Archives

U.S. and India move forward with expansive ties after overcoming some hiccups in 2003

India Report by John E. Carbaugh, Jr., December 22, 2003

U.S.-India ties are ending the year on the upswing, as the two nations continue their drive toward a critical partnership for the 21st Century.

After a somewhat turbulent year which saw the U.S. and India get into a number of spats, including over Iraq and trade liberalization, the evolving bilateral relationship is moving forward again, with the last couple of months seeing a further deepening of military ties, new high-technology cooperation, positive economic developments, a new U.S. Ambassador on his way to New Delhi, and signs of a thaw in India-Pakistan tensions.

MATURING RELATIONSHIP

U.S. foreign policy insiders say the fact that the U.S.-India relationship continues to deepen despite some disputes shows that ties are ever-maturing.

"Both New Delhi and Washington have learned from past problems in dealing with each other," noted a recently released report on South Asia by a Council on Foreign Relations (CFR)/Asia Society Task Force, on which I participated. "The United States is paying more sustained high-level attention to India. New Delhi is handling its relations with Washington in a more pragmatic and self-assured fashion. When India disagrees with U.S. policy, it says so frankly but does not go out of its way to offer gratuitous public criticism, as was often the case in the past. The two countries have learned to disagree without being disagreeable.

"Despite policy disagreements with the United States (for example, regarding Iraq and international economic and trade issues), India’s Government and people find increasing overlays between their interests and those of the American people," added the report, New Priorities in South Asia: U.S. Policy Toward India, Pakistan, and Afghanistan. "After four decades of cool ties, Washington and New Delhi are now actively and constructively engaged."

PROBLEMS THIS YEAR

The war with Iraq this year was one point of contention between India and the U.S. India was somewhat critical of the campaign -- although not obstructive -- and the U.S. was disappointed that India backed away from supplying troops to help in peacekeeping and reconstruction efforts.

Simmering Indian unease over Washington’s ties with Islamabad were also evident this year, with India arguing that the U.S. -- which sees Islamabad as a critical ally in the anti-terror effort -- was not pushing Pakistan hard enough to end its support of cross-border terrorism into India.

Tensions also rose on the trade front, with Washington angry over New Delhi’s stance in World Trade Organization (WTO) talks in Cancun last September. India took an aggressive lead in opposing the U.S., emerging as the leader of poorer countries in a stand-off with richer nations over trade barriers, resulting in the collapse of the Doha Round of liberalization negotiations. Cancun reinforced some American perceptions that India is still a protectionist economy with too many barriers to trade and investment.

Problems in U.S.-India economic ties were also made worse because of growing U.S. disquiet over India’s rise as an outsourcing center, with American firms shifting jobs out of the U.S. into India. "Politicians are starting to view offshore outsourcing as the root of the jobless recovery in tech and services," a recent Business Week report noted.

POSITIVES OUTWEIGH NEGATIVES

However, informed South Asia hands in the U.S. believe these problems are mere hiccups in the ongoing transformation of U.S.-India ties. At the end of this year it is becoming evident that the positives are clearly outweighing the negatives in the bilateral relationship.

"India, with its democratic political system and decade of steady economic advance, holds out the prospect for long-term political and security ties and substantially expanded trade and economic relations with the United States," the CFR report said. "The medium term policy challenge for the United States and India is to complete the transition from past estrangement through engagement on to genuine partnership."

INTENSIFYING SECURITY TIES

Security ties between the U.S. and India have continued to flourish, as the two nations put the dispute over Iraq behind them. Anti-terror cooperation has continued, while deeper defense ties have emerged as one of the most promising areas of the relationship.

"Some analysts have lauded increased U.S.-India security ties as providing potential counterbalance to growing Chinese influence in the region," a new Congressional Research Service report noted. "During 2002 and continuing into 2003, the United States and India held numerous joint exercises involving all military branches."

The latest ones included advanced air combat exercises, a joint Special Forces exercise in Ladakh near the India-China border, and a large joint naval exercise off the southern coast of India. The U.S. and India are likely to hold more exercises in the coming months, according to the CFR report, which noted that defense sales have also begun to take off in the last year.

The U.S. and India are also reportedly closer to finalizing a deal on sharing classified military research data. The Master Information Exchange Agreement would have far reaching positive implications for bilateral defense relations, officials from both nations said, allowing defense labs in India and U.S. to exchange scientists and collaborate in research.

"In short, U.S.-India military-to-military cooperation is evolving along lines that the Pentagon has established with many non-allied but ‘friendly’ countries, noted the CFR report. "The policy challenge is to continue this enhanced cooperation and, where possible, to enlarge its parameters."

U.S. APPLAUDS INDIA’S OVERTURES TO PAKISTAN

On the foreign policy front, the U.S. has also applauded India’s recent initiatives to ease tensions with Pakistan, notably a set of 12 confidence-building measures offered to Islamabad in October as an attempt to move toward normalizing relations. Since then Pakistan offered a cease-fire along the Kashmir Line of Control, while the two nations also agreed to end a two-year suspension of airline overflight rights in preparation for the scheduled visit of PM Vajpayee to Islamabad for a summit meeting of the South Asian Association for Regional Cooperation in January 2004. More startlingly, Pakistani President Gen. Pervez Musharraf said last week that Islamabad would be now willing to withdraw its demand for a plebiscite in Kashmir if New Delhi would engage in a dialogue on the issue.

The CFR report stresses that it is in India’s wider benefit to work to ease the tensions with Pakistan. "New Delhi’s primary foreign policy concern remains its neighbor Pakistan. Chronic tensions, in addition to triggering three wars and periodic crises, have diminished the political role that India can play on the global stage. Until India finds a way to work out a modus vivendi with Pakistan, it is likely to face continuing difficulties in achieving international status commensurate with its aspirations."

NEW OPTIMISM OVER ECONOMIC TIES

Although economic ties have been seen as the Achilles’ heel in the U.S.-India relationship, there are new signs that this lagging sector could be finally catching up to the other, more positive areas in bilateral ties.

Under Secretary of Commerce for Industry and Security Kenneth Juster -- who has been the U.S. point man on economic ties with India -- lauded significant recent increases in bilateral trade with India, despite acknowledging continued barriers to trade and investment in India.

India has the potential of becoming one of the great democratic powers of the 21st century, according to Juster, who pointed to a recent Goldman Sachs study that projected India to be the world’s third largest economy by the year 2050 if a number of structural barriers to trade and investment are removed.

"We recognize and greatly admire India’s technical competence in information technology, life sciences, and other disciplines of high technology," Juster said during a visit to India last month. "India’s economy has enormous potential. India is now producing companies that compete with any in the world. If India undertakes certain reforms, it can be the next economic tiger."

These reforms, he suggested, include further reducing tariffs and non-tariff barriers and adopting stricter protection measures for intellectual property rights.

The CFR report also noted an improvement in India’s economy. "Despite the hesitant pursuit of reform in recent years, India’s gross domestic product (GDP) has grown at a respectable 6 percent annually over the past decade. Even though India’s 2002 growth of 5.8 percent remains below the peak achieved in the mid-1990s -- when the country’s GDP increased by more than 7 percent for three years in a row -- the Indian economy is moving ahead. Among the larger Asian economies, India’s overall performance has been second only to China’s. Still, India could advance significantly faster and achieve an 8-9 percent annual growth rate were the government more vigorous in introducing and implementing necessary policy and administrative reforms.

"Even though India continues to have a reputation as a difficult place to conduct business, many Fortune 500 companies have profitable activities there," the CFR report pointed out. "With 19,000 employees, including 15,000 in ‘backoffice’ operations, General Electric (GE) has the largest Indian stake of any U.S. concern and in 2002 earned more than $1 billion from India. Although investment from abroad remains well below Indian expectations, foreign trade has grown steadily. Exports and imports rose from 13.3 percent of GDP in 1990-91 to 21.8 percent a decade later. Bilateral trade with the United States has also increased, with Indian exports to the United States growing far more rapidly than U.S. sales to India."

HIGH-TECHNOLOGY COOPERATION

The U.S. and India have made substantial progress in high-technology commerce and cooperation, according to Juster, despite ongoing U.S. concerns over India’s export controls, and Indian complaints over the stingy access to advanced American technology. Juster is upbeat on future progress in the so-called Trinity issues -- civilian space and civilian nuclear activities, in addition to high technology -- with the signing of a new agreement likely next year in these areas under the Indo-U.S. High Technology Cooperation Group (HTCG).

Juster also held out the possibility of missile defense cooperation with India -- perhaps adding this area to the Trinity issues.

BULLISH OUTLOOK

A recent Business Week report raised eyebrows in the U.S. with its bullish outlook on India and its economic ties with the U.S. -- driven largely by India’s high-tech expertise. "India and the U.S., nations that barely interacted 15 years ago, could turn out to be the ideal economic partners for the new century," the magazine concluded.

The Business Week report also pointed out that if India can turn into a fast-growth economy, "it will be the first developing nation that used its brainpower, not natural resources or the raw muscle of factory labor, as the catalyst."

Business Week even put a positive spin on the current outsourcing problem. "Harnessing Indian brainpower will greatly boost American tech and services leadership by filling a big projected shortfall in skilled labor as baby boomers retire … By augmenting their U.S. R&D teams with the 260,000 engineers pumped out by Indian schools each year, they can afford to throw many more brains at a task and speed up product launches, develop more prototypes, and upgrade quality. Whether you regard the trend as disruptive or beneficial, one thing is clear: Corporate America no longer feels it can afford to ignore India."

NEW U.S. AMBASSADOR

The new U.S. Ambassador to India, David Mulford, who was confirmed by the U.S. Senate earlier this month, is also vowing to use his business background to boost U.S.-India economic ties. "The U.S.-India economic relationship presents a huge opportunity for both of our nations," said Mulford, a former top U.S. Treasury Department official turned international banker with Credit Suisse First Boston, who is touting his international economic policy expertise as ideally suited to his assignment in New Delhi.

"I believe this experience … in global economic and financial affairs on behalf of the United States, together with my involvement these past 10 years in the world of great economic transformation, will be particularly useful in this assignment," Mulford said at his Senate confirmation hearing "…Working to strengthen further our economic relationships with India would certainly be one of my highest priorities.

The CFR report suggests that U.S. economic priorities with India include negotiating a trade agreement focused on services; treating India as a ‘friendly country’ in granting export licenses for transfers of defense equipment and dual-use items; and easing restrictions on cooperation in civilian space satellite programs.

TIES THAT BIND

Overall, the CFR report concludes, "the United States and India are getting along better than at any time since India became independent in 1947. Over the medium term, the policy challenge through 2010 is to broaden and deepen the links that bind the two countries so that their relationship will mature into a genuine partnership."

The report stresses that such a partnership will be of great benefit to both nations. "For the United States, India -- with its billion-plus population, democratic institutions and values, steadily growing economy, and substantial defense establishment -- represents a partner of great value. In a few years, India will become one of the world’s largest economies, the principal security factor in the Indian Ocean region, and increasingly important in the overall and uncertain Asian power equation. India has become a partner in combating terrorism and, despite past differences on nuclear issues, shares U.S. concerns about preventing the further spread of weapons of mass destruction (WMD). On the economic side, the United States stands to gain from steadily expanding ties, especially in knowledge industries in which India possesses major strengths. More cooperative U.S.-India ties can also narrow the gap between industrialized and developing countries on global issues such as trade, the environment, AIDS, and poverty alleviation.

"New Delhi has an equal if not greater stake in transformed relations with Washington," the CFR report added. "As India presses ahead with its economic development, it sees good relations with the world’s largest economy as a spur to more foreign direct investment, to increased trade, and to easier access to advanced technology, in particular to what Indian leaders call ‘the trinity’ of (civilian and military) dual-use products, renewed cooperation in nonmilitary space activities, and civilian nuclear technology. India also hopes that closer ties will further increase American sensitivity to New Delhi’s key security concerns, most of all those relating to Pakistan. In the broader Asian context, cooperative security ties would serve Indian interests -- like those of the United States -- as a hedge were China to become an aggressive threat.