Thursday, 11 February 2010, 13:07
S E C R E T NEW DELHI 000287
SIPDIS
EO 12958 DECL: 02/10/2020
TAGS PREL, PTER, ECON, SENV, AF, PK, IN
SUBJECT: SCENESETTER FOR CODEL KERRY'S VISIT TO INDIA
Classified By: A/DCM Uzra Zeya. Reasons: 1.4(B, D).
Summary
In a wideranging brief before a visit by Senator John Kerry, US diplomats praise India's "raucous democracy" and Manmohan Singh's government and welcome new recognition of Indian responsibilites on climate change. Key passages highlighted in yellow.
1. (S) Summary: You will find an Indian government that is more committed than ever to building a durable and wide ranging USG-GOI relationship after Prime Minister Singh's Washington visit in November. New Delhi has been broadly supportive of USG goals in both Pakistan and Afghanistan. After refusing post-Mumbai to engage broadly with Pakistan until Islamabad took action against the attack perpetrators, New Delhi has now offered unconditional talks to Islamabad. This is a calculated risk on PM Singh's part given the political fallout over last summer's India-Pakistan joint statement at Sharm al Sheikh. On Afghanistan, there are underlying concerns that U.S. policy foreshadows an early exit from Afghanistan with negative security consequences for India. India has expressed concern about the outlines of the reintegration policy promoted by the Karzai government and supported by the United States. The GOI has begun to weigh a policy response that may include increased Afghan police and military training/assistance. They will be interested in your views on India's role in Afghanistan. Our bilateral Civil-Nuclear Agreement no longer dominates the headlines, but the goodwill it generated has contributed to our improved relationship across the board and to India's gradual movement toward the nonproliferation mainstream. Several Agreement implementation measures remain unresolved. The U.S.-India defense relationship is progressing rapidly, and defense sales could reach USD 4 billion in 2011. The U.S.-India economic relationship, for decades practically nonexistent, has grown quickly and U.S. exports to India have increased five-fold from USD 3.6 billion in 2000 to USD 17.7 billion last year. On climate change, the Copenhagen conference marked a fundamental shift in India's position, and India is beginning to understand it must address the climate issue not as a poor developing nation but rather as the major economy it has become. End Summary.
Pakistan
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2. (S) The Indians understand our message about the importance of resuming a robust dialogue with Pakistan and the necessity of increased GOI communication to reassure Pakistani officials about India's intentions in Afghanistan. India has now offered to hold Foreign Secretary-level talks with Pakistan, but has rejected Islamabad's attempts to condition resumption of discussion on picking up the thread from the Composite Dialogue India paused after Mumbai.
3. (C) PM Singh is taking a calculated political risk in pushing forward with an offer of talks with Pakistan. While there is a general recognition that the policy of not engaging with Pakistan except on counterterrorism issues has exhausted its usefulness, that does not necessarily translate into strong or consistent support for broad talks with Pakistan among the political class, given continuing terrorist threats. There are heavyweights in the Congress, including Finance Minister Mukherjee, who were not supportive after last year's Sharm al Sheikh Joint Statement fiasco, and they will seize on any missteps to argue against a policy that reaches out to the Pakistanis. This is also likely to be the last time for some time that PM Singh will have sufficient support to reach out to re-engage on dialogue. The PM took a beating after Sharm al Sheikh and his government's post-election honeymoon came to a crashing halt. If this renewed effort falters because of lack of interest on the part of the Pakistanis, many could point to newly appointed NSA Shiv Shankar Menon as the scapegoat. Menon was lambasted for his role as Foreign Secretary at Sharm and will equally be identified with this proposal.
Afghanistan
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4. (C) The reaction to the President's December 1 West Point speech announcing the way forward on Afghanistan drew guardedly positive support from most of our interlocutors. While the President's emphasis on development and agriculture assistance and a re-affirmation of USG commitment to the region drew approval, many were apprehensive about the setting of July 2011 as a beginning date for the transfer of U.S. troops out of Afghanistan. India's fears that its views and interests are not being taken into account has intensified lately: India was kept out of the Istanbul regional conference on Afghanistan (based on a Pakistani veto) and New Delhi was the odd man out at the London Conference over reintegration.
5. (U) India is proud of its own ongoing "development partnership" with post-Taliban Afghanistan that began in late 2001, and the GOI claims the sum of its performed and pledged assistance to date totals USD 1.3 billion. Civilian aid is channeled into three main areas: infrastructure development (centerpiece is a 218km road in Helmand); capacity building (scholarships and civil service training in India); and humanitarian assistance (daily food aid to 2 million Afghan school children). Virtually all GOI aid is administered through the Afghan government or NGOs.
6. (S) Indian support for Afghanistan's government is long-standing and motivated by a variety of reasons, not the least being Afghanistan's strategic value as New Delhi seeks regional influence. India, with the exception of the Taliban era, has always had strong ties to Afghanistan since Partition; conversely, Islamabad with the exception of the Taliban period, has had strained ties with Kabul. Pakistan's expectation that the government in Afghanistan will be pro-Pakistan and anti-Indian is unrealistic, particularly given Karzai's own long-standing ties to India and the goodwill that India's assistance and other elements of India's soft power have created in Afghanistan.
7. (S) While India's assistance to Afghanistan has primarily focused on reconstruction and stabilization, there has also been limited military aid. The MEA told us after the West Point speech that the GOI wishes to do more to help develop Afghan capacity, especially with regard to the police and military, but is also cognizant of USG "sensitivities" about such assistance. XXXXXXXXXXXX
Internal Politics: a Raucous Democracy
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8. (SBU) We have a true partner in the current Indian government led by Prime Minister Singh, but its capabilities are not without limits. The strong performance by the Congress Party and its United Progressive Alliance (UPA) allies in India's national elections in 2009 gave the Prime Minister Singh's coalition a mandate to govern and -- freed from dependence on half-hearted allies on the Left -- to promote a closer relationship with the United States. Despite the strong endorsement by the electorate and a floundering opposition, the UPA government has gotten off the blocks somewhat slowly. The government grew less confident after its honeymoon period was cut short by the fallout over a joint statement from Singh's July 2009 Sharm-el-Sheikh meeting with Pakistani Prime Minister Gilani. The Sharm debacle rallied Singh's otherwise disjointed political opponents, while reminding the Prime Minister of his constraints despite his mandate. The tentativeness of the government was again on display during the winter session of Parliament, during which an unruly opposition united over populist causes and sidelined civil nuclear liability legislation and long-awaited financial sector liberalization. The government is again on the defensive over demands for the creation of a separate state of Telangana from Andhra Pradesh. On February 3 it bowed to political pressure and announced the formation of a five-person Committee to evaluate the issue.
Civil Nuclear Cooperation
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9. (SBU) India viewed the signing of the U.S.-India Civil Nuclear Cooperation Agreement as an historic event and an essential part of transforming our relationship. India has since followed through on its nonproliferation commitments by signing its IAEA Safeguards Agreement and concluding an Additional Protocol with the IAEA. We are working with the government to implement commercial cooperation, providing U.S. firms access to an estimated USD 150 billion market and leading to the creation of thousands of high-skilled jobs, as well as providing India's growing economy with access to clean energy. The Agreement no longer dominates the headlines, but the goodwill it generated has contributed to our improved relationship across the board and to India's gradual movement toward the nonproliferation mainstream.
10. (SBU) The Indian government made substantial progress on implementing commercial cooperation ahead of PM Singh's visit to Washington, though some important hurdles remain. In recent months, India announced two favorable reactor park sites for U.S. firms in the states of Gujarat and Andhra Pradesh, and submitted its declaration of safeguarded facilities to the IAEA. We have held five rounds of reprocessing consultations pursuant to the 123 Agreement, and hope to conclude negotiations soon. The government responded to our request for Part 810 license assurances on the eve of Singh's visit, a top priority of U.S. industry, and we await clarification on two issues. The cabinet approved draft liability legislation, a top priority for U.S. firms, but Parliament was not able to pass the legislation in the just-concluded session.
The Defense Relationship
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11. (SBU) The U.S.-India defense relationship has progressed rapidly since sanctions were removed in 2000 following India's 1998 nuclear test. Today's relationship is focused on bilateral exercises, Subject Matter Expert Exchanges (SMEEs), and personal exchanges at schools, conferences and seminars. Billion-dollar defense sales are a growing component and a superb opportunity to expand the relationship. Exercises are the most visible of the activities between our two militaries. In October, the Army completed its most ambitious exercise with the deployment of 17 Strykers to India for a two week exercise which included live firing of a combined mechanized task force for the first time. Simultaneously, the Air Force had five transport aircraft participating in exercise COPE INDIA held in Agra that included a Special Forces component. The Navy conducts an annual exercise, Malabar, that has been conducted both bilaterally and multilaterally. The Marines hold an annual exercise with the Indian Army, Shatrujeet, which focuses on amphibious operations. The Indians have been cooperating with the Joint POW/MIA Accountability Command for recovery of remains from downed Second World War planes in the politically sensitive state of Arunachal Pradesh. To date, we are still working on obtaining permission to repatriate all of the remains so as to properly identify and recover lost Airmen.
12. (SBU) Defense sales are growing quickly from roughly one billion USD in 2008, to over two billion so far this year. There is good potential for over four billion in sales next year, especially with the recent Ministry of Defense approval to pursue the C-17. For the first time, India can afford (politically and financially) to purchase front line U.S. equipment. They recognize the quality of U.S. systems and have been astounded by the mission capable rates quoted for U.S. aircraft compared to their older Russian inventory. They are becoming increasingly sophisticated in their analysis of costs and now use life-cycle cost instead of cost on delivery for some purchases, giving U.S. products an opportunity to beat cheaply made competitors. Most important, the July 2009 agreement on End Use Monitoring (EUM) has opened the door for FMS sales at a time when there is growing frustration with Russia - previously India's supplier of choice. The near doubling in cost and extensive delays in delivery of the ex-Russian aircraft carrier GORSHKOV, issues with transfer of technology on the T-90 tank, and universal problems with spare parts have convinced the GOI that new sources of supply are needed to balance Russia. Given an opportunity, we ask that you endorse Indian purchases of U.S. equipment as an important part of our defense relationship and support our ongoing sales efforts.
Economic Ties
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13. (SBU) The U.S.-India economic relationship, for decades practically nonexistent, has grown rapidly and has significant potential to expand further. At the same time, India is an increasingly important player at the table in multilateral economic fora, from the WTO Doha Round negotiations and the G-20, World Bank and IMF to the UNFCCC negotiations in Copenhagen. While India was seen in the United States as a spoiler when the World Trade Organization Doha Development Agenda talks broke down in July 2008, India's new Commerce Minister showed leadership and significantly improved the tone of discussions when he hosted a Doha "Mini-ministerial" meeting in September, attended by U.S. Trade Representative Kirk.
14. (U) The United States is India's largest trading partner in goods and services and one of its largest foreign investors. Investment has surged between our countries in recent years, prompting agreement to launch negotiations on a bilateral investment treaty. U.S. exports to India has increased five-fold from USD 3.6 billion in 2000 to USD 17.7 billion last year. Two-way merchandise trade grew to a record USD 44.4 billion in 2008, a 76-percent increase from 2005. Reflecting the global economic downturn, exports to India fell 9.7 percent in January-September 2009 (to USD 8 billion), but Indian exports to the United States fell more sharply. Thus, the U.S. trade deficit with India fell 43.8 percent to just USD 3.2 billion in January-September 2009. Despite the size of its economy, India was only the United States' 18th largest trading partner in 2008. One of the major goals of the U.S.-India Trade Policy Forum is to resolve barriers to trade and investment to improve this ranking.
15. (U) India was somewhat shielded from the global economic downturn due to its conservative central bank and SEC-equivalent restricting many of the derivative innovations linked to the global financial crisis, and its relatively low reliance on exports. However, although India's "Wall Street" was less affected, its "Main Street" bore the brunt of the downturn, with slower growth, tighter access to credit, declining exports, higher unemployment, and less investment. In response, India's central bank and SEC-equivalent relaxed many of its restrictions on foreign capital inflows and investment procedures and the GOI enacted several fiscal stimulus programs, both pre- and post-election, to boost economic growth.
16. (SBU) The Indian economy continues to be one of fastest growing economies in the world, even as the global slowdown and financial crunch moderated GDP growth from nine percent in fiscal year (FY) 2007-08 to 6.7 percent in FY 2008-09, which ended March 31. Growth in the second quarter was 7.9 percent and growth in fiscal year 2009-10 is now expected to be in the seven percent range. The Commerce Ministry announced December 15 that it expects to see a return to positive export growth soon. With the expected return of higher growth rates, rising inflation, and the highest fiscal deficit (approximately 11 percent of GDP) in 20 years, the GOI has begun to reverse some the measures it enacted during the financial crisis and has announced plans to decrease subsidies and increase disinvestment. Lagging agricultural productivity and poor -- but improving -- infrastructure continue to constrain growth. Accordingly, the top Indian economic priorities remain physical and human infrastructure development and spreading economic benefits into rural India.
17. (U) The United States continues to have concerns about agricultural trade with India. The recently released Senate Finance Committee Report on Indian agricultural trade barriers -- a U.S. ITC investigation -- highlighted the essentially defensive agricultural trade policy long promoted by the Indian government. The United States is particularly interested in gaining marketing access for U.S. dairy products which are blocked due to a series of non-scientific GOI rules. Discussions are ongoing, but the effort to resolve long-standing agricultural trade issues is a Mission priority.
Climate Change/Clean Energy
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18. (SBU) The 16th Conference of Parties (COP-16) at Copenhagen marked a fundamental shift in India's climate change position. Minister of Environment and Forests Jairam Ramesh claimed victory for India's negotiating team in a December 22 address to parliament stating India was "entirely successful" at COP-16 in that there was no dilution of either the Bali Action Plan or the Kyoto Protocol, India was not required to agree on a peak year for its emissions, and that it avoided any legally binding emission commitments, including a long-term global goal of reducing emissions 50 percent by 2050. Although India's current position is that the Kyoto Protocol and Bali Action Plan are sacrosanct and must be the basis for all future climate negotiations, both Ramesh and Prime Minister Singh have publicly supported the Copenhagen Accord pursuant to the Accord, India communicated its domestic mitigation action of reducing it's carbon intensity by 20 to 25 percent by 2020 from a 2005 baseline to the UNFCCC Secretariat on January 30. In addition, Ramesh has drawn India farther from the G77 by telling parliament India was not in the same category as other developing countries such as Bangladesh, Maldives, Grenada, or African nations, that it did not need to demand technology transfer at low or no cost, and that India should be selling green technology to the world. India's association and close coordination of its climate negotiating position with the Basic Group of nations, comprised of Brazil, South Africa, India, and China, indicates India is beginning to understand it must address the climate issue not as a poor developing nation but rather as the major economy it has become.
19. (SBU) During the November visit of the Prime Minister, Secretary Clinton and her Idian counterpart signed an MOU to Enhance Cooperation on Energy Security, Energy Efficiency, Clean Energy and Climate Change. Both countries share an interest in rapid expansion of clean and renewable energy production. India has massive investments planned in energy production, both conventional and renewable, as the government recognizes the need to continue to power India's economic growth and extend access to electricity to ever more of the significant portion of the population which still does not have it. The bilateral MOU calls for stepped up engagement beyond the existing Energy Dialogues to include a focused Clean Energy Research and Deployment Initiative to rapidly disseminate clean energy technologies, including solar, wind, hydro, as well as shale gas and cleaner coal. The USG is holding ongoing inter-agency consultations and is finalizing recommendations for the organization of these new initiatives. DOE has the lead on a Joint Clean Energy Research Center, while USAID is heading a multi-agency team to create the Clean Energy Deployment Center in coordination with State, Commerce, OPIC, EXIM, USTDA and others. Completed designs for the centers are expected by early spring. We expect that they will accelerate existing initiatives as well as launch numerous others in order to have broad impact in building the Indian clean energy market. ROEMER
