Order Code RL33529
CRS Report for Congress
Received through the CRS Web
India-U.S. Relations
Updated July 31, 2006
K. Alan Kronstadt
Analyst in Asian Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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India-U.S. Relations
Summary
The end of the Cold War freed India-U.S. relations from the constraints of
global bipolarity, but interactions continued for a decade to be affected by the burden
of history, most notably the longstanding India-Pakistan rivalry and nuclear weapons
proliferation in the region. The new century, however, has witnessed a sea change
in bilateral relations, with far more positive interactions becoming the norm. Today,
President George W. Bush calls India a “natural partner” of the United States and his
Administration seeks to assist India’s rise as a major power. In July 2005, President
Bush and Indian Prime Minister Manmohan Singh issued a Joint Statement resolving
to establish a “global partnership” between their two countries through increased
cooperation on numerous economic, security, and global issues. In this Joint
Statement, the Bush Administration dubbed India “a responsible state with advanced
nuclear technology” and vowed to achieve “full civilian nuclear energy cooperation”
with India. As a reversal of three decades of U.S. nonproliferation policy, such
proposed cooperation is controversial and would require changes in both U.S. law
and international guidelines (Congress has taken action on enabling legislation —
H.R. 5682 and S. 3709 — in the summer of 2006). Also in 2005, the United States
and India signed a ten-year defense framework agreement that calls for expanding
bilateral security cooperation. Since 2002, the United States and India have engaged
in numerous and unprecedented combined military exercises. Discussions of possi-
ble sales to India of major U.S.-built weapons systems are ongoing.
Continuing U.S. interest in South Asia focuses on ongoing tensions between
India and Pakistan, a problem rooted in unfinished business from the 1947 Partition
and competing claims to the Kashmir region. The United States strongly encourages
maintenance of an international cease-fire in Kashmir and continued, substantive
dialogue between India and Pakistan. The United States also seeks to curtail the
proliferation of nuclear weapons and ballistic missiles in South Asia. Both India and
Pakistan have resisted external pressure to sign the major nonproliferation treaties.
In May 1998, the two countries conducted nuclear tests that evoked international
condemnation. Proliferation-related restrictions on U.S. aid were triggered, then later
lifted through congressional-executive cooperation from 1998 to 2000. Remaining
sanctions on India (and Pakistan) were removed in October 2001. U.S. concerns
about human rights issues related to regional dissidence and separatism in several
Indian states continue. Strife in these areas has killed tens of thousands of civilians,
militants, and security forces over the past two decades. Communal tensions,
religious freedom, and caste-based discrimination have been other matters of
concern. Many in Congress, along with the State Department and human rights
groups, have criticized India for perceived abuses in these and other areas. India is
in the midst of major and rapid economic expansion. Many U.S. business interests
view India as a lucrative market and candidate for foreign investment. The United
States supports India’s efforts to transform its once quasi-socialist economy through
fiscal reform and market opening. Since 1991, India has taken steps in this direction,
with coalition governments keeping the country on a general path of reform. Yet
there is U.S. concern that such movement remains slow and inconsistent. This report
replaces CRS Issue Brief IB93097, India-U.S. Relations.

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Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Context of the U.S.-India Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Current U.S.-India Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
India’s Regional Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Pakistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Other Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Political Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
National Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Congress Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Bharatiya Janata Party (BJP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Bilateral Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
“Next Steps in Strategic Partnership” and Beyond . . . . . . . . . . . . . . . . . . . . 9
High-Technology Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Civil Nuclear Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Civil Space Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Security Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Nuclear Weapons and Missile Proliferation . . . . . . . . . . . . . . . . . . . . 11
U.S. Nonproliferation Efforts and Congressional Action . . . . . . . . . . 12
U.S.-India Security Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
India-Iran Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
India’s Economy and U.S. Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Trade and Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Regional Dissidence and Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
The Kashmir Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Northeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Maoist Insurgency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Hindu-Muslim Tensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Economic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
List of Figures
Figure 1. Map of India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
List of Tables
Table 1. U.S. Assistance to India, FY2001-FY2007 . . . . . . . . . . . . . . . . . . . . . . 22

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India-U.S. Relations
Most Recent Developments
! On July 27, press reports said that the Bush Administration will
sanction two Indian firms Iran-Syria Nonproliferation Act for
missile-related transactions with Iran. Some in Congress suspected
that the Administration had delayed the sanctions reporting until
after the House vote on U.S.-India civil nuclear cooperation.
! On July 26, the United States and India Nuclear Cooperation
Promotion Act of 2006 (H.R. 5682) was passed by the House on a
vote of 359-68. Amendments to require Presidential certifications
related to India’s domestic uranium usage, its fissile material
production, and its policy toward Iran each failed. A related bill (S.
3709) was passed by the Senate Foreign Relations Committee on
June 29 and may soon come before the full Senate. Important Indian
political constituencies warned that U.S. legislation departs from the
original July 2005 agreement and is not in India’s interests. (See
CRS Report RL33016, U.S. Nuclear Cooperation With India.)
! On July 24, the Doha round of global trade negotiations was
suspended indefinitely following a failed meeting of the six major
participants, including the United States and India. Commerce
Minister Nath later blamed the United States for the failure, saying
it “brought nothing new to the table.”
! On July 11, a series of explosions on Bombay commuter trains left
nearly 200 people dead and more than 700 injured. Investigators
have focused their attention on the Pakistan-based Lashkar-e-Taiba
(LeT), a Sunni militant group fighting in Kashmir and designated as
a terrorist organization by the United States, as well as the
indigenous Students Islamic Movement of India. Days later, Prime
Minister Singh said the attackers were “supported by elements
across the border” and he postponed planned foreign secretary-level
talks with Pakistan, saying “the environment is not conducive.” On
July 28, Bombay police said that six Indian Muslim suspects
detained in connection with the 7/11 Bombay bombings confessed
to having received weapons and explosives training in Pakistan. The
Bush Administration condemned the Bombay “atrocities” in the
“strongest possible terms.” Senate and House resolutions (S.Res.
527; H.Res. 913) strongly condemning the bombings and expressing
sympathy for the victims were passed on July 12 and July 19,
respectively.

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CRS-2
! On July 9, India for the first time tested its intermediate-range Agni-
3 ballistic missile, which could potentially reach targets in eastern
China and in the Middle East. The test was a failure, with the
missile falling into the Bay of Bengal well short of its target. One
day later, an Indian rocket carrying a satellite for television
broadcasts veered of course and exploded shortly after takeoff.
! On July 6, Prime Minister Singh announced that all government
disinvestment decisions would be put on hold following opposition
from a powerful member of the ruling coalition. The move was
criticized by industrial groups.
! On June 28, the Bush Administration announced its proposal to sell
36 F-16 combat aircraft to Pakistan, along with plans to upgrade
existing Pakistani F-16s and provide various missiles, munitions and
associated hardware. Some in Congress have expressed concern that
such weapons could be used against India. In reaction to the
announcement, an Indian External Affairs Ministry statement said
the step “is not conducive to improving ties between India and
Pakistan.” (See CRS Report RL33515, Combat Aircraft Sales to
South Asia.)
! Rates of separatist-related violence in India-controlled Kashmir have
spiked following a May massacre of 35 Hindu villagers by suspected
Islamic militants. Numerous grenade and other attacks by militants
— many of them targeting tourists — combine with Indian
suspicions regarding the July 11 Bombay bombings to raise serious
concerns about the future viability of an ongoing but increasingly
sluggish India-Pakistan peace process.
On June 13, a Pew Center opinion poll found 56% of Indians holding a
favorable opinion of the United States, down from 71% in 2005. On July 18, the
Senate Energy Committee held a hearing on U.S.-India Energy Cooperation. For
more information, see CRS Report RS21589, India: Chronology of Recent Events.
Context of the U.S.-India Relationship
Overview
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 regional security, 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 significant economic policy reforms beginning in 1991, a

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CRS-3
deepening bitterness between India
INDIA IN BRIEF
and Pakistan over Kashmir, and signs
Population: 1.1 billion; growth rate: 1.4% (2006
of a growing Indian preoccupation with
est.)
China as a potential long-term
Area: 3,287,590 sq. km. (slightly more than one-
strategic rival. With the fading of
third the size of the United States)
Cold War constraints, the United
Capital: New Delhi
Ethnic Groups: Indo-Aryan 72%; Dravidian
States and India began exploring the
25%; other 3%
possibilities for a more normalized
Languages: 15 official, 13 of which are the
relationship between the world’s two
primary tongue of at least 10 million
largest democracies. Throughout the
people; Hindi is primary tongue of about
30%; English widely used
1990s, however, regional rivalries,
Religions: Hindu 81%; Muslim 13%; Christian
separatist tendencies, and sectarian
2%; Sikh 2%, other 2% (2001 census)
tensions continued to divert India’s
Life Expectancy at Birth: female 65.6 years;
attention and resources from
male 63.9 years (2006 est.)
economic and social development.
Literacy: female 48%; male 70% (2003 est.)
Gross Domestic Product (at PPP): $3.7 trillion;
Fallout from these unresolved
per capita: $3,741; growth rate 7.8% (2005
problems — particularly nuclear
est.)
proliferation and human rights issues
Inflation: 4.6% (2005 est.)
— presented irritants in bilateral
Military Expenditures: $19 billion (2.5% of
relations.
GDP; 2005, est.)
U.S. Trade: exports to U.S. $18.8 billion;
imports from U.S. $8 billion (2005)
India’s May 1998 nuclear tests
Sources: CIA World Factbook; U.S. Commerce Department;
were an unwelcome surprise and seen
Economist Intelligence Unit; Global Insight
to be a policy failure in Washington,
and they spurred then-Deputy
Secretary of State Strobe Talbott to launch a series of meetings with Indian External
Affairs Minister Jaswant Singh in an effort to bring New Delhi more in line with U.S.
arms control and nonproliferation goals. While this immediate purpose went
unfulfilled, the two officials soon engaged a broader agenda on the entire scope of
U.S.-India relations, eventually meeting fourteen times in seven different countries
over a two-year period. The Talbott-Singh talks were considered the most extensive
U.S.-India engagement up to that time and likely enabled circumstances in which the
United States could play a key role in defusing the 1999 Kargil crisis, as well as
laying the groundwork for a landmark U.S. presidential visit in 2000.
President Bill Clinton’s March 2000 visit to South Asia seemed a major U.S.
initiative to improve relations with India. A U.S.-India Joint Working Group on
Counterterrorism was established in 2000 and continues to meet regularly. During
his subsequent visit to the United States later that year, Prime Minister Atal 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. 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. Engagement was
accelerated after a 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 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 late 2001, the

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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. President Bush’s 2002 National Security Strategy of the United
States stated that “U.S. interests require a strong relationship with India.”
Prime Minister Singh paid a landmark July 2005 visit to Washington, where a
significant joint U.S.-India statement was issued. In March 2006, President Bush
spent three days in India. 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). Recognition of India’s growing stature and importance is found in the
U.S. Congress, where the India and Indian-American Caucus is now the largest of all
country-specific caucuses.
Current U.S.-India Engagement. U.S. engagement with India continues
to be deep and multifaceted. In June 2006, key congressional committees took action
on proposed U.S.-India civil nuclear cooperation. President George W. Bush visited
New Delhi in March, the first such trip by a U.S. President in six years. Subsequent
high-level bilateral interactions included a late March visit to Washington by Indian
Foreign Secretary Shyam Saran; a two-day meeting of the U.S.-India Joint Working
Group on Counterterrorism in April in Washington, where Counterterrorism
Coordinator Henry Crumpton led the U.S. delegation; Indian Power Minister Sushil
Shinde’s April visit to Washington for meetings with top U.S. officials; and the
fourth meeting of the U.S.-India Trade Policy Forum in May in New Delhi, where
talks focused on trade barriers, agriculture, investment, and intellectual property
rights. In June, the Chairman of the U.S. Joint Chiefs of Staff, General Peter Pace,
met with top Indian officials in New Delhi to discuss expanding U.S.-India strategic
ties, and new U.S. Trade Representative Susan Schwab met with Indian Commerce
Minister Kamal Nath in Washington, agreeing on initiatives to strengthen and deepen
bilateral trade. (See CRS Report RL33072, U.S.-India Bilateral Agreements.)
India’s Regional Relations
India is geographically dominant in both South Asia and the Indian Ocean
region. The country possesses the region’s largest economy and, with more than one
billion inhabitants, is by far the most populous on the Asian Subcontinent. While all
of South Asia’s smaller continental states (Pakistan, Bangladesh, Nepal, and Bhutan)
share borders with India, none share borders with each other. The United States has
a keen interest in South Asian stability, perhaps especially with regard to the India-
Pakistan nuclear weapons dyad, and so closely monitors India’s regional
relationships.
Pakistan. The India-Pakistan peace initiative continues, with officials from
both countries (and the United States) offering a positive assessment of the ongoing
dialogue. In early May 2006, India and Pakistan agreed to open a second Kashmiri
bus route and to allow new truck service to facilitate trade in Kashmir (the new bus
service began in June). Subsequent “Composite Dialogue” talks were held to discuss
militarized territorial disputes, terrorism and narcotics, and cultural exchanges, but

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CRS-5
high hopes for a settlement of differences over the Siachen Glacier were dashed when
a May 24 session ended without progress. A June session on the Tubal navigation
project/Wullar barrage water dispute similarly ended without forward movement.
Compounding tensions, separatist-related violence has spiked in Indian Kashmir,
including a May massacre of 35 Hindu villagers by suspected Islamic militants, and
grenade attacks correlated with a late May roundtable meeting of Prime Minister
Singh and Kashmiri leaders left at least two dozen civilians dead. Gunbattles
between militants and security forces killed 13 people on July 3. Significant
incidents of attempted “cross-border infiltration” of Islamic militants at the Kashmiri
Line of Control came in June and top Indian leaders have renewed their complaints
that Islamabad is taking insufficient action to quell terrorist activities on Pakistan-
controlled territory.
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 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 Indian 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. A

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CRS-6
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 Prime Minister, Manmohan Singh, met with
President 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 together 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 brief but intense border war in 1962 that left China in
control of large swaths of territory still claimed by India. Today, India accuses China
of illegitimately occupying nearly 15,000 square miles of Indian territory in Kashmir,
while China lays claim to 35,000 square miles in the northeastern Indian state of
Arunachal Pradesh. The 1962 clash ended a previously friendly relationship between
the two leaders of the Cold War “nonaligned movement.” While 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 takes 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 historic and strategic frictions, high-level exchanges between India and
China regularly include statements that there exists no fundamental conflict of
interest between the two countries. During a landmark 1993 visit to Beijing, Prime
Minister Narasimha 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, with New Delhi and Beijing agreeing to move forward in other issue-areas
even as territorial claims remain unresolved. A 2003 visit to Beijing by Prime

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CRS-7
Minister Vajpayee was viewed as marking a period of much improved relations.
Military-to-military contacts have included modest, but unprecedented combined
naval and army exercises. In late 2004, India’s army chief visited Beijing to discuss
deepening bilateral defense cooperation and a first-ever India-China strategic
dialogue was later held in New Delhi. In April 2005, Chinese Prime Minister Wen
Jiabao paid a visit to 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 tensions, 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 formally
agreed to cooperate in securing overseas oil resources. Sino-India trade relations are
blossoming — bilateral commerce was worth nearly $19 billion in 2005, almost an
eight-fold increase over 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 $650 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 engage 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 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 more than 1,200 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.

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CRS-8
Political Setting
India is the world’s most populous democracy and remains firmly committed
to representative government and rule of law. U.S. policymakers commonly identify
in the Indian political system shared core values and this has facilitated increasingly
friendly relations between the U.S. and Indian governments.
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 Italian-born, Catholic widow, refrained from active politics until the 1998
elections. She later made efforts to revitalize the party 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 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.

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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 extremist Hindu groups, 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. The BJP-led National Democratic Alliance was overseen by party
notable Prime Minister Atal Vajpayee, whose widespread personal popularity helped
to keep the BJP in power. Since 2004, the BJP has been weakened by leadership
disputes, criticism from Hindu nationalists, and controversy involving party president
Lal Advani (in December 2005, Advani ceded his leadership post and Vajpayee
announced his retirement from politics). In spring 2006, senior BJP leader Pramod
Mahajan was shot and killed in a family dispute.
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. The Indian government
has long 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 insisted 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 declaring 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 successful completion of the
NSSP, allowing for expanded bilateral commercial satellite cooperation,
removal/revision of some U.S. export license requirements for certain dual-use and
civil nuclear items. Taken together, the July 2005 U.S.-India Joint Statement and a
June 2005 U.S.-India Defense Framework Agreement include provisions for moving
forward in all four NSSP issue-areas. 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.)
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

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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
early 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 1968
Nuclear Nonproliferation Treaty has kept it from accessing most nuclear-related
materials and fuels on the international market for some 30 years. New Delhi’s 1974
“peaceful nuclear explosion” spurred the U.S.-led creation of the Nuclear Suppliers
Group (NSG) — an international export control regime for nuclear-related trade —
and the U.S. government further tightened its own 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.”
As a reversal of three decades of U.S. nonproliferation policy, 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 actively seeks adjustments to U.S. laws and policies, and has
approached the NSG to adjust the regime’s guidelines.
On March 2, 2006, President Bush and Prime Minister Singh issued a Joint
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.” After months of complex
and difficult negotiations, the Indian government presented a plan to separate its
civilian and military nuclear facilities as per the July 2005 Joint Statement. 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. Shortly thereafter, H.R. 4974 and S. 2429, to waive the

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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.
In early April 2006, Secretary of State Rice appeared before key Senate and
House committees to press the Administration’s case for civil nuclear cooperation
with India. Further hearings in the Senate (April 26) and House (May 11) saw a total
of fifteen independent analysts weigh in on the potential benefits and/or problems
that might accrue from such cooperation. On May 23, the Senate Foreign Relations
Committee passed S. 1950, to promote global energy security through increased
cooperation between the United States and India on non-nuclear energy-related issues
(a House version, H.R. 5580, was introduced on June 9). After months of
consideration, the House International Relations Committee and Senate Foreign
Affairs Committee both took action on relevant legislation in late June, passing
modified versions of the Administration’s proposals by wide margins. The new
House and Senate bills (H.R. 5682 and S. 3709) made significant procedural changes
to the Administration’s proposal, changes that seek to retain congressional oversight
of the negotiation process. Civil nuclear cooperation with India cannot commence
until Washington and New Delhi finalize a peaceful nuclear cooperation agreement,
the NSG allows for such cooperation, and New Delhi concludes its own safeguards
agreement with the International Atomic Energy Agency. (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 intermediate-range
Agni ballistic missile booster, as 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 (headquarters of the Indian Space Research Organization) 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, two months later, they agreed to include two U.S. scientific instruments on
India’s Chandrayaan lunar mission planned for 2007.
Security Issues
Nuclear Weapons and Missile Proliferation. Some 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

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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, CRS
Report RS21237, Indian and Pakistani Nuclear Weapons, and CRS Report RL31555,
China and Proliferation of Weapons of Mass Destruction and Missiles.)
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 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 “benchmarks”
for India and Pakistan based on the contents of U.N. Security Council Resolution
1172, which condemned the two countries’ nuclear tests. These included signing and
ratifying the Comprehensive Nuclear Test Ban Treaty (CTBT); halting all further
production of fissile material and participating in Fissile Material Cutoff Treaty
negotiations; limiting development and deployment of WMD delivery vehicles; and
implementing strict export controls on sensitive WMD materials and technologies.
Progress in each of these areas has been limited, and the Bush Administration
quickly set aside the benchmark framework. Along with security concerns, the
governments of both India and Pakistan faced the prestige factor attached to their
nuclear programs and domestic resistance to 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
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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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. Section 1601 of P.L.
107-228 outlined U.S. nonproliferation objectives for South Asia. Some Members
of Congress identify “contradictions” in U.S. nonproliferation policy toward South
Asia, particularly as related to the Senate’s rejection of the CTBT. In May 2006, the
United States presented in Geneva a draft global treaty to ban future production of
fissile material (a Fissile Material Cutoff Treaty) that it hopes will be supported by
India. Some analysts speculated that the move was meant to bolster U.S.
congressional support for proposed U.S.-India civil nuclear cooperation.
U.S.-India Security Cooperation. Defense 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 a series of
unprecedented and increasingly substantive combined exercises involving all military
services. 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 successes
were repeated versus U.S. F-16s in 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.
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

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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 disrupt the 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 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

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Indian scientists and chemical companies for transferring to Iran WMD-related
equipment and/or technology (one scientist was believed to have aided Iran’s nuclear
program); 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).
India’s Economy and U.S. Concerns
Overview. India is in the midst of a major and rapid economic expansion, with
an economy projected to be the world’s third largest in coming decades. India was
the 22nd largest export market for U.S. goods in 2005 (up from 24th the previous
year). Although there is widespread and serious poverty in the country, observers
believe the 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. However, many analysts and business leaders, along with
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. India’s per capita GDP is still less
than $800 ($3,825 when accounting for purchasing power parity). The highly-touted
information technology and business processing industries only employ about one-
third of one percent of India’s work force and, while optimists tout an Indian “middle
class” of some 300 million people, an even greater number of Indians subsist on less
than $1 per day. Yet, despite ongoing problems, the current growth rate of India’s
increasingly service-driven economy is among the highest in the world and has
brought the benefits of development to many millions of citizens.
After enjoying an average growth rate above 6% for the 1990s, India’s economy
cooled 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
2005, real change in GDP was 6.9%, with continued robust growth in services and
industry, but a nearly flat agricultural sector (low productivity levels in this sector,
which accounts for nearly one-fifth of the country’s GDP, is a drag on overall
growth). Growth for the most recent fiscal year was 8.5% 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 (a year-on-year rate of
4.7% in April 2006), but may rise due to higher energy costs. As of November 2005,
India’s foreign exchange reserves were at more than $142 billion. The soaring

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Bombay Stock Exchange tripled in value from 2001-2006, then apparently
overheated with the worst-ever daily decline of its benchmark Sensex index on May
22, 2006, when 10.8% of its total value was lost. The market has since stabilized.
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 and his finance
minister, current Prime Minister Manmohan Singh, boosted growth and led to major
new inbound foreign investment in the mid-1990s. Reform efforts stagnated,
however, under weak coalition governments later in the decade, and combined with
the 1997 Asian financial crisis and international sanctions on India (as a result of its
1998 nuclear tests) to further dampen the economic outlook. Following the 1999
parliamentary elections, 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 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. A July 2006 World Bank report emphasized “the need
for India’s rapidly growing economy to improve the delivery of core public services
such as healthcare, education, power and water supply for all India’s citizens.”
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 and the two governments intend to see it
doubled again by 2009. 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 $7.4
billion for 2005; about one-third of these investments was made by U.S. investors (in
late 2005 and 2006, the major U.S.-based companies Microsoft, Dell, Oracle, and
IBM announced plans for multi-billion-dollar investments in India). Strong portfolio
investment added another $10 billion in 2005. 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 2006 report of the United States Trade Representative (USTR), a number of
foreign trade barriers remain, including high tariffs, especially in the agricultural
sector. The USTR asserts that “substantial expansion of U.S.-India trade will depend
on continued and significant additional 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.

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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.” During his
March 2006 visit to Delhi, 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 also 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 “inadequate laws and ineffective enforcement” in this area.
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 picture piracy, which in 2004
was estimated to have cost some $80 million). (See CRS Report RS21502, India-
U.S. Economic Relations.)
Regional Dissidence and Human Rights
The United States maintains an ongoing interest in India’s domestic stability and
the respect for internationally recognized human rights there. The U.S. Congress has
held hearings in which such issues are discussed. 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.)
India’s domestic security is an issue beyond the Jammu and Kashmir state: in
April 2006, Prime Minister Singh identified a worsening Maoist insurgency as “the
single biggest internal security challenge” ever faced by India, and lethal attacks by

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these “Naxalites” continue and included a June 2006 landmine explosion that left 12
policemen dead in the Jharkhand state. Also in June, communal clashes between
Hindus and Muslims in the Uttar Pradesh state left two children dead and more than
100 homes destroyed by fire. In May 2006, three days of communal rioting followed
the demolition of a Muslim shrine in the Gujarat state and left six people dead and
dozens more injured. More than 1,000 Indian army troops were deployed to quell the
violence. Regarding separatism in the northeast, New Delhi reportedly has agreed
to hold “direct talks” with the separatist United Liberation Front of Assam, which
appears on the U.S. State Department’s list of “other selected terrorists
organizations.”
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 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.
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
terrorist 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

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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 Manipur separatist bases near the Burmese border.
Maoist Insurgency. Also operating in India are “Naxalites” — Maoist
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. The groups get their name from
Naxalbari, a West Bengal village and site of a militant peasant uprising in 1967. In
April 2006, Prime Minister Singh identified a worsening Maoist insurgency as “the
single biggest internal security challenge” ever faced by India, saying it threatened
India’s democracy and “way of life.” The U.S. State Department’s Country Reports
on Terrorism 2005 warned that attacks by Maoist terrorists in India are “growing in
sophistication and lethality and may pose a long-term threat.” Naxalites now operate
in half of India’s 28 states and related violence caused nearly 1,000 deaths in 2005.
The most notable of these outfits 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 2004, the Andhra Pradesh government lifted an 11-
year-old ban on the PWG, but the Maoists soon 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 with even higher
frequency in 2006. New Delhi expresses concern that indigenous Maoists are
increasing their links with Nepali communists that have been at war with the
Kathmandu government. Many analysts see abundant evidence that Naxalite activity
is spreading and becoming more audacious in the face of incoherent and insufficient
Indian government policies to halt it.
Hindu-Muslim Tensions. Some elements of India’s Hindu majority have at
times engaged in violent conflict with the country’s Muslim minority. In late 1992,
a huge mob of Hindu activists in the western city of Ayodhya demolished a 16th
century mosque said to have been built at the birth site of the Hindu god Rama.
Ensuing communal riots in cities across India left many hundreds dead. Bombay was
especially hard hit and was the site of coordinated 1993 terrorist bombings believed
to have been a retaliatory strike by Muslims. In early 2002, another group of Hindu
activists returning by train to the western state of Gujarat after a visit to the 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

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CRS-20
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. Sporadic incidents of communal violence have continued to destroy both lives
and property in 2006.
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’s June 2006 report on trafficking in
persons said that New Delhi “does not fully comply with the minimum standards for
the elimination of trafficking; however, it is making significant efforts to do so” and
it placed India on the “Tier 2 Watch List” for the third consecutive year “due to its
failure to show evidence of increasing efforts to address trafficking in persons.” New
Delhi later downplayed the claims and said the report was “not helpful.” The
trafficking of women and children is identified as a serious problem in India.
The State’s Bureau of Democracy, Human Rights, and Labor has claimed 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 calls India “a vibrant democracy with
strong constitutional human rights protections,” but also asserts that “poor
enforcement of laws, widespread corruption, a lack of accountability, and the
severely overburdened court system weakened the delivery of justice.”
An officially secular nation, India has a long tradition of religious tolerance
(with occasional lapses), which is protected under its constitution. The population

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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 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 2006 report of the U.S. Commission on International Religious Freedom
lauds continued improvements since the May 2004 election of the Congress-led
coalition, but warns that concerns about religious freedom in India remain. These
include ongoing attacks against religious minorities, perpetrated mainly by Hindu
activists and most often in states with BJP-led governments. The Commission also
continues to criticize allegedly insufficient state efforts to pursue justice in cases
related to 2002 communal rioting in Gujarat.
U.S. Assistance
Economic. According to the U.S. Agency for International Development
(USAID), India has more people living in abject poverty (some 385 million) than do
Latin America and Africa combined. From 1947 through 2005, 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 military sales agreements
with India worth $288 million in FY2002-FY2005.

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CRS-22
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
donations). Food aid totals do not include freight costs.

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CRS-23
Figure 1. Map of India
Indian
Claim
Imphal
Kolkata
(Calcutta)
Mumbai
(Bombay)
I n d i a n
Marmagao
O c e a n
0
500 Miles
0
500 KM
Parallel scale at 25ûS 0ûE
Source: Map Resources. Adapted by CRS. (K.Yancey 7/6/06)

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