued to lead many state governments). However, a surprise Congress resurgence underSonia Gandhi in May 2004 national elections brought to power a new left-leaning coalitiongovernment led by former finance minister and Oxford-educated economist ManmohanSingh, a Sikh and Indias first-ever non-Hindu prime minister. Many analysts attributedCongresss 2004 resurgence to the resentment of rural and poverty-stricken urban voters whofelt left out of the India shining campaign of a BJP more associated with urban, middle-class interests. Others saw in the results a rejection of the Hindu nationalism associated withthe BJP. (See CRS Report RL32465,Indias 2004 National Elections.)

The Congress Party. Congresss electoral strength reached a nadir in 1999 when

the party won only 110 parliamentary seats. Observers attributed the poor showing to anumber of factors, including perceptions that party leader Sonia Gandhi lacked theexperience to lead the country and the failure of Congress to make strong pre-electionalliances (as had the BJP). Support for Congress had been in fairly steady decline followingthe 1984 assassination of Prime Minister Indira Gandhi and the 1991 assassination of herson, Prime Minister Rajiv Gandhi. Sonia Gandhi, Rajivs widow, refused to be drawn intoactive politics until the 1998 elections. She later made efforts to revitalize the organizationby phasing out older leaders and attracting more women and lower castes efforts thatappear to have paid off in 2004. Today, Congress again occupies more parliamentary seats(145) than any other party and, through unprecedented alliances with powerful regional


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parties, it again leads Indias government. As party chief, Sonia Gandhi is believed to wieldconsiderable influence over the ruling coalitions policy decision-making process.

The Bharatiya Janata Party (BJP). With the rise of Hindu nationalism, the BJPrapidly increased its parliamentary strength during the 1980s. In 1993, the partys image wastarnished among some, burnished for others, by its alleged complicity in serious communalviolence in Bombay and elsewhere. Some hold elements of the BJP, as the political arm ofthe extremist Hindu nationalist Rashtriya Swayamsevak Sangh (RSS, or National VolunteerForce), responsible for the incidents. (The party has advocated Hindutva, or an India basedon Hindu culture, and views this as key to nation-building.) While leading a nationalcoalition from 1998-2004, the BJP worked with only limited success to change itsimage from right-wing Hindu fundamentalist to conservative and secular, although 2002communal rioting in Gujarat again damaged the partys credentials as a moderateorganization. A fragile BJP-led National Democratic Alliance coalition was overseen byparty notable Prime Minister Atal Vajpayee, whose widespread personal popularity helpedto keep the BJP in power. In 2005, leadership disputes, criticism from Hindu nationalists,and controversy involving party president Lal Advani weakened the BJP. In December 2005,

Advani ceded his leadership post and Vajpayee announced his retirement from politics.

India-U.S. Relations and Bilateral Issues

Next Steps in Strategic Partnership and Beyond

The now-concluded Next Steps in Strategic Partnership (NSSP) initiative encompassedseveral major issues in India-U.S. relations. Since 2001, the Indian government has pressedthe United States to ease restrictions on the export to India of dual-use high-technologygoods (those with military applications), as well as to increase civilian nuclear and civilianspace cooperation. These three key issues came to be known as the trinity, and top Indian

officials stated that progress in these areas was necessary to provide tangible evidence of achanged U.S.-India relationship. There were later references to a quartet when the issueof missile defense was included. In January 2004, President Bush and Prime MinisterVajpayee issued a joint statement indicating that the U.S.-India strategic partnershipincluded expanding cooperation in the trinity areas, as well as expanding dialogue onmissile defense. This initiative was dubbed as the NSSP and involved a series of reciprocalsteps. In July 2005, the State Department announced a milestone in the U.S.-Indiastrategic relationship: successful completion of the NSSP, allowing for expanded bilateralcommercial satellite cooperation, removal of U.S. export license requirements for unilaterallycontrolled nuclear items to most end users, and the revision of U.S. export licenserequirements for certain items used in safeguarded civil nuclear power facilities. Taken

together, the July 2005 U.S.-India Joint Statement and the June 2005 U.S.-India DefenseFramework Agreement include provisions for moving forward in all four NSSP issue-areas.Some nongovernmental U.S. experts insist that, while India is not regarded as a proliferatorof sensitive technologies, U.S. obligations under existing law may continue to limitsignificantly the scope of post-NSSP engagement. Despite these considerations, manyobservers saw in the NSSP evidence of a major and positive shift in the U.S. strategicorientation toward India, a shift later illuminated more starkly with the BushAdministrations intention to initiate full civil nuclear cooperation with India. (See alsoCRS Report RL33072, U.S.-India Bilateral Agreements.)


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High-Technology Trade. U.S. Commerce Department officials have sought todispel trade-deterring myths about limits on dual-use trade by noting that only about 1%of total U.S. trade value with India is subject to licensing requirements and that the greatmajority of dual-use licensing applications for India are approved (more than 90% inFY2005). July 2003 saw the inaugural session of the U.S.-India High-TechnologyCooperation Group (HTCG), where officials discussed a wide range of issues relevant tocreating the conditions for more robust bilateral high technology commerce; the fourthHTCG meeting was held in New Delhi in November 2005. In February 2005, the inauguralsession of the U.S.-India High-Technology Defense Working Group was held under HTCGauspices. Since 1998, a number of Indian entities have been subjected to case-by-caselicensing requirements and appear on the U.S. export control Entity List of foreign endusers involved in weapons proliferation activities. In September 2004, as part of NSSPimplementation, the United States modified some export licensing policies and removed theIndian Space Research Organization (ISRO) headquarters from the Entity List. Furtheradjustments came in August 2005 when six more subordinate entities were removed. Indianentities remaining on the Entity List are four subordinates of the ISRO, four subordinates ofthe Defense Research and Development Organization, one Department of Atomic Energy

entity, and Bharat Dynamics Limited, a missile production agency.

Civil Nuclear Cooperation. Indias status as a non-signatory to the NuclearNonproliferation Treaty has kept it from accessing most nuclear-related materials and fuelson the international market for more than 30 years. New Delhis 1974 peaceful nuclearexplosion spurred creation of the Nuclear Suppliers Group (NSG) an international exportcontrol regime for nuclear-related trade and Washington further tightened its export lawswith the Nuclear Nonproliferation Act of 1978. The July 2005 U.S.-India Joint Statementnotably asserted that, as a responsible state with advanced nuclear technology, India shouldacquire the same benefits and advantages as other such states, and President Bush vowedto work on achieving full civilian nuclear energy cooperation with India. Such proposed

cooperation is controversial and would require changes in both U.S. law and in NSGguidelines. India reciprocally agreed to take its own steps, including identifying andseparating its civilian and military nuclear facilities in a phased manner and placing theformer under international safeguards. Some in Congress express concern that civil nuclearcooperation with India might allow that country to advance its military nuclear projects andbe harmful to broader U.S. nonproliferation efforts. While the Bush Administrationpreviously had insisted that such future cooperation with India would take place only withinthe limits set by multilateral nonproliferation regimes, the Administration now seeksadjustments to U.S. laws and policies, and has approached the NSG to adjust the regimesguideline. After months of complex and difficult negotiations, the Indian government inMarch 2006 presented a plan to separate its civilian and military nuclear facilities as per theJuly 2005 Joint Statement. Shortly thereafter, H.R. 4974 and S. 2429, to waive theapplication of certain requirements under the Atomic Energy Act of 1954 with respect toIndia, were, at the Presidents request, introduced in the Congress. (See CRS ReportRL33016, U.S. Nuclear Cooperation With India.)

Civil Space Cooperation. India has long sought access to American spacetechnology; such access has since the 1980s been limited by U.S. and international redlines meant to prevent assistance that could benefit Indias military missile programs.Indias space-launch vehicle technology was obtained largely from foreign sources, includingthe United States, and forms the basis of its medium-range Agni ballistic missile booster, as


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1 The India-Pakistan Relief Act of 1998 (in P.L. 105-277) authorized a one-year sanctions waiverexercised by President Clinton in November 1998. The Department of Defense Appropriations Act,2000 (P.L. 106-79) gave the President permanent authority after October 1999 to waive nuclear-test-related sanctions applied against India and Pakistan. On October 27, 1999, President Clinton waivedeconomic sanctions on India (Pakistan remained under sanctions as a result of an October 1999military coup). (See CRS Report RS20995,India and Pakistan: U.S. Economic Sanctions.)

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well as its suspected Surya intercontinental ballistic missile program. The NSSP called forenhanced U.S.-India cooperation on the peaceful uses of space technology, and the July 2005Joint Statement called for closer ties in space exploration, satellite navigation and launch,and in the commercial space arena. Conferences on India-U.S. space science and commercewere held in Bangalore in 2004 and 2005. During President Bushs March 2006 visit toIndia, the two countries committed to move forward with agreements that will permit the

launch of U.S. satellites and satellites containing U.S. components by Indian space launchvehicles, and welcomed the inclusion of U.S. instruments in a planned Indian lunar mission.

Security Issues

Nuclear Weapons and Missile Proliferation. Many policy analysts consider theapparent arms race between India and Pakistan as posing perhaps the most likely prospectfor the future use of nuclear weapons by states. In May 1998, India conducted fiveunderground nuclear tests, breaking a self-imposed, 24-year moratorium on such testing.Despite international efforts to dissuade it, Pakistan quickly followed. The tests created aglobal storm of criticism and represented a serious setback for two decades of U.S. nuclear

nonproliferation efforts in South Asia. Following the tests, President Clinton imposed fullrestrictions on non-humanitarian aid to both India and Pakistan as mandated under Section102 of the Arms Export Control Act. Proliferation in South Asia is part of a chain ofrivalries India seeking to achieve deterrence against China, and Pakistan seeking to gainan equalizer against a conventionally stronger India. India currently is believed to haveenough fissile material, mainly plutonium, for 55-115 nuclear weapons; Pakistan, with aprogram focused on enriched uranium, may be capable of building a similar number. Bothcountries have aircraft capable of delivering nuclear bombs. Indias military has inductedshort- and intermediate-range ballistic missiles, while Pakistan itself possesses short- andmedium-range missiles (allegedly acquired from China and North Korea). All are assumedto be capable of delivering nuclear warheads over significant distances. In 1999, a quasi-

governmental Indian body released a Draft Nuclear Doctrine for India calling for aminimum credible deterrent (MCD) based upon a triad of delivery systems and pledgingthat India will not be the first to use nuclear weapons in a conflict. In January 2003, NewDelhi announced creation of a Nuclear Command Authority. After the bodys first sessionin September 2003, participants vowed to consolidate Indias nuclear deterrent. India thusappears to be taking the next steps toward operationalizing its nuclear weapons capability.(See also CRS Report RL32115,Missile Proliferation and the Strategic Balance in SouthAsia, and CRS Report RS21237,Indian and Pakistani Nuclear Weapons.)

U.S. Nonproliferation Efforts and Congressional Action. Soon after the May1998 nuclear tests in South Asia, Congress acted to ease aid sanctions through a series of

legislative measures.

1

In September 2001, President Bush waived remaining sanctions onIndia pursuant to P.L. 106-79. During the 1990s, the U.S. security focus in South Asia


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sought to minimize damage to the nonproliferation regime, prevent escalation of an armsrace, and promote Indo-Pakistani bilateral dialogue. In light of these goals, the ClintonAdministration set out five benchmarks for India and Pakistan based on the contents ofU.N. Security Council Resolution 1172, which condemned the two countries nuclear tests.These were: 1) signing and ratifying the Comprehensive Nuclear Test Ban Treaty (CTBT);2) halting all further production of fissile material and participating in Fissile Material Cutoff

Treaty negotiations; 3) limiting development and deployment of WMD delivery vehicles; 4)implementing strict export controls on sensitive WMD materials and technologies; and 5)establishing bilateral dialogue between India and Pakistan to resolve their mutual differences.

Progress in each of these areas has been limited, and the Bush Administration set asidethe benchmark framework. Along with security concerns, the governments of both India andPakistan are faced with the prestige factor attached to their nuclear programs and thedomestic unpopularity of relinquishing what are perceived to be potent symbols of nationalpower. Neither has signed the CTBT, and both appear to be producing weapons-grade fissilematerials. (India has consistently rejected the CTBT, as well as the Nuclear NonproliferationTreaty, as discriminatory, calling instead for a global nuclear disarmament regime. Although

both India and Pakistan currently observe self-imposed moratoria on nuclear testing, theycontinue to resist signing the CTBT a position made more tenable by U.S. Senatesrejection of the treaty in 1999.) The status of weaponization and deployment is unclear,though there are indications that this is occurring at a slow, but steady pace. Early optimismin the area of export controls waned and then vanished in February 2004 when it becameclear that Pakistanis were involved in the export of WMD materials and technologies. InSeptember 2004, two Indian scientists were sanctioned for providing WMD-relatedequipment or technologies to Iran. Section 1601 of P.L. 107-228 outlined U.S.nonproliferation objectives for South Asia. Among concerns voiced by some Members ofCongress was that there continue to be contradictions in U.S. nonproliferation policytoward South Asia, particularly as related to the Senates rejection of the CTBT.

U.S.-India Security Cooperation. Security cooperation between the United Statesand India is in the early stages of development (unlike U.S.-Pakistan military ties, which dateback to the 1950s). Since September 2001, and despite a concurrent U.S. rapprochementwith Pakistan, U.S.-India security cooperation has flourished. The India-U.S. Defense PolicyGroup (DPG) moribund since Indias 1998 nuclear tests and ensuing U.S. sanctions was revived in late 2001 and meets annually; U.S. diplomats call military cooperation amongthe most important aspects of transformed bilateral relations. In June 2005, the United Statesand India signed a ten-year defense pact outlining planned collaboration in multilateraloperations, expanded two-way defense trade, increasing opportunities for technologytransfers and co-production, expanded collaboration related to missile defense, andestablishment of a bilateral Defense Procurement and Production Group. The United Statesviews defense cooperation with India in the context of common principles and sharednational interests such as defeating terrorism, preventing weapons proliferation, andmaintaining regional stability. Many analysts laud increased U.S.-India security ties asproviding an alleged counterbalance to growing Chinese influence in Asia.

Since early 2002, the United States and India have held numerous and unprecedentedjoint exercises involving all military branches. Air exercises have provided the U.S. militarywith its first look at Russian-built Su-30MKIs; in 2004, mock air combat saw Indian pilotsin late-model Russian-built fighters hold off American pilots flying older F-15Cs, and Indian


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successes were repeated versus U.S. F-16s in November 2005. U.S. and Indian specialforces soldiers have held joint exercises near the India-China border, and major annualMalabar joint naval exercises are held off the Indian coast. Despite these developments,there remain indications that the perceptions and expectations of top U.S. and Indian militaryleaders are divergent on several key issues, including Indias regional role, approaches tocountering terrorism, and U.S.-Pakistan relations. The continued existence of a

nonproliferation constituency in the United States is seen as a further hindrance to more fullydeveloped military-to-military relations.

Along with increasing military-to-military ties, the issue of U.S. arms sales to India hastaken a higher profile. In 2002, the Pentagon negotiated a sale to India of 12 counter-batteryradar sets (or Firefinder radars) worth a total of $190 million. India also purchased $29million worth of counterterrorism equipment for its special forces and has receivedsophisticated U.S.-made electronic ground sensors to help stem the tide of militantinfiltration in the Kashmir region. In July 2004, Congress was notified of a possible sale toIndia involving up to $40 million worth of aircraft self-protection systems to be mounted onthe Boeing 737s that carry the Indian head of state. The State Department has authorized

Israel to sell to India the jointly developed U.S.-Israeli Phalcon airborne early warningsystem, an expensive asset that some analysts believe may tilt the regional strategic balanceeven further in Indias favor. The Indian government reportedly possesses an extensive listof desired U.S.-made weapons, including PAC-3 anti-missile systems, electronic warfaresystems, and possibly even fighter aircraft. The March 2005 unveiling of the BushAdministrations new strategy for South Asia included assertions that the United Stateswelcomed Indian requests for information on the possible purchase of F-16 or F/A-18 multi-role fighters, and indicated that Washington is ready to discuss the sale of transformativesystems in areas such as command and control, early warning, and missile defense. Still,some top Indian officials express concern that the United States is a fickle partner that maynot always be relied upon to provide the reciprocity, sensitivity, and high-technology

transfers sought by New Delhi. (In February 2006, the Indian Navy declined an offer to leasetwo U.S. P-3C maritime reconnaissance aircraft, calling the arrangements expensive.)

In a controversial turn, the Indian government has sought to purchase a sophisticatedanti-missile platform, the Arrow Weapon System, from Israel. Because the United Statestook the lead in the systems development, the U.S. government has veto power over anyIsraeli exports of the Arrow. Although Defense Department officials are seen to support thesale as meshing with President Bushs policy of cooperating with friendly countries onmissile defense, State Department officials are reported to opposed the transfer, believingthat it would send the wrong signal to other weapons-exporting states at a time when the U.S.is seeking to discourage international weapons proliferation. Indications are that a U.S.interest in maintaining a strategic balance on the subcontinent, along with U.S. obligationsunder the Missile Technology Control Regime, may preclude any approval of the Arrow sale.

Joint U.S.-India military exercises and arms sales negotiations can cause disquiet inPakistan, where there is concern that induction of advanced weapons systems into the regioncould destabilize strategic balance there. Islamabad is concerned that its alreadydisadvantageous conventional military status vis--vis New Delhi will be further eroded byIndias acquisition of sophisticated force multipliers. In fact, numerous observers identifya pro-India drift in the U.S. governments strategic orientation in South Asia. YetWashington regularly lauds Islamabads role as a key ally in the U.S.-led counterterrorism


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coalition and assures Pakistan that it will take no actions to disrupt strategic balance on thesubcontinent. (See also CRS Report RL33072, U.S.-India Bilateral Agreements, and CRSReport RS22148, Combat Aircraft Sales to South Asia.)

India-Iran Relations. Indias relations with Iran traditionally have been positive and,in 2003, the two countries launched a bilateral strategic partnership. Many in the U.S.Congress have voiced concern that New Delhis policies toward Tehrans controversialnuclear program may not be congruent with those of Washington, although these concernswere eased when India voted with the United States (and the majority) at the InternationalAtomic Energy Agency sessions of September 2005 and February 2006. In 2004 and 2005,the United States sanctioned Indian scientists and chemical companies for transferring to IranWMD-related equipment and/or technology; New Delhi called the moves unjustified. Thereare further U.S. concerns that India plans to seek energy resources from Iran, thus benefittinga country the United States is seeking to isolate. Indian firms have in recent years takenlong-term contracts for purchase of Iranian gas and oil. Building upon such growing energyties is the proposed construction of a pipeline to deliver Iranian natural gas to India throughPakistan. The Bush Administration has expressed strong opposition to any gas pipeline

projects involving Iran, but top Indian officials insist the project is in Indias national interestand they remain fully committed to the $4-7 billion venture, which may begin constructionin 2007. The Iran-Libya Sanctions Act (P.L. 107-24) requires the President to imposesanctions on foreign companies that make an investment of more than $20 million in oneyear in Irans energy sector (see CRS Report RS20871, The Iran-Libya Sanctions Act).

Regional Dissidence and Human Rights

As a vast mosaic of ethnicities, languages, cultures, and religions, India can be difficultto govern. Internal instability resulting from diversity is further complicated by coloniallegacies such as international borders that separate members of the same ethnic groups,

creating flashpoints for regional dissidence and separatism. Beyond the Kashmir problem,separatist insurgents in remote and underdeveloped northeast regions confound New Delhiand create international tensions by operating out of neighboring Bangladesh, Burma,Bhutan, and Nepal. Maoist rebels continue to operate in numerous states. India also hassuffered outbreaks of serious communal violence between Hindus and Muslims, especiallyin the western Gujarat state. (See also CRS Report RL32259, Terrorism in South Asia.)

The Kashmir Issue. Although India suffers from several militant regional separatistmovements, the Kashmir issue has proven the most lethal and intractable. Conflict overKashmiri sovereignty also has brought global attention to a potential flashpoint forinterstate war between nuclear-armed powers. The problem is rooted in competing claims

to the former princely state, divided since 1948 by a military Line of Control (LOC)separating Indias Jammu and Kashmir and Pakistan-controlled Azad [Free] Kashmir. Indiaand Pakistan fought full-scale wars over Kashmir in 1947 and 1965. Some Kashmiris seekindependence from both countries. Spurred by a perception of rigged state elections in 1989,an ongoing separatist war between Islamic militants and their supporters and Indian securityforces in Indian-held Kashmir has claimed perhaps 66,000 lives. India blames Pakistan forsupporting cross-border terrorism and for fueling a separatist rebellion in theMuslim-majority Kashmir Valley with arms, training, and militants. Islamabad, for its part,claims to provide only diplomatic and moral support to what it calls freedom fighters whoresist Indian rule and suffer alleged human rights abuses in the region. New Delhi insists that


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the dispute should not be internationalized through involvement by third-party mediatorsand India is widely believed to be satisfied with the territorial status quo. In 1999, a bloody,six-week-long battle near the LOC at Kargil cost more than one thousand lives and includedPakistani army troops crossing into Indian-controlled territory. Islamabad has sought tobring external major power persuasion to bear on India, especially from the United States.The longstanding U.S. position on Kashmir is that the issue must be resolved through

negotiations between India and Pakistan while taking into account the wishes of the Kashmiripeople. (See also CRS Report RL32259, Terrorism in South Asia.)

The Northeast. Since the time of Indias foundation, numerous separatist groupshave fought for ethnic autonomy or independence in the countrys northeast region. Someof the tribal struggles in the small states known as the Seven Sisters are centuries old. It isestimated that more than 25,000 people have been killed in such fighting since 1948,including some 2,000 in 2004. The United Liberation Front of Assam (ULFA), the NationalLiberation Front of Tripura, the National Democratic Front of Bodoland (NDFB), and theUnited National Liberation Front (seeking an independent Manipur) are among the groupsat war with the central government. In April 2005, the U.S. State Department named ULFA

in its list of other selected terrorists organizations, the first time an Indian separatist groupoutside Kashmir was so named. New Delhi has at times blamed Bangladesh, Burma, Nepal,and Bhutan for sheltering one or more of these groups beyond the reach of Indian securityforces, and India reportedly has launched joint counter-insurgency operations with some ofits neighbors. India also has accused Pakistans intelligence agency of training and equippingmilitants. Bhutan launched major military operations against suspected rebel camps onBhutanese territory in 2003 and appeared to have routed the ULFA and NDFB. In 2004, fiveleading separatist groups from the region rejected New Delhis offer of unconditional talks,saying talks can only take place under U.N. mediation and if the sovereignty issue was on thetable. Later, in what seemed a blow to the new Congress-led governments domestic securitypolicies, a spate of lethal violence in Assam and Nagaland was blamed on ULFA and NDFB

militants who had re-established their bases in Bhutan. Major Indian army operations in late2004 may have overrun numerous Manipur separatist bases near the Burmese border.

Naxalites. Also operating in India are Naxalites communist insurgentsostensibly engaged in violent struggle on behalf of landless laborers and tribals. Thesegroups, most active in inland areas of east-central India, claim to be battling oppression andexploitation in order to create a classless society. Their opponents call them terrorists andextortionists. Related violence caused nearly 1,000 deaths in 2005. Most notable are thePeoples War Group (PWG), mainly active in the southern Andhra Pradesh state, and theMaoist Communist Center of West Bengal and Bihar. In 2004, the two groups merged toform the Communist Party of India - Maoist. Both appear on the U.S. State Departmentslist of other selected terrorist organizations and both are designated as terrorist groups byNew Delhi, which claims there are about 9,300 Maoist rebels in the country. PWG fighterswere behind an October 2003 landmine attack that nearly killed the chief minster of AndhraPradesh. In July 2004, the Andhra Pradesh government lifted an 11-year-old ban on thePWG, but the Maoists later withdrew from ensuing peace talks, accusing the stategovernment of breaking a cease-fire agreement. Violent attacks on government forces thenescalated in 2005 and continue in 2006. New Delhi expresses concern that indigenousMaoists are increasing their links with Nepali communists at war with the Kathmandugovernment. Many analysts fear that Naxalite activity is spreading and becoming moreaudacious in the face of incoherent and insufficient Indian government policies to halt it.


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Gujarat. In February 2002, a group of Hindu activists returning by train to the westernstate of Gujarat from the city of Ayodhya site of the razed 16th-century Babri Mosque anda proposed Hindu temple were attacked by a Muslim mob in the town of Godhra; 58were killed. Up to 2,000 people died in the fearsome communal rioting that followed, mostof them Muslims. The BJP-led state and national governments came under fire for inaction;some observers saw evidence of state government complicity in anti-Muslim attacks. TheU.S. State Department and human rights groups have been critical of New Delhis apparentlyineffectual efforts to bring those responsible to justice; some of these criticisms were echoedby the Indian Supreme Court in 2003. In March 2005, the State Department made acontroversial decision to deny a U.S. visa to Gujarat Chief Minster Narendra Modi under aU.S. law barring entry for foreign government officials found to be complicit in severeviolations of religious freedom. The decision was strongly criticized in India.

Human Rights. According to the U.S. State DepartmentsIndia: Country Report onHuman Rights Practices, 2005, the Indian government generally respected the human rightsof its citizens; however, numerous serious problems remained. These included extensivesocietal violence against women; extrajudicial killings, including faked encounter killings;

excessive use of force by security forces, arbitrary arrests, and incommunicado detentionsin Kashmir and several northeastern states; torture and rape by agents of the government;poor prison conditions and lengthy pretrial detentions without charge; forced prostitution;child prostitution and female infanticide; human trafficking; and caste-based discriminationand violence, among others. Terrorist attacks and kidnapings also remained grievousproblems, especially in Kashmir and the northeastern states. New York-based Human RightsWatchs latest annual report noted important positive steps by the Indian government in2005 with respect to human rights, but also reviewed the persistence of problems such asabuses by security forces and a failure to contain violent religious extremism.

The State Department claims that Indias human right abuses are generated by a

traditionally hierarchical social structure, deeply rooted tensions among the countrys manyethnic and religious communities, violent secessionist movements and the authoritiesattempts to repress them, and deficient police methods and training. Indias 1958 ArmedForces Special Powers Act, which gives security forces wide leeway to act with impunity inconflict zones, has been called a facilitator of grave human rights abuses in several Indianstates. India generally denies international human rights groups official access to Kashmirand other sensitive areas. The State Departments 2005-2006 report on Supporting HumanRights and Democracy called India a vibrant democracy with strong constitutional humanrights protections, but asserted that, Poor enforcement of laws, widespread corruption, alack of accountability, and the severely overburdened court system weakened the deliveryof justice. States June 2005 report on trafficking in persons again placed India on the Tier2 Watch List for inability to show evidence of increased efforts to address trafficking inpersons. The trafficking of women and children is identified as a serious problem in India.

An officially secular nation, India has a long tradition of religious tolerance (withoccasional lapses), which is protected under its constitution. The population includes aHindu majority of 82% as well as a large Muslim minority of some 150 million (14%).Christians, Sikhs, Buddhists, Jains, and others total less than 4%. Although freedom ofreligion is protected by the Indian government, human rights groups have noted that Indiasreligious tolerance is susceptible to attack by religious extremists. In its annual report oninternational religious freedom released in November 2005, the State Department found that


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the status of religious freedom in India had improved in a number of ways ... yet seriousproblems remained. It lauded the New Delhi government for demonstrating a commitmentto policies of religious inclusion, while claiming that the government sometimes in therecent past did not act swiftly enough to counter societal attacks against religious minoritiesand attempts by some leaders of state and local governments to limit religious freedom. AMay 2005 report of the U.S. Commission on International Religious Freedom placed India

on a Watch List of countries requiring close monitoring due to the nature and extent ofviolations of religious freedom engaged in or tolerated by the governments. However, asa result of a marked improvement in conditions since May 2004 elections, the Commissionno longer recommended that India be designated as a Country of Particular Concern.

Indias Economy and U.S. Concerns

Overview. India is in the midst of a major and rapid economic expansion. Althoughthere is widespread and serious poverty in India, observers believe the countrys long-termeconomic potential is tremendous, and recent strides in the technology sector have broughtinternational attention to such high-tech centers as Bangalore and Hyderabad. Per capita

GDP is about $3,740 when accounting for purchasing power parity. Many analysts andbusiness leaders along with some U.S. government officials point to excessiveregulatory and bureaucratic structures as a hindrance to the realization of Indias fulleconomic potential. The high cost of capital (rooted in large government budget deficits) andan abysmal infrastructure also draw negative appraisals as obstacles to growth. Constantcomparisons with the progress of the Chinese economy show India lagging in rates of growthand foreign investment, and in the removal of trade barriers. Still, despite problems, thecurrent growth rate of the Indian economy is among the highest in the world.

After enjoying an average growth rate above 6% for the 1990s, Indias economy cooledsomewhat with the global economic downturn after 2000. Yet sluggish Cold War-era

Hindu rates of growth became a thing of the past. For the fiscal year ending March 2004,real change in GDP was 8.2%, with continued robust growth in services and industry, andmonsoon rains driving recovery in the agricultural sector. The economy grew by 6.9% inFY2004/05, led by a booming manufacturing sector. Estimated growth for the most recentfiscal year runs near 8%, and short-term estimates are encouraging, predicting expansionnear 7% for the next two years. A major upswing in services is expected to lead; this sectornow accounts for more than half of Indias GDP. Consumer price inflation has been fairlylow (4.2% in 2005), but may rise due to higher energy costs. As of November 2005, Indiasforeign exchange reserves were at more than $142 billion. The benchmark Sensex index ofthe Bombay Stock Exchange has continuously been reaching new highs since 2004.

A major U.S. concern with regard to India is the scope and pace of reforms in what hasbeen that countrys quasi-socialist economy. Economic reforms begun in 1991, under theCongress-led government of Prime Minister Rao, boosted growth and led to new foreigninvestment to India in the mid-1990s. Reform efforts stagnated, however, under weakcoalition governments later in the decade. The 1997 Asian financial crisis and sanctions onIndia (as a result of its May 1998 nuclear tests) further dampened the economic outlook.Following the 1999 parliamentary election, the BJP-led government launched second-generation economic reforms, including major deregulation, privatization, and tariff-reducingmeasures. Once seen as favoring domestic business and diffident about foreign involvement,New Delhi appears to gradually be embracing globalization and has sought to reassure


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foreign investors with promises of transparent and nondiscriminatory policies. In February2006, a top International Monetary Fund official said that Indias continued rapid economicgrowth will be facilitated only by enhanced Indian integration with the global economythrough continued reforms and infrastructure improvements.

Trade and Investment. As Indias largest trade and investment partner, the UnitedStates strongly supports New Delhis continuing economic reform policies. Levels of U.S.-India trade, while relatively low, are blossoming; the total value of bilateral trade has doubledsince 2001. U.S. exports to India in 2005 had a value of $8 billion (up 30% over 2004), withbusiness and telecommunications equipment, civilian aircraft, gemstones, fertilizer, andchemicals as leading categories. Imports from India in 2005 totaled $18.8 billion (up 21%over 2004). Leading imports included gemstones, jewelry, cotton apparel, and textiles.Annual foreign direct investment to India from all countries rose from about $100 millionin 1990 to an estimated at $7.4 billion for 2005; about one-third of these investments wasmade by U.S. companies (in late 2005, the major U.S.-based companies Microsoft, Dell, andOracle announced plans for multi-billion-dollar investments in India). India has moved toraise limits on foreign investment in several key sectors, however, despite significant tariff

reductions and other measures taken by India to improve market access, according to the2005 report of the United States Trade Representative (USTR), a number of foreign tradebarriers remain, including remarkably high tariffs, especially in the agricultural sector. TheUSTR asserts that substantial expansion of U.S.-India trade will be unlikely withoutsignificant Indian liberalization. In March 2006, the U.S.-India CEO Forum, composed often chief executives from each country representing a cross-section of key industrial sectors,issued a report identifying Indias poor infrastructure and dense bureaucracy as keyimpediments to increased bilateral trade and investment relations.

Indias extensive trade and investment barriers have been criticized by U.S. governmentofficials and business leaders as an impediment to its own economic development, as well

as to stronger U.S.-India ties. For example, in 2004, the U.S. Ambassador to India told aDelhi audience that the U.S. is one of the worlds most open economies and India is one ofthe most closed. Later that year, U.S. Under Secretary of State Larson opined that tradeand investment flows between the U.S. and India are far below where they should and canbe, adding that the picture for U.S. investment is also lackluster. He identified theprimary reason for the suboptimal situation as the slow pace of economic reform in India.In March 2006, President Bush noted Indias dramatic progress in economic reform whileinsisting theres more work to be done, especially in lifting caps on foreign investment,making regulations more transparent, and continuing to lower tariffs. The HeritageFoundations 2006 Index of Economic Freedom which may overemphasize the value ofabsolute growth and downplay broader quality-of-life measurements again rated India asbeing mostly unfree, highlighting especially restrictive trade policies, heavy governmentinvolvement in the banking and finance sector, demanding regulatory structures, and a highlevel of black market activity. Corruption plays a role: in 2005, Berlin-based TransparencyInternational placed India 88th out of 158 countries in its annual ranking of world corruptionlevels. Moreover, inadequate intellectual property rights protection is a long-standing issuebetween the United States and India. The USTR places India on its Special 301 PriorityWatch List for weak protection of such rights. The International Intellectual PropertyAlliance, a coalition of U.S. copyright-based industries, estimated U.S. losses of $443million due to trade piracy in India in 2005, three-quarters of this in the categories ofbusiness and entertainment software (estimated loss amounts for 2005 do not include motion


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picture piracy, which in 2004 was estimated to have cost some $80 million). (See CRSReport RS21502,India-U.S. Economic Relations.)

U.S. Assistance

Economic. According to the U.S. Agency for International Development (USAID),India has more people living in abject poverty (some 350 million) than do Latin Americaand Africa combined. From 1947 through 2004, the United States provided nearly $15billion in economic loans and grants to India. USAID programs in India, budgeted at about$68 million in FY2006, concentrate on five areas: (1) economic growth (increasedtransparency and efficiency in the mobilization and allocation of resources); (2) health(improved overall health with a greater integration of food assistance, reproductive services,and the prevention of HIV/AIDS and other infectious diseases); (3) disaster management;(4) energy and environment(improved access to clean energy and water; the reduction ofpublic subsidies through improved cost recovery); and (5) opportunity and equity (improvedaccess to elementary education, and justice and other social and economic services forvulnerable groups, especially women and children).

Security. The United States has provided about $161 million in military assistanceto India since 1947, more than 90% of it distributed from 1962-1966. In recent years, modestsecurity-related assistance has emphasized export control enhancements and militarytraining. Earlier Bush Administration requests for Foreign Military Financing were laterwithdrawn, with the two countries agreeing to pursue commercial sales programs. ThePentagon reports Indian military sales agreements worth $202 million in FY2002-FY2004.

Table 1. U.S. Assistance to India, FY2001-FY2007(in millions of dollars)

Program

orAccount

FY2001

Actual

FY2002

Actual

FY2003

Actual

FY2004

Actual

FY2005

Actual

FY2006

Est.

FY2007

Request

CSH 24.6 41.7 47.4 47.8 53.2 47.7 48.4

DA 28.8 29.2 34.5 22.5 24.9 10.9 10.0

ESF 5.0 7.0 10.5 14.9 14.9 5.0 6.5

IMET 0.5 1.0 1.0 1.4 1.5 1.2 1.5

NADR 0.9 0.9 1.0 0.7 4.2 2.4 1.5

Subtotal $59.8 $79.8 $94.4 $106.2 $98.7 $67.2 $67.9

Food Aid* 78.3 105.7 44.8 30.8 26.1 43.0

Total $138.1 $185.5 $139.2 $137.0 $124.8 $110.2 $67.9Sources: U.S. Departments of State and Agriculture; U.S. Agency for International Development.Abbreviations:CSH: Child Survival and Health

DA: Development AssistanceESF: Economic Support FundIMET: International Military Education and TrainingNADR: Nonproliferation, Anti-Terrorism, Demining, and Related (mainly export control assistance, but includes anti-

terrorism assistance for FY2007)* P.L.480 Title II (grants) and Section 416(b) of the Agricultural Act of 1949, as amended (surplus agricultural commodity

donations). Food aid totals do not include freight costs.

us-india relationship

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