India-U.S. Relations

Order Code IB93097

CRS Issue Brief for Congress

Received through the CRS Web

India-U.S. Relations

Updated May 26, 2006

K. Alan Kronstadt

Foreign Affairs, Defense, and Trade Division

Congressional Research Service ˜ The Library of Congress

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

Maoist Insurgency

Hindu-Muslim Tensions

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.

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. Recent years, however, have witnessed a sea change in bilateral relations, with

more positive interactions becoming the norm.

India’s swift offer of full support for U.S.-led

counterterrorism operations after September

2001 was widely viewed as reflective of such

change. Today, President Bush calls India a

“natural partner” of the United States and his

Administration seeks to assist India’s rise as a

major power in the new century.

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.

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.

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 and

religious freedom have been other matters of

concern. Many in Congress, along with the

State Department and international human

rights groups, have criticized India for perceived abuses in these and other areas.

In July 2005, President Bush and Indian

Prime Minister Singh issued a Joint Statement

resolving to establish a U.S.-India “global

partnership” on a wide range of issues. In

recent years, the United States and India have

engaged in numerous and unprecedented joint

military exercises. Discussions of possible

sales to India of major U.S.-built weapons

systems are ongoing. Plans to expand hightechnology trade have become key bilateral

issues in recent years. In the July Joint Statement, the Bush Administration dubbed India

“a responsible state with advanced nuclear

technology” and seeks to achieve “full civilian

nuclear energy cooperation with India.” Such

proposed cooperation is controversial and

would require changes in both U.S. law and

international guidelines.

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

movement remains slow and inconsistent. See

also CRS Report RL33072, U.S.-India Bilateral Agreements;” CRS Report RL32259,

Terrorism in South Asia; and CRS Report

RS21502, India-U.S. Economic Relations.

The United States 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.

Congressional Research Service

˜

The Library of Congress

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MOST RECENT DEVELOPMENTS

During President Bush’s March visit to India — the first such trip by a U.S. President

in six years — he 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. Shortly after, 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.

In early April, 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 may accrue from

such cooperation. On May 19, H.R. 5430, to establish sound criteria for civilian nuclear

cooperation with certain countries, was introduced in the House. The bill’s sponsor

described it as “an effort to strike a reasonable balance” between U.S. interests in cooperation

with India and U.S. nonproliferation concerns. On May 23, S. 1950, to promote global

energy security through increased cooperation between the United States and India on nonnuclear energy-related issues, was passed by the Senate Foreign Relations Committee. Under

Secretary of State Burns and U.S. Ambassador to India Mulford traveled to London in late

May to discuss the nuclear initiative with Indian Foreign Secretary Saran. (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. However, bilateral

expert-level talks on confidence-building measures produced little movement in late April

and two days of dialogue on the militarized Siachen Glacier dispute made no progress in late

May. On May 3, India and Pakistan did agree to launch a second cross-LOC bus service and

to allow cross-LOC truck service to facilitate trade in Kashmir, but separatist-related

violence has spiked in that region, including a May 1 massacre of 35 Hindu villagers by

suspected Islamic militants, and correlated with a late May roundtable meeting of Prime

Minister Singh and Kashmiri leaders. India’s domestic security is an issue beyond the

Jammu and Kashmir state, as well: in April, Prime Minister Singh identified a worsening

Maoist insurgency as “the single biggest internal security challenge” ever faced by India, and

two bombs later exploded at New Delhi’s main mosque, injuring at least 13 people. In early

May, 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.

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On April 10, Afghan President Karzai met with top Indian leaders in New Delhi, where

Prime Minister Singh pledged another $50 million in assistance to Afghanistan (bringing

total assistance to $650 million since 2001). On April 20, a two-day meeting of the U.S.India Joint Working Group on Counterterrorism ended in Washington, where

Counterterrorism Coordinator Crumpton led the U.S. delegation. On April 22, senior

opposition BJP leader Pramod Mahajan was shot by his brother in a family dispute and died

11 days later. On May 22, the benchmark Sensex index of the Bombay Stock Exchange

suffered its worst-ever daily decline, losing 10.8% of its value. 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

INDIA IN BRIEF

terrorist attacks on the United States, India

took the immediate and unprecedented step Population: 1.1 billion; growth rate: 1.4% (2006

of offering to the United States full Area:est.)

3,287,590 sq. km. (slightly more than onecooperation and the use of India’s bases for

third the size of the United States)

counterterrorism operations. The offer Capital: New Delhi

reflected the sea change that has occurred Ethnic Groups: Indo-Aryan 72%; Dravidian

25%; other 3%

in recent years in the U.S.-India

Languages: 15 official, 13 of which are the

relationship, which for decades was mired

primary tongue of at least 10 million

in the politics of the Cold War and India’s

people; Hindi is primary tongue of about

friendly relations with the Soviet Union. A

30%; English widely used

marked improvement of relations began in Religions: Hindu 81%; Muslim 13%; Christian

2%; Sikh 2%, other 2% (2001 census)

the latter months of the Clinton

Life Expectancy at Birth: female 65.6 years;

Administration — President Clinton spent

male 63.9 years (2006 est.)

six days in India in March 2000 — and was Literacy: female 48%; male 70% (2003 est.)

accelerated after a November 2001 meeting Gross Domestic Product (at PPP): $3.7 trillion;

per capita: $3,741; growth rate 7.8% (2005

between President Bush and Indian Prime

est.)

Minister Atal Bihari Vajpayee, when the

Inflation: 4.6% (2005 est.)

two leaders agreed to greatly expand U.S.- Military Expenditures: $19 billion (2.5% of

India cooperation on a wide range of

GDP; 2005, est.)

issues, including regional security, space U.S. Trade: exports to U.S. $18.8 billion;

imports from U.S. $8 billion (2005)

and scientific collaboration, civilian

Sources: CIA World Factbook; U.S. Commerce Department;

nuclear safety, and broadened economic

Economist Intelligence Unit; Global Insight

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.

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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, IndiaU.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. 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

landmark July 2005 visit to Washington where a significant joint U.S.-India statement was

issued and, 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).

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

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

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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 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

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 WMDrelated 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.

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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 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 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 one month later. 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, 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

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 1,000 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.

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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, middleclass 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.

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

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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.

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. 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 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

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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.” 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. 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 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. 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

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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 quasigovernmental 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

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 CTBT, as well as the Nuclear Nonproliferation

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-testrelated 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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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.

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 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 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 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

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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 multirole 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 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 IranLibya Sanctions Act (P.L. 107-24) requires the President to impose sanctions on foreign

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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

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

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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.

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. 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.

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 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.

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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 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.

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 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.

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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 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. Per capita

GDP is about $3,825 when accounting for purchasing power parity. 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. Still, despite problems, the current growth

rate of India’s increasingly service-driven 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 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). Estimated growth for

the most recent fiscal year runs near 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 (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 soaring Bombay Stock Exchange increased in value by some 200% 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 value was lost.

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

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 tariffreducing 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.

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

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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 $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). 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 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.”

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 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 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

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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 Indian military sales agreements worth $202 million in FY2002-FY2004.

Table 1. U.S. Assistance to India, FY2001-FY2007

(in millions of dollars)

Program

or

Account

CSH

DA

ESF

IMET

NADR

Subtotal

Food Aid*

Total

FY2001

Actual

FY2002

Actual

FY2003

Actual

FY2004

Actual

FY2005

Actual

FY2006

Est.

FY2007

Request

24.6

28.8

5.0

0.5

0.9

$59.8

78.3

$138.1

41.7

29.2

7.0

1.0

0.9

$79.8

105.7

$185.5

47.4

34.5

10.5

1.0

1.0

$94.4

44.8

$139.2

47.8

22.5

14.9

1.4

0.7

$106.2

30.8

$137.0

53.2

24.9

14.9

1.5

4.2

$98.7

26.1

$124.8

47.7

10.9

5.0

1.2

2.4

$67.2

43.0

$110.2

48.4

10.0

6.5

1.5

1.5

$67.9

—

$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.

CRS-17