Order Code IB93097
CRS Issue Brief for Congress
Received through the CRS Web
India-U.S. Relations
Updated April 6, 2006
K. Alan Kronstadt
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Context of the U.S.-India Relationship
India’s Regional Relations
Pakistan
China
Other Countries
Political Setting
National Elections
The Congress Party
The Bharatiya Janata Party (BJP)
India-U.S. Relations and Bilateral Issues
“Next Steps in Strategic Partnership” and Beyond
High-Technology Trade
Civil Nuclear Cooperation
Civil Space Cooperation
Security Issues
Nuclear Weapons and Missile Proliferation
U.S. Nonproliferation Efforts and Congressional Action
U.S.-India Security Cooperation
India-Iran Relations
Regional Dissidence and Human Rights
The Kashmir Issue
The Northeast
“Naxalites”
Gujarat
Human Rights
India’s Economy and U.S. Concerns
Overview
Trade and Investment
U.S. Assistance
Economic
Security

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India-U.S. Relations
SUMMARY
The end of the Cold War freed India-U.S.
Proliferation-related restrictions on U.S. aid
relations from the constraints of global bipo-
were triggered, then later lifted through
larity, but interactions continued for a decade
congressional-executive cooperation from
to be affected by the burden of history, most
1998 to 2000. Remaining sanctions on India
notably the longstanding India-Pakistan ri-
(and Pakistan) were removed in October 2001.
valry and nuclear weapons proliferation in the
region. Recent years, however, have wit-
Continuing U.S. interest in South Asia
nessed a sea change in bilateral relations, with
focuses on ongoing tensions between India
more positive interactions becoming the norm.
and Pakistan, a problem rooted in unfinished
India’s swift offer of full support for U.S.-led
business from the 1947 Partition and compet-
counterterrorism operations after September
ing claims to the Kashmir region. The United
2001 was widely viewed as reflective of such
States strongly encourages maintenance of a
change. Today, President Bush calls India a
cease-fire in Kashmir and continued, substan-
“natural partner” of the United States and his
tive dialogue between India and Pakistan.
Administration seeks to assist India’s rise as a
major power in the new century.
U.S. concerns about human rights issues
related to regional dissidence and separatism
In July 2005, President Bush and Indian
in several Indian states continue. Strife in
Prime Minister Singh issued a Joint Statement
these areas has killed tens of thousands of
resolving to establish a U.S.-India “global
civilians, militants, and security forces over
partnership” on a wide range of issues. In
the past two decades. Communal tensions and
recent years, the United States and India have
religious freedom have been another matter of
engaged in numerous and unprecedented joint
concern. Many in Congress, along with the
military exercises. Discussions of possible
State Department and international human
sales to India of major U.S.-built weapons
rights groups, have criticized India for per-
systems are ongoing. Plans to expand high-
ceived abuses in these and other areas.
technology trade have become key bilateral
issues in recent years. In the July Joint State-
India is in the midst of major and rapid
ment, the Bush Administration dubbed India
economic expansion. Many U.S. business
“a responsible state with advanced nuclear
interests view India as a lucrative market and
technology” and seeks to achieve “full civilian
candidate for foreign investment. The United
nuclear energy cooperation with India.” Such
States supports India’s efforts to transform its
proposed cooperation is controversial and
once quasi-socialist economy through fiscal
would require changes in both U.S. law and
reform and market opening. Since 1991, India
international guidelines.
has taken steps in this direction, with coalition
governments keeping the country on a general
The United States seeks to curtail the
path of reform. However, there is U.S. con-
proliferation of nuclear weapons and ballistic
cern that movement remains slow and incon-
missiles in South Asia. Both India and Paki-
sistent. See also CRS Report RL33072, U.S.-
stan have resisted external pressure to sign the
India Bilateral Agreements; CRS Report
major nonproliferation treaties. In May 1998,
RL32259, Terrorism in South Asia; and CRS
the two countries conducted nuclear tests that
Report RS21502, India-U.S. Economic Rela-
evoked international condemnation.
tions.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
President Bush visited India in early March, the first such trip by a U.S. President in six
years. The President was given a grand welcome in India, even as tens of thousands of
protestors opposed to U.S. policies and to New Delhi’s partnership with Washington
marched in several Indian cities. On March 2, President Bush and Prime Minister Singh
issued a statement expressing mutual satisfaction with “great progress” made in advancing
the U.S.-India “strategic partnership.” The statement, which reviewed bilateral efforts to
expand ties in a number of key areas, notably announced “successful completion of India’s
[nuclear facility] separation plan,” a reference to ongoing and complex negotiations related
to President Bush’s July 2005 vow to achieve “full civilian nuclear energy cooperation with
India.” The separation plan requires India to move 14 of its 22 reactors into permanent
international oversight by the year 2014 and place all future civilian reactors under
permanent safeguards. The plan also would assure an uninterrupted supply of nuclear fuel
for India’s civilian facilities. On March 16, H.R. 4974 and S. 2429, to waive the application
of certain requirements under the Atomic Energy Act of 1954 with respect to India, were, at
the President’s request, introduced in the House and Senate. Pending legislation also
includes H.Con.Res. 318, which expresses concern regarding nuclear proliferation with
respect to proposed full civilian nuclear cooperation with India. Also, on March 15, the
Energy Diplomacy and Security Act of 2006 (S. 2435), which includes India-related
initiatives, was introduced in the Senate. India’s Foreign Secretary visited Washington in
late March to defend the nuclear initiative and, on April 5, Secretary of State Rice appeared
before key House and Senate committees to press the Administration’s case. (See CRS
Report RL33072, U.S.-India Bilateral Agreements; CRS Report RL33016, U.S. Nuclear
Cooperation With India; and CRS Report RL33292, India’s Nuclear Separation Plan.)
The India-Pakistan peace initiative continues, with officials from both countries (and
the 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, Prime
Minister Singh said “India sincerely believes that a strong, stable, prosperous, and moderate
Pakistan is in the interest of India,”and he envisioned someday entering into a Treaty of
Peace, Security, and Friendship with Islamabad. Pakistan cautiously welcomed the
comments while insisting that Kashmir remained the “heart of conflict, mistrust, and
hostility” between the two countries (lethal separatist-related violence in Kashmir continues).
For more information, see CRS Report RS21589, India: Chronology of Recent Events.
BACKGROUND AND ANALYSIS
Context of the U.S.-India Relationship
In 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 the
use of India’s bases for counterterrorism operations. The offer reflected the sea change that
has occurred in recent years in the U.S.-India relationship, which for decades was mired in
the politics of the Cold War and India’s friendly relations with the Soviet Union. A marked
improvement 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 Bihari
Vajpayee, when the two leaders agreed to greatly expand U.S.-India cooperation on a wide
range of issues, including counterterrorism, regional security, space and scientific
collaboration, civilian nuclear safety, and broadened economic ties. Notable progress has
come in the area of security cooperation, with an increasing focus on counterterrorism, joint
military exercises, and arms sales. In December 2001, the U.S.-India Defense Policy Group
met in New Delhi for the first time since India’s 1998 nuclear tests and outlined a defense
partnership based on regular and high-level policy dialogue. A U.S.-India Joint Working
Group on Counterterrorism was established in January 2000 and meets regularly.
U.S. and congressional interests in India cover a wide spectrum of issues, ranging from
the militarized dispute with Pakistan and weapons proliferation to concerns about human
rights, health, and trade and investment opportunities. In the 1990s, India-U.S. relations
were particularly affected by the demise of the Soviet Union — India’s main trading partner
and most reliable source of economic and military assistance for most of the Cold War —
and New Delhi’s resulting need to diversify its international relationships. Also significant
were India’s adoption of sweeping economic policy reforms beginning in 1991, a deepening
bitterness between India and Pakistan over Kashmir, and signs of a growing Indian
preoccupation with China as a potential long-term strategic rival. With the fading of Cold
War constraints, the United States and India began exploring the possibilities for a more
normalized relationship between the world’s two largest democracies. A 1994 visit to the
United States by Indian Prime Minister Narasimha Rao marked the onset of improved
U.S.-India relations. Although discussions were held on nuclear nonproliferation, human
rights, and other issues, the main focus of the visit was rapidly expanding U.S.-India
economic relations. Throughout the 1990s, however, regional rivalries, separatist tendencies,
and sectarian tensions continued to divert India’s attention and resources from economic and
social development. Fallout from these unresolved problems — particularly nuclear
proliferation and human rights issues — presented serious irritants in bilateral relations.
President Clinton’s 2000 visit to South Asia seemed a major U.S. initiative to improve
cooperation with India. During his subsequent visit to the United States later in 2000, Prime
Minister Vajpayee addressed a joint session of Congress and issued a joint statement with
President Clinton agreeing to cooperate on arms control, terrorism, and HIV/AIDS.
Vajpayee returned to Washington in November 2001 and during the Bush Administration
high-level visits have continued at a greatly accelerated pace. Prime Minister Singh paid a
July 2005 visit to Washington where a significant joint U.S.-India statement was issued, and
President Bush visited India in March 2006. Today, the Bush Administration vows to “help
India become a major world power in the 21st century,” and U.S.-India relations are
conducted under the rubric of three major “dialogue” areas: strategic (including global issues
and defense), economic (including trade, finance, commerce, and environment), and energy
(see also CRS Report RL33072, U.S.-India Bilateral Agreements).
India’s Regional Relations
Pakistan. Three wars — in 1947-48, 1965, and 1971 — and a constant state of
military preparedness on both sides of the border have marked six decades of bitter rivalry
between India and Pakistan. The bloody and acrimonious nature of the 1947 partition of
British 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 ballistic
missile programs — at the cost of economic and social development. The nuclear weapons
capabilities of the two countries became overt in May 1998, magnifying greatly the potential
dangers of a fourth India-Pakistan war. Although a bilateral peace process has been
underway for more than two years, little substantive progress has been made toward
resolving the Kashmir issue, and New Delhi continues to be rankled by what it calls
Islamabad’s insufficient effort to end Islamic militancy that affects India.
The Kashmir problem is itself rooted in claims by both countries to the former princely
state, now divided by a military Line of Control (LOC) into the Indian state of Jammu and
Kashmir and Pakistan-controlled Azad [Free] Kashmir (see “The Kashmir Issue,” below).
Normal relations between New Delhi and Islamabad were severed in December 2001 after
a terrorist attack on the Indian Parliament was blamed on Pakistan-supported Islamic
militants. Other lethal attacks on Indian civilians spurred Indian leaders to call for a
“decisive war,” but intense international diplomatic engagement, including multiple trips to
the 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 (a
July 2001 summit meeting in the city of Agra had failed to produce any movement toward
a settlement of the bilateral dispute).
In April 2003, Prime Minister Vajpayee extended a symbolic “hand of friendship” to
Pakistan. 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 the
Pakistani president at the U.N. General Assembly; some analysts concluded that the peace
initiative was moribund. Yet New Delhi soon reinvigorated the process by proposing
confidence-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 the
Kashmir LOC (as of this writing, a formal cease-fire agreement continues). A major
breakthrough in bilateral relations came at the close of a January 2004 summit session of the
South Asian Association for Regional Cooperation in Islamabad. After a meeting between
Vajpayee and Pakistani President Musharraf — their first since July 2001 — the two leaders
agreed to re-engage a “composite dialogue” to bring about “peaceful settlement of all
bilateral issues, including Jammu and Kashmir, to the satisfaction of both sides.” A May
2004 change of governments in New Delhi had no effect on the expressed commitment of
both 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 two
leaders agreed to explore possible options for a “peaceful, negotiated settlement” of the
Kashmir issue “in a sincere manner and purposeful spirit.” After Musharraf’s April 2005
visit to New Delhi, India and Pakistan released a joint statement calling their bilateral peace
process “irreversible.” Some analysts believe that increased people-to-people contacts have
significantly altered public perceptions in both countries and may have acquired permanent
momentum. Others are less optimistic about the respective governments’ long-term
commitment to dispute resolution. Moreover, an apparent new U.S. embrace of India has
fueled Pakistan’s anxieties about the regional balance of power.
China. India and China account for one-third of the world’s population and are seen
to 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 still
claimed by India. The clash ended a previously friendly relationship between the two leaders
of the Cold War “nonaligned movement.” Although Sino-Indian relations have warmed
considerably in recent years, the two countries have yet to reach a final boundary agreement.
Adding to New Delhi’s sense of insecurity have been suspicions regarding China’s long-term
nuclear 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 of
New Delhi’s own nuclear weapons and ballistic missile programs. Beijing’s military and
economic 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 for
Pakistan’s Kashmir position has added to the discomfort of Indian leaders. New Delhi also
has taken note of Beijing’s security relations with neighboring Burma and the construction
of military facilities on the Indian Ocean. The two countries also have competed for energy
resources to feed their rapidly growing economies.
Despite still unresolved issues, high-level exchanges between New Delhi and Beijing
regularly 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 agreement
to reduce troops and maintain peace along the Line of Actual Control that divides the two
countries’ forces at the disputed border. Periodic working group meetings aimed at reaching
a final settlement continue. A June 2003 visit to Beijing by Prime Minister Vajpayee was
viewed as marking a period of much improved relations. Military-to-military contacts have
included modest, but unprecedented joint naval and army exercises. In December 2004,
India’s army chief visited Beijing to discuss deepening bilateral defense cooperation, and a
first-ever India-China strategic dialogue was held in New Delhi in January 2005. In April
2005, Chinese Prime Minister Wen Jiabao visited New Delhi where India and China agreed
to launch a “strategic partnership” that will include broadened defense links and efforts to
expand 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 Tibet
is a part of China. Moreover, in January 2006, the two countries agreed to cooperate in
securing overseas oil resources. Sino-India trade relations are blossoming, with bilateral
commerce worth about $13 billion in 2004, more than five times the 1999 value. In fact,
China may soon supplant the United States as India’s largest trading partner.
Other Countries. India has taken an active role in assisting reconstruction efforts in
Afghanistan, having committed $550 million to this cause, as well as contributing personnel
and opening numerous consulates there (much to the dismay of Pakistan, which fears
strategic encirclement and takes note of India’s past support for Afghan Tajik and Uzbek
militias). The United States has welcomed India’s role in Afghanistan. To the north, New
Delhi called King Gyanendra’s February 2005 power seizure in Nepal “a serious setback for
the cause of democracy,” but India renewed non-lethal military aid to the Royal Nepali Army
only months later. India remains concerned about the cross-border infiltration of Maoist
militants from Nepal. The United States seeks continued Indian attention to the need for a
restoration of democracy in Kathmandu. To the east, and despite India’s key role in the
creation of neighboring Bangladesh in 1971, New Delhi’s relations with Dhaka have been
fraught with tensions related mainly to the cross-border infiltration of Islamic militants and
huge numbers of illegal migrants into India. The two countries’ border forces have engaged
in periodic gunbattles and India is completing construction of a fence along the entire shared
border. 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 with
the repressive regime in neighboring Burma, with an interest in energy cooperation and to
counterbalance China’s influence there. The Bush Administration has urged New Delhi to
be more active in pressing for democracy in Rangoon. In the island nation of Sri Lanka off
India’s southeastern coast, a Tamil Hindu minority has been fighting a separatist war against
the Sinhalese Buddhist majority since 1983. More than 60 million Indian Tamils live in
southern India. India’s 1987 intervention to assist in enforcing a peace accord resulted in the
deaths of over 1,000 Indian troops and led to the 1991 assassination of the Indian Prime
Minister Rajiv Gandhi by Tamil militants. Since that time, New Delhi has maintained
friendly relations with Colombo while refraining from any deep engagement in third-party
peace efforts. The Indian Navy played a key role in providing disaster relief to Sri Lanka
following the catastrophic December 2004 tsunami.
Political Setting
National Elections. India, with a robust and working democratic system, is a federal
republic 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 India’s prime ministers have come from the
country’s Hindi-speaking northern regions and all but two have been upper-caste Hindus.
The 543-seat Lok Sabha (People’s House) is the locus of national power, with directly
elected representatives from each of the country’s 28 states and 7 union territories. A smaller
upper 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 are
elected to five-year terms. National elections in October 1999 had secured ruling power for
a 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 members
continued to lead many state governments). However, a surprise Congress resurgence under
Sonia Gandhi in May 2004 national elections brought to power a new left-leaning coalition
government led by former finance minister and Oxford-educated economist Manmohan
Singh, a Sikh and India’s first-ever non-Hindu prime minister. Many analysts attributed
Congress’s 2004 resurgence to the resentment of rural and poverty-stricken urban voters who
felt 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 with
the BJP. (See CRS Report RL32465, India’s 2004 National Elections.)
The Congress Party. Congress’s electoral strength reached a nadir in 1999 when
the party won only 110 parliamentary seats. Observers attributed the poor showing to a
number of factors, including perceptions that party leader Sonia Gandhi lacked the
experience to lead the country and the failure of Congress to make strong pre-election
alliances (as had the BJP). Support for Congress had been in fairly steady decline following
the 1984 assassination of Prime Minister Indira Gandhi and the 1991 assassination of her
son, Prime Minister Rajiv Gandhi. Sonia Gandhi, Rajiv’s widow, refused to be drawn into
active politics until the 1998 elections. She later made efforts to revitalize the organization
by phasing out older leaders and attracting more women and lower castes — efforts that
appear 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 India’s government. As party chief, Sonia Gandhi is believed to wield
considerable influence over the ruling coalition’s policy decision-making process.
The Bharatiya Janata Party (BJP). With the rise of Hindu nationalism, the BJP
rapidly increased its parliamentary strength during the 1980s. In 1993, the party’s image was
tarnished among some, burnished for others, by its alleged complicity in serious communal
violence in Bombay and elsewhere. Some hold elements of the BJP, as the political arm of
the extremist Hindu nationalist Rashtriya Swayamsevak Sangh (RSS, or National Volunteer
Force), responsible for the incidents. (The party has advocated “Hindutva,” or an India based
on Hindu culture, and views this as key to nation-building.) While leading a national
coalition from 1998-2004, the BJP worked — with only limited success — to change its
image from right-wing Hindu fundamentalist to conservative and secular, although 2002
communal rioting in Gujarat again damaged the party’s credentials as a moderate
organization. A fragile BJP-led National Democratic Alliance coalition was overseen by
party notable Prime Minister Atal Vajpayee, whose widespread personal popularity helped
to 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 encompassed
several major issues in India-U.S. relations. Since 2001, the Indian government has pressed
the United States to ease restrictions on the export to India of dual-use high-technology
goods (those with military applications), as well as to increase civilian nuclear and civilian
space 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 a
changed U.S.-India relationship. There were later references to a “quartet” when the issue
of missile defense was included. In January 2004, President Bush and Prime Minister
Vajpayee issued a joint statement indicating that the U.S.-India “strategic partnership”
included expanding cooperation in the “trinity” areas, as well as expanding dialogue on
missile defense. This initiative was dubbed as the NSSP and involved a series of reciprocal
steps. In July 2005, the State Department announced a “milestone” in the U.S.-India
strategic relationship: successful completion of the NSSP, allowing for expanded bilateral
commercial satellite cooperation, removal of U.S. export license requirements for unilaterally
controlled nuclear items to most end users, and the revision of U.S. export license
requirements 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 Defense
Framework 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 proliferator
of sensitive technologies, U.S. obligations under existing law may continue to limit
significantly the scope of post-NSSP engagement. Despite these considerations, many
observers saw in the NSSP evidence of a major and positive shift in the U.S. strategic
orientation toward India, a shift later illuminated more starkly with the Bush
Administration’s intention to initiate full civil nuclear cooperation with India. (See also
CRS Report RL33072, U.S.-India Bilateral Agreements.)
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High-Technology Trade. U.S. Commerce Department officials have sought to
dispel “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 great
majority of dual-use licensing applications for India are approved (more than 90% in
FY2005). July 2003 saw the inaugural session of the U.S.-India High-Technology
Cooperation Group (HTCG), where officials discussed a wide range of issues relevant to
creating the conditions for more robust bilateral high technology commerce; the fourth
HTCG meeting was held in New Delhi in November 2005. In February 2005, the inaugural
session of the U.S.-India High-Technology Defense Working Group was held under HTCG
auspices. Since 1998, a number of Indian entities have been subjected to case-by-case
licensing requirements and appear on the U.S. export control “Entity List” of foreign end
users involved in weapons proliferation activities. In September 2004, as part of NSSP
implementation, the United States modified some export licensing policies and removed the
Indian Space Research Organization (ISRO) headquarters from the Entity List. Further
adjustments came in August 2005 when six more subordinate entities were removed. Indian
entities remaining on the Entity List are four subordinates of the ISRO, four subordinates of
the Defense Research and Development Organization, one Department of Atomic Energy
entity, and Bharat Dynamics Limited, a missile production agency.
Civil Nuclear Cooperation. India’s status as a non-signatory to the Nuclear
Nonproliferation Treaty has kept it from accessing most nuclear-related materials and fuels
on the international market for more than 30 years. New Delhi’s 1974 “peaceful nuclear
explosion” spurred creation of the Nuclear Suppliers Group (NSG) — an international export
control regime for nuclear-related trade — and Washington further tightened its export laws
with the Nuclear Nonproliferation Act of 1978. The July 2005 U.S.-India Joint Statement
notably asserted that, “as a responsible state with advanced nuclear technology, India should
acquire the same benefits and advantages as other such states,” and President Bush vowed
to 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 NSG
guidelines. India reciprocally agreed to take its own steps, including identifying and
separating its civilian and military nuclear facilities in a phased manner and placing the
former under international safeguards. Some in Congress express concern that civil nuclear
cooperation with India might allow that country to advance its military nuclear projects and
be harmful to broader U.S. nonproliferation efforts. While the Bush Administration
previously had insisted that such future cooperation with India would take place only within
the limits set by multilateral nonproliferation regimes, the Administration now seeks
adjustments to U.S. laws and policies, and has approached the NSG to adjust the regime’s
guideline. After months of complex and difficult negotiations, the Indian government in
March 2006 presented a plan to separate its civilian and military nuclear facilities as per the
July 2005 Joint Statement. Shortly thereafter, H.R. 4974 and S. 2429, to waive the
application of certain requirements under the Atomic Energy Act of 1954 with respect to
India, were, at the President’s request, introduced in the Congress. (See CRS Report
RL33016, U.S. Nuclear Cooperation With India.)
Civil Space Cooperation. India has long sought access to American space
technology; such access has since the 1980s been limited by U.S. and international “red
lines” meant to prevent assistance that could benefit India’s military missile programs.
India’s space-launch vehicle technology was obtained largely from foreign sources, including
the United States, and forms the basis of its medium-range Agni ballistic missile booster, as
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well as its suspected Surya intercontinental ballistic missile program. The NSSP called for
enhanced U.S.-India cooperation on the peaceful uses of space technology, and the July 2005
Joint 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 commerce
were held in Bangalore in 2004 and 2005. During President Bush’s March 2006 visit to
India, 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 launch
vehicles, 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 the
apparent arms race between India and Pakistan as posing perhaps the most likely prospect
for the future use of nuclear weapons by states. In May 1998, India conducted five
underground nuclear tests, breaking a self-imposed, 24-year moratorium on such testing.
Despite international efforts to dissuade it, Pakistan quickly followed. The tests created a
global 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 full
restrictions on non-humanitarian aid to both India and Pakistan as mandated under Section
102 of the Arms Export Control Act. Proliferation in South Asia is part of a chain of
rivalries — India seeking to achieve deterrence against China, and Pakistan seeking to gain
an “equalizer” against a conventionally stronger India. India currently is believed to have
enough fissile material, mainly plutonium, for 55-115 nuclear weapons; Pakistan, with a
program focused on enriched uranium, may be capable of building a similar number. Both
countries have aircraft capable of delivering nuclear bombs. India’s military has inducted
short- and intermediate-range ballistic missiles, while Pakistan itself possesses short- and
medium-range missiles (allegedly acquired from China and North Korea). All are assumed
to 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 a
“minimum credible deterrent” (MCD) based upon a triad of delivery systems and pledging
that India will not be the first to use nuclear weapons in a conflict. In January 2003, New
Delhi announced creation of a Nuclear Command Authority. After the body’s first session
in September 2003, participants vowed to “consolidate India’s nuclear deterrent.” India thus
appears to be taking the next steps toward operationalizing its nuclear weapons capability.
(See also CRS Report RL32115, Missile Proliferation and the Strategic Balance in South
Asia, and CRS Report RS21237, Indian and Pakistani Nuclear Weapons.)
U.S. Nonproliferation Efforts and Congressional Action. Soon after the May
1998 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 on
India pursuant to P.L. 106-79. During the 1990s, the U.S. security focus in South Asia
1 The India-Pakistan Relief Act of 1998 (in P.L. 105-277) authorized a one-year sanctions waiver
exercised 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 waived
economic sanctions on India (Pakistan remained under sanctions as a result of an October 1999
military coup). (See CRS Report RS20995, India and Pakistan: U.S. Economic Sanctions.)
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sought to minimize damage to the nonproliferation regime, prevent escalation of an arms
race, and promote Indo-Pakistani bilateral dialogue. In light of these goals, the Clinton
Administration set out five “benchmarks” for India and Pakistan based on the contents of
U.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 aside
the benchmark framework. Along with security concerns, the governments of both India and
Pakistan are faced with the prestige factor attached to their nuclear programs and the
domestic unpopularity of relinquishing what are perceived to be potent symbols of national
power. Neither has signed the CTBT, and both appear to be producing weapons-grade fissile
materials. (India has consistently rejected the CTBT, as well as the Nuclear Nonproliferation
Treaty, as discriminatory, calling instead for a global nuclear disarmament regime. Although
both India and Pakistan currently observe self-imposed moratoria on nuclear testing, they
continue to resist signing the CTBT — a position made more tenable by U.S. Senate’s
rejection 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 optimism
in the area of export controls waned and then vanished in February 2004 when it became
clear that Pakistanis were involved in the export of WMD materials and technologies. In
September 2004, two Indian scientists were sanctioned for providing WMD-related
equipment 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 of
Congress was that there continue to be “contradictions” in U.S. nonproliferation policy
toward South Asia, particularly as related to the Senate’s rejection of the CTBT.
U.S.-India Security Cooperation. Security cooperation between the United States
and India is in the early stages of development (unlike U.S.-Pakistan military ties, which date
back to the 1950s). Since September 2001, and despite a concurrent U.S. rapprochement
with Pakistan, U.S.-India security cooperation has flourished. The India-U.S. Defense Policy
Group (DPG) — moribund since India’s 1998 nuclear tests and ensuing U.S. sanctions —
was revived in late 2001 and meets annually; U.S. diplomats call military cooperation among
the most important aspects of transformed bilateral relations. In June 2005, the United States
and India signed a ten-year defense pact outlining planned collaboration in multilateral
operations, expanded two-way defense trade, increasing opportunities for technology
transfers and co-production, expanded collaboration related to missile defense, and
establishment of a bilateral Defense Procurement and Production Group. The United States
views defense cooperation with India in the context of “common principles and shared
national interests” such as defeating terrorism, preventing weapons proliferation, and
maintaining regional stability. Many analysts laud increased U.S.-India security ties as
providing an alleged “counterbalance” to growing Chinese influence in Asia.
Since early 2002, the United States and India have held numerous and unprecedented
joint exercises involving all military branches. Air exercises have provided the U.S. military
with its first look at Russian-built Su-30MKIs; in 2004, mock air combat saw Indian pilots
in 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 special
forces soldiers have held joint exercises near the India-China border, and major annual
“Malabar” 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 military
leaders are divergent on several key issues, including India’s regional role, approaches to
countering 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 fully
developed military-to-military relations.
Along with increasing military-to-military ties, the issue of U.S. arms sales to India has
taken a higher profile. In 2002, the Pentagon negotiated a sale to India of 12 counter-battery
radar sets (or “Firefinder” radars) worth a total of $190 million. India also purchased $29
million worth of counterterrorism equipment for its special forces and has received
sophisticated U.S.-made electronic ground sensors to help stem the tide of militant
infiltration in the Kashmir region. In July 2004, Congress was notified of a possible sale to
India involving up to $40 million worth of aircraft self-protection systems to be mounted on
the 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 warning
system, an expensive asset that some analysts believe may tilt the regional strategic balance
even further in India’s favor. The Indian government reportedly possesses an extensive list
of desired U.S.-made weapons, including PAC-3 anti-missile systems, electronic warfare
systems, and possibly even fighter aircraft. The March 2005 unveiling of the Bush
Administration’s “new strategy for South Asia” included assertions that the United States
welcomed 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 transformative
systems 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 may
not 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 lease
two U.S. P-3C maritime reconnaissance aircraft, calling the arrangements “expensive.”)
In a controversial turn, the Indian government has sought to purchase a sophisticated
anti-missile platform, the Arrow Weapon System, from Israel. Because the United States
took the lead in the system’s development, the U.S. government has veto power over any
Israeli exports of the Arrow. Although Defense Department officials are seen to support the
sale as meshing with President Bush’s policy of cooperating with friendly countries on
missile defense, State Department officials are reported to opposed the transfer, believing
that 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. obligations
under 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 in
Pakistan, where there is concern that induction of advanced weapons systems into the region
could destabilize strategic balance there. Islamabad is concerned that its already
disadvantageous conventional military status vis-à-vis New Delhi will be further eroded by
India’s acquisition of sophisticated “force multipliers.” In fact, numerous observers identify
a pro-India drift in the U.S. government’s strategic orientation in South Asia. Yet
Washington regularly lauds Islamabad’s 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 the
subcontinent. (See also CRS Report RL33072, U.S.-India Bilateral Agreements, and CRS
Report RS22148, Combat Aircraft Sales to South Asia.)
India-Iran Relations. India’s 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 Delhi’s policies toward Tehran’s controversial
nuclear program may not be congruent with those of Washington, although these concerns
were eased when India voted with the United States (and the majority) at the International
Atomic 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 Iran
WMD-related equipment and/or technology; New Delhi called the moves unjustified. There
are further U.S. concerns that India plans to seek energy resources from Iran, thus benefitting
a country the United States is seeking to isolate. Indian firms have in recent years taken
long-term contracts for purchase of Iranian gas and oil. Building upon such growing energy
ties is the proposed construction of a pipeline to deliver Iranian natural gas to India through
Pakistan. The Bush Administration has expressed strong opposition to any gas pipeline
projects involving Iran, but top Indian officials insist the project is in India’s national interest
and they remain “fully committed” to the $4-7 billion venture, which may begin construction
in 2007. The Iran-Libya Sanctions Act (P.L. 107-24) requires the President to impose
sanctions on foreign companies that make an “investment” of more than $20 million in one
year in Iran’s 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 difficult
to govern. Internal instability resulting from diversity is further complicated by colonial
legacies 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 Delhi
and create international tensions by operating out of neighboring Bangladesh, Burma,
Bhutan, and Nepal. Maoist rebels continue to operate in numerous states. India also has
suffered outbreaks of serious communal violence between Hindus and Muslims, especially
in the western Gujarat state. (See also CRS Report RL32259, Terrorism in South Asia.)
The Kashmir Issue. Although India suffers from several militant regional separatist
movements, the Kashmir issue has proven the most lethal and intractable. Conflict over
Kashmiri sovereignty also has brought global attention to a potential “flashpoint” for
interstate 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 India’s Jammu and Kashmir and Pakistan-controlled Azad [Free] Kashmir. India
and Pakistan fought full-scale wars over Kashmir in 1947 and 1965. Some Kashmiris seek
independence 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 security
forces in Indian-held Kashmir has claimed perhaps 66,000 lives. India blames Pakistan for
supporting “cross-border terrorism” and for fueling a separatist rebellion in the
Muslim-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” who
resist 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 mediators
and 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 included
Pakistani army troops crossing into Indian-controlled territory. Islamabad has sought to
bring 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 Kashmiri
people. (See also CRS Report RL32259, Terrorism in South Asia.)
The Northeast. Since the time of India’s foundation, numerous separatist groups
have fought for ethnic autonomy or independence in the country’s northeast region. Some
of the tribal struggles in the small states known as the Seven Sisters are centuries old. It is
estimated 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 National
Liberation Front of Tripura, the National Democratic Front of Bodoland (NDFB), and the
United National Liberation Front (seeking an independent Manipur) are among the groups
at 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 group
outside 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 security
forces, and India reportedly has launched joint counter-insurgency operations with some of
its neighbors. India also has accused Pakistan’s intelligence agency of training and equipping
militants. Bhutan launched major military operations against suspected rebel camps on
Bhutanese territory in 2003 and appeared to have routed the ULFA and NDFB. In 2004, five
leading separatist groups from the region rejected New Delhi’s offer of unconditional talks,
saying talks can only take place under U.N. mediation and if the sovereignty issue was on the
table. Later, in what seemed a blow to the new Congress-led government’s domestic security
policies, 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 late
2004 may have overrun numerous Manipur separatist bases near the Burmese border.
“Naxalites”. Also operating in India are Naxalites — communist insurgents
ostensibly engaged in violent struggle on behalf of landless laborers and tribals. These
groups, most active in inland areas of east-central India, claim to be battling oppression and
exploitation in order to create a classless society. Their opponents call them terrorists and
extortionists. Related violence caused nearly 1,000 deaths in 2005. Most notable are the
People’s War Group (PWG), mainly active in the southern Andhra Pradesh state, and the
Maoist Communist Center of West Bengal and Bihar. In 2004, the two groups merged to
form the Communist Party of India - Maoist. Both appear on the U.S. State Department’s
list of “other selected terrorist organizations” and both are designated as terrorist groups by
New Delhi, which claims there are about 9,300 Maoist rebels in the country. PWG fighters
were behind an October 2003 landmine attack that nearly killed the chief minster of Andhra
Pradesh. In July 2004, the Andhra Pradesh government lifted an 11-year-old ban on the
PWG, but the Maoists later withdrew from ensuing peace talks, accusing the state
government of breaking a cease-fire agreement. Violent attacks on government forces then
escalated in 2005 and continue in 2006. New Delhi expresses concern that indigenous
Maoists are increasing their links with Nepali communists at war with the Kathmandu
government. Many analysts fear that Naxalite activity is spreading and becoming more
audacious 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 western
state of Gujarat from the city of Ayodhya — site of the razed 16th-century Babri Mosque and
a proposed Hindu temple — were attacked by a Muslim mob in the town of Godhra; 58
were killed. Up to 2,000 people died in the fearsome communal rioting that followed, most
of 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. The
U.S. State Department and human rights groups have been critical of New Delhi’s apparently
ineffectual efforts to bring those responsible to justice; some of these criticisms were echoed
by the Indian Supreme Court in 2003. In March 2005, the State Department made a
controversial decision to deny a U.S. visa to Gujarat Chief Minster Narendra Modi under a
U.S. law barring entry for foreign government officials found to be complicit in severe
violations of religious freedom. The decision was strongly criticized in India.
Human Rights. According to the U.S. State Department’s India: Country Report on
Human Rights Practices, 2005, the Indian government “generally respected the human rights
of its citizens; however, numerous serious problems remained.” These included extensive
societal violence against women; extrajudicial killings, including faked encounter killings;
excessive use of force by security forces, arbitrary arrests, and incommunicado detentions
in 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 discrimination
and violence, among others. Terrorist attacks and kidnapings also remained grievous
problems, especially in Kashmir and the northeastern states. New York-based Human Rights
Watch’s latest annual report noted “important positive steps” by the Indian government in
2005 with respect to human rights, but also reviewed the persistence of problems such as
abuses by security forces and a failure to contain violent religious extremism.
The State Department claims that India’s human right abuses “are generated by a
traditionally hierarchical social structure, deeply rooted tensions among the country’s many
ethnic and religious communities, violent secessionist movements and the authorities’
attempts to repress them, and deficient police methods and training.” India’s 1958 Armed
Forces Special Powers Act, which gives security forces wide leeway to act with impunity in
conflict zones, has been called a facilitator of “grave human rights abuses” in several Indian
states. India generally denies international human rights groups official access to Kashmir
and other sensitive areas. The State Department’s 2005-2006 report on Supporting Human
Rights and Democracy called India “a vibrant democracy with strong constitutional human
rights protections,” but asserted that, “Poor enforcement of laws, widespread corruption, a
lack of accountability, and the severely overburdened court system weakened the delivery
of justice.” State’s June 2005 report on trafficking in persons again placed India on the “Tier
2 Watch List” for “inability to show evidence of increased efforts to address trafficking in
persons.” 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 (with
occasional lapses), which is protected under its constitution. The population includes a
Hindu 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 of
religion is protected by the Indian government, human rights groups have noted that India’s
religious tolerance is susceptible to attack by religious extremists. In its annual report on
international 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 serious
problems remained.” It lauded the New Delhi government for demonstrating a commitment
to policies of religious inclusion, while claiming that “the government sometimes in the
recent past did not act swiftly enough to counter societal attacks against religious minorities
and attempts by some leaders of state and local governments to limit religious freedom.” A
May 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 of
violations of religious freedom engaged in or tolerated by the governments.” However, as
a result of a “marked improvement in conditions” since May 2004 elections, the Commission
no longer recommended that India be designated as a Country of Particular Concern.
India’s Economy and U.S. Concerns
Overview. India is in the midst of a major and rapid economic expansion. Although
there is widespread and serious poverty in India, observers believe the country’s long-term
economic potential is tremendous, and recent strides in the technology sector have brought
international 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 and
business leaders — along with some U.S. government officials — point to excessive
regulatory and bureaucratic structures as a hindrance to the realization of India’s full
economic potential. The high cost of capital (rooted in large government budget deficits) and
an “abysmal” infrastructure also draw negative appraisals as obstacles to growth. Constant
comparisons with the progress of the Chinese economy show India lagging in rates of growth
and foreign investment, and in the removal of trade barriers. Still, despite problems, the
current growth rate of the Indian economy is among the highest in the world.
After enjoying an average growth rate above 6% for the 1990s, India’s economy cooled
somewhat 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, and
monsoon rains driving recovery in the agricultural sector. The economy grew by 6.9% in
FY2004/05, led by a booming manufacturing sector. Estimated growth for the most recent
fiscal year runs near 8%, and short-term estimates are encouraging, predicting expansion
near 7% for the next two years. A major upswing in services is expected to lead; this sector
now accounts for more than half of India’s GDP. Consumer price inflation has been fairly
low (4.2% in 2005), but may rise due to higher energy costs. As of November 2005, India’s
foreign exchange reserves were at more than $142 billion. The benchmark Sensex index of
the 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 has
been that country’s quasi-socialist economy. Economic reforms begun in 1991, under the
Congress-led government of Prime Minister Rao, boosted growth and led to new foreign
investment to India in the mid-1990s. Reform efforts stagnated, however, under weak
coalition governments later in the decade. The 1997 Asian financial crisis and sanctions on
India (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-reducing
measures. 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 February
2006, a top International Monetary Fund official said that India’s continued rapid economic
growth will be facilitated only by enhanced Indian integration with the global economy
through continued reforms and infrastructure improvements.
Trade and Investment. As India’s largest trade and investment partner, the United
States strongly supports New Delhi’s continuing economic reform policies. Levels of U.S.-
India trade, while relatively low, are blossoming; the total value of bilateral trade has doubled
since 2001. U.S. exports to India in 2005 had a value of $8 billion (up 30% over 2004), with
business and telecommunications equipment, civilian aircraft, gemstones, fertilizer, and
chemicals 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 million
in 1990 to an estimated at $7.4 billion for 2005; about one-third of these investments was
made by U.S. companies (in late 2005, the major U.S.-based companies Microsoft, Dell, and
Oracle announced plans for multi-billion-dollar investments in India). India has moved to
raise 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 the
2005 report of the United States Trade Representative (USTR), a number of foreign trade
barriers remain, including “remarkably high” tariffs, especially in the agricultural sector. The
USTR asserts that “substantial expansion of U.S.-India trade will be unlikely without
significant Indian liberalization.” In March 2006, the U.S.-India CEO Forum, composed of
ten chief executives from each country representing a cross-section of key industrial sectors,
issued a report identifying India’s poor infrastructure and dense bureaucracy as key
impediments to increased bilateral trade and investment relations.
India’s extensive trade and investment barriers have been criticized by U.S. government
officials 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 a
Delhi audience that “the U.S. is one of the world’s most open economies and India is one of
the most closed.” Later that year, U.S. Under Secretary of State Larson opined that “trade
and investment flows between the U.S. and India are far below where they should and can
be,” adding that “the picture for U.S. investment is also lackluster.” He identified the
primary reason for the suboptimal situation as “the slow pace of economic reform in India.”
In March 2006, President Bush noted India’s “dramatic progress” in economic reform while
insisting “there’s more work to be done,” especially in lifting caps on foreign investment,
making regulations more transparent, and continuing to lower tariffs. The Heritage
Foundation’s 2006 Index of Economic Freedom — which may overemphasize the value of
absolute growth and downplay broader quality-of-life measurements — again rated India as
being “mostly unfree,” highlighting especially restrictive trade policies, heavy government
involvement in the banking and finance sector, demanding regulatory structures, and a high
level of “black market activity.” Corruption plays a role: in 2005, Berlin-based Transparency
International placed India 88th out of 158 countries in its annual ranking of world corruption
levels. Moreover, inadequate intellectual property rights protection is a long-standing issue
between the United States and India. The USTR places India on its Special 301 Priority
Watch List for “weak” protection of such rights. The International Intellectual Property
Alliance, a coalition of U.S. copyright-based industries, estimated U.S. losses of $443
million due to trade piracy in India in 2005, three-quarters of this in the categories of
business 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 CRS
Report 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 America
and Africa combined. From 1947 through 2004, the United States provided nearly $15
billion 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 (increased
transparency 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 of
public subsidies through improved cost recovery); and (5) opportunity and equity (improved
access to elementary education, and justice and other social and economic services for
vulnerable groups, especially women and children).
Security. The United States has provided about $161 million in military assistance
to India since 1947, more than 90% of it distributed from 1962-1966. In recent years, modest
security-related assistance has emphasized export control enhancements and military
training. Earlier Bush Administration requests for Foreign Military Financing were later
withdrawn, with the two countries agreeing to pursue commercial sales programs. The
Pentagon 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
FY2001
FY2002
FY2003
FY2004
FY2005
FY2006
FY2007
or
Actual
Actual
Actual
Actual
Actual
Est.
Request
Account
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
$67.9
Sources: U.S. Departments of State and Agriculture; U.S. Agency for International Development.
Abbreviations:
CSH:
Child Survival and Health
DA:
Development Assistance
ESF:
Economic Support Fund
IMET:
International Military Education and Training
NADR:
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.
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