26463: Challenges and opportunities in India
http://www.thehindu.com/news/the-india-cables/the-cables/article1576947.eceAs Congress solidifies its hold on power, it will come closer to its
goal of forming the government without Left/Communist support, will
grow more confident, and we could see more scope for progress on
issues we care deeply about, such as economic reform, and possibly
Iraq.
26463 2/4/2005 11:55 05NEWDELHI909 Embassy New Delhi SECRET "This
record is a partial extract of the original cable. The full text of
the original cable is not available.
" "S E C R E T SECTION 01 OF 07 NEW DELHI 000909 SIPDIS E.O. 12958:
DECL: 02/03/2015
TAGS: PREL, PGOV, ECON, ETRD, EAID, MARR, MOPS, KPKO, XD, IN, External
Political Relations
SUBJECT: INDIA: CHALLENGES AND OPPORTUNITIES IN 2005
Classified By: Ambassador David C. Mulford, Reason 1.5 (B,D)
1. (S) Summary: With political momentum in its favor, the United
Progressive Alliance (UPA) expects to solidify its hold on power in
2005. The Congress-led coalition's pursuit of closer US-India ties
will continue unabated, but the exigencies of coalition government
will slow progress on issues of importance to the US. While committed
to economic reform, the GOI and the UPA leadership will not move too
quickly, so as not to lose support of the Left, which backs the UPA
from the outside and opposes most forms of economic liberalization.
Although there have been no dramatic Composite Dialogue breakthroughs,
we will encourage Manmohan Singh to inject new momentum into Indo-Pak
relations as former PM Vajpayee did on several occasions. The recent
tsunami tragedy resulted in an unprecedented degree of SIPDIS civilian
and military coordination between the USG and India to deliver
immediate relief to Sri Lanka and Indonesia. We hope the successful
outcome of the January 30 elections in Iraq will afford us a new
chance to push India to expand its thus far disappointing engagement
in Iraq. Institutionalizing GOI progress on Trafficking in Persons and
encouraging sustained, concrete high level action and funding on HIV/
AIDS also will be major Mission priorities. End Summary.
Internal Politics
-----------------
2. (C) In the eight months since his unexpected victory in the May
parliamentary elections, former Finance Minister Manmohan Singh
steadily consolidated his position as the ""accidental PM."" The BJP
and its allies have been stuck in a tailspin following a series of
electoral defeats, characterized by public spats between BJP leaders,
as well as between party moderates and Hindu nationalists.
3. (C) Domestic politics returned to the fore after the disastrous
tsunami that hit India at the end of 2004 momentarily diverted
attention away from political affairs. India's response to the tsunami
was to deter outside direct assistance and material to demonstrate
that it could deal with its own internal tragedy while at the same
time making a strong statement of regional leadership by providing
assistance to Sri Lanka, the Maldives and Indonesia. In early
February, India will hold elections in Haryana, Jharkhand, and Bihar,
the only state polls scheduled for 2005. These will be major contests
for the BJP and its National Democratic Alliance (NDA), which must
halt if not reverse their string of election defeats to remain viable.
We expect the UPA will retain control in Bihar, while likely unseating
the BJP in Jharkhand and a regional party in Haryana. That outcome
could exacerbate the rift between the BJP's centrist coalition
builders and hard line Hindu nationalists. The budget session of
parliament, which is set to begin on February 25, will demonstrate
whether Congress can overcome opposition from its Leftist allies to
implement economic reforms, while fulfilling the populist promises of
the Common Minimum Program (CMP). On January 3, India's National
Security Advisor JN Dixit died suddenly, and was succeeded by Senior
Advisor NK Narayanan. The process raised questions about the role and
relevance of the office of the NSA, which has played a major positive
role in the growing US-India relationship.
4. (C) By the end of 2005 it will become apparent whether Congress and
its UPA allies have solidified their hold on power. If the BJP/NDA
does badly in the three state contests in February, Congress could
convince some secular parties to leave the NDA alliance and cross over
to the UPA. This could also increase factionalism within the BJP,
fueling speculation of a split within the Sangh Parivar. If the BJP
does not resolve its leadership issues and end infighting within its
middle-tier leadership, its decline could deepen. As Congress grows
more confident, it could demand a greater role within the UPA and in
states where it rules in coalition with regional parties -- we have
already seen this trend in Maharashtra, where Congress successfully
held out for the Chief Ministership. Congress will continue to build
strength in the crucial state of Uttar Pradesh (UP) and could use
growing law and order problems to invoke governor's rule and bring on
a new election in an attempt to unseat the regional party in power
there. Although some Congress leaders would like to call new
parliamentary elections to gain an absolute UPA majority and end its
dependence on the troublesome Left parties, this is not likely to
happen in 2005. Local elections in J&K will mark the first time in 27
years that Kashmir residents will choose their neighborhood leaders.
We will continue pressure for New Delhi-Srinagar dialogue; an outcome
that may become more likely after
Congress takes control of the Chief Ministership in the fall.
Indo-Pak
--------
5. (S/NF) when viewed in comparison to 2002/2003, India's relations
with Islamabad have improved significantly. The LOC cease-fire, which
reached its first anniversary on November 26, 2004, has qualitatively
improved the lives of Kashmiris. The Home and Defense Ministries
reported drops in infiltration rates and violence from Kashmir-
oriented terrorist groups, attributing this progress to the fencing of
major sections of the LOC, and the cease-fire that permitted fence
construction to proceed. The two rounds of the Composite Dialogue took
place without rancor and recrimination, and there was incremental
progress on counter terrorism, nuclear CBMs and counternarcotics
cooperation. On the margins of the UNGA, the PM told Musharraf his
views on Kashmir: India will discuss it, but will not agree to a
second partition based on religion or a redrawing of the Indo-Pak
boundaries. We will quietly encourage PM Singh to follow the example
of former PM Vajpayee and intervene to propose fresh initiatives when
talks between the two bureaucracies bog down, particularly since the
politics of Indo-Pak relations have swung in favor of greater
rapprochement here.
6. (C) New Delhi appears content with the current pace of engagement
with Islamabad, and is clearly interested in trying to erase the
""trust deficit"" by increasing bilateral trade and people-to-people
contacts. It is unclear how long talks will continue absent
deliverables, and observers are divided over how much to credit
""process in the absence of progress."" If terrorist violence in
Kashmir and infiltration across the LOC continues, even at lower
levels, a major attack during the year could compel an Indian
response. Growing Indo-Pak goodwill generated over the past year has
raised the threshold for military action, but GOI tolerance is not
infinite, and the first three weeks of 2005 already saw two suicide
attacks on government officers in Srinagar. The GOI has taken a low-
key approach to Islamabad's decision to bring the Baglihar dispute to
third-party arbitration, believing that the facts and the treaty are
on its side. While Baglihar is unlikely to disrupt the bilateral
dialog on other issues, it looms over the February 6-7 SAARC summit
and FM Natwar Singh's mid-February visit to Islamabad and could sour
otherwise cordial Indo-Pak atmospherics. Musharraf's January 15
statement that the GOP would not move forward on CBMs until
differences over the proposed Srinagar-Muzaffarabad bus have been
overcome further complicated Kashmir dialog. The Pakistan cricket team
is scheduled to play a series of test matches in India from February
through March, which should result in some of the same goodwill seen
in the 2004 test series in Pakistan.
NSSP
----
7. (S) In completing Phase One of the Next Steps in Strategic
Partnership (NSSP) in September, the UPA succeeded in doing what the
previous NDA government would not, and provided assurances regarding
non-diversion of technology to the US that it later reaffirmed on the
floor of parliament. Phase Two of the NSSP requires intensive efforts
by the GOI to introduce national legislation governing technology
transfer, and commit to adhere to MTCR and NSG guidelines. The GOI is
especially keen to see some flexibility on the parameters for
cooperation on civil nuclear safety issues, warning that without
progress on that front, the scientific establishment will hold back
advancements on other NSSP. Officials in India's nuclear agencies have
become outspokenly opposed to strengthening export controls, in the
belief that the NSSP will not benefit them. The GOI remains supportive
of US goals on international non-proliferation, and is frustrated that
we have not seen fit either to bring India into the core group of the
Proliferation Security Initiative (PSI), or disband the Core Group
altogether. The GOI has also signaled its intention to join the
Container Security Initiative and plans to send a team to Washington
in late February to agree on a way forward.
Military Relations
------------------
8. (C) The Indian military has embarked on an ambitious modernization
program starting with revising its Army doctrine, procuring cutting-
edge equipment and technology to enhance its capabilities, and
conducting joint and combined exercises with an expanding number of
partners. The Army also considered changing its counterinsurgency
methods, converting more battalions to Special Forces units, and
increasing use of precision munitions and information warfare. An
ambitious schedule of US-India joint military exercises, including the
largest such event to date off the Indian coast in October, enhanced
US-India mil-mil ties and paved the way for better relations in other
areas. These efforts laid the groundwork for unprecedented cooperation
between the US and India in tsunami relief. A US decision to move
ahead with an F-16 sale to Pakistan, and the subsequent political
fallout, however, would endanger US hopes for a breakthrough arms sale
to India in the near future.
9. (C) The Indian Air Force has extended the deadline for the US to
submit a bid on 126 multi-role fighter aircraft to replace India's
aging MiG fleet. This represents the best opportunity we have had in
years to cap three years of successful exercises and other military
engagement with a decision to seriously compete in India's annual $14
billion defense market and demonstrate our confidence in the 21st
century partnership that the President's NSSP initiative embodies.
(Note: The USG has not yet responded to the Indian offer). Whether the
US participates in this tender or not, it will have a competitive
presence at India's annual air show (Aero-India) in mid-February.
Later in February, the GOI is expected to receive a classified
briefing on the PAC-2 missile defense system, followed by an initial
exploratory meeting for a future missile defense and command post
exercise.
Economic Outlook
----------------
10. (SBU) During his first seven months as PM Manmohan Singh signaled
his intention to keep market-oriented reforms moving forward. He
assembled several like-minded reformers around him, including Finance
Minister Chidambaram and Deputy Chairman of the Planning Commission
Montek Singh Ahluwalia. Collectively, they charted the course on
future economic policy and were able and knowledgeable interlocutors
in our bilateral Economic Dialogue. This capable team faced
significant political obstacles from the Left in its attempts to
advance economic reforms outlined in the ""Common Minimum Program
(CMP).""
11. (C) Finance Minister Chidambaram submitted a Mid-Year Review to
Parliament on December 13 concerning the state of the economy after
the first six months of the fiscal year (April 1 - September 30). The
document lowers the prediction for GDP growth to ""6 percent-plus""
for the full fiscal year, indicating that the budget deficit target
may slip, and flagged higher inflation. However, the Review addressed
several economic reforms that correspond closely with our own mid-term
economic and commercial strategy and our ongoing engagement with the
GOI. It envisions the roll out on April 1 of the value-added tax
(VAT), calls for reducing federal subsidies, highlights infrastructure
development, and urges liberalizing FDI. The document also hints at
opening up the now-closed retail sector to FDI as a means of creating
an ""integrated common market"" for agricultural products. It is not
certain, however, that the PM and his team can sell these reforms to
Parliament, and especially to the Left.
12. (SBU) Because of leftist opposition, labor law reform and the
privatization of most state-owned companies appear to be off the
table, although the GOI may proceed with limited asset sales that do
not reduce government ownership below 50 percent of equity. The Left
has historically opposed most forms of FDI; attacking GOI plans to
raise FDI caps on telecom companies (74 percent from 49 percent), and
insurance (49 percent from 26 percent). Its posture has put it in
conflict with PM Singh's ambitious goal of attracting $150 billion in
FDI for infrastructure development in the next 10 years. Singh has
publicly acknowledged that the UPA must still win over the Left on
FDI. With this as a political backdrop, economic reform will likely
move forward on an ad-hoc basis. Issues that have popular support,
like reducing bureaucratic red tape and simplifying the tax code, will
move forward. Nonetheless, some observers believe that a general
compromise is slowly being forged behind the scenes, with the Left
giving tacit assent for liberalizing FDI regulations and proceeding
with a new patent law, in exchange for a strong government commitment
to rural development and a rural jobs program. Meanwhile, the GOI has
agreed to sign with us its first ever Open Skies Agreement. Mission
looks forward to Secretary Mineta's late March visit here to sign the
Agreement.
Iraq
----
13. (C) The GOI expressed high-level interest in providing training
and other material assistance for Iraq's January 30 elections.
However, it was hamstrung by its policy barring Indian citizens from
going to Iraq and by strong Left party opposition against any
involvement until a democratically-elected governments takes the
reigns in Baghdad. GOI support for the January polls was limited to
the $10 million it had already committed to the UN Trust Fund.
Although frustrated by lack of access to decision-makers in Baghdad,
poor information flow, and absence of response to its offers of
assistance, New Delhi says it is committed to playing a larger role in
subsequent Iraqi polls scheduled later in 2005. A very positive GOI
statement following the January 30 elections was drafted with
Washington in mind, and we will encourage a GOI effort to get back
into the game of Iraq reconstruction and political reform.
Regional Engagement
-------------------
14. (C) India's ""Look East"" policy and PM Singh's personal interest
in pursuing close economic ties with Southeast Asia, as well as
India's vision of itself as a balance to China, ensures that New Delhi
will continue to pay close attention to ASEAN for economic as well as
strategic reasons. At the 2004 ASEAN Plus One Summit, the PM committed
India to free trade with parts of the organization by the distant
deadline of 2011, with no indication of concrete steps towards that
goal in 2005. Initially opposed to an East Asia Summit on the grounds
that there already exists an ASEAN Plus Three (ASEAN plus Japan,
Korea, China), the MEA has recently indicated that if invited, India
will participate.
15. (C) Progress on SAFTA (South Asia Free Trade Area) negotiations
leading up to the planned January 2006 implementation date will be a
principal focus for SAARC in 2005. Although the MEA has outlined an
ambitious plan for SAFTA negotiations, aimed at having an agreement
for member ratification by July 2005, India has generally preferred
bilateral tracks for liberalized trade. Within South Asia India has an
FTA with Sri Lanka, a de facto one with both Nepal and Bhutan, and is
in the very early stages of discussion with Bangladesh, leaving out
only Pakistan. Uncertainty about the PM's attendance at the February
SAARC Summit in Dhaka reflected continued difficulty in the GOI-GOB
relationship, and genuine Indian concerns about the security situation
there.
16. (C) Bangladesh: Press reports indicate that PM Singh may not
attend the SAARC summit in Dhaka, which was to be the site of the
first bilateral meeting between PM Singh and Bangladeshi PM Khaleda
Zia. Should such a meeting take place, it would give a much-needed
goodwill boost to India-Bangladesh relations early in the year.
However, one meeting is unlikely to resolve continuing New Delhi's
frustration over what it sees as Dhaka's complicit support for
Northeastern insurgent groups. Economics may provide some positive
impetus to the relationship. In early January the petroleum and
natural resources ministers of India, Bangladesh and Burma met in
Rangoon and agreed to proceed with an oil and gas pipeline from Burma
through Bangladesh. New Delhi's response to Dhaka's request for access
through India for hydroelectricity and goods from Nepal and Bhutan
will set the tone for progress on the pipeline. In late 2004, the MEA
expressed to us some optimism regarding the Tata Corporation's
proposed USD two billion investment in Bangladesh. However, without
Bangladeshi acknowledgment of Indian concerns about support for
Northeastern militants, the relationship will likely remain uneasy.
Mission will continue to encourage real information sharing towards US-
India CT cooperation on the India-Bangladesh border.
17. (C) China: India's engagement with China is likely to maintain its
upward trajectory in 2005. China will continue to figure prominently
in New Delhi's foreign policy calculus, as India continues its ascent
to regional and global power status, and seeks opportunities in
rapidly expanding Sino-Indian trade. Both countries conducted a first-
ever strategic dialogue on January 24, further broadening the scope of
India-China diplomatic interaction. The discussions, led by Foreign
Secretary Shyam Saran and Chinese Vice Foreign Minister Wu Dawei,
included an exchange of views on terrorism, non-proliferation, energy
security, UN reform, Iraq, Afghanistan, Iran, and North Korea. Border
talks are also likely to continue, although four rounds of discussions
have yielded few concrete results, and the demise of NSA Dixit --
India's China negotiator -- reduces the prospects of diplomatic
innovation. Lingering suspicions and lack of trust will remain
obstacles to the bilateral relationship on the Indian side, especially
as New Delhi views with concern the PLA's military build-up on the
Tibetan plateau and in Burma, and Beijing's strong relationship with
Pakistan.
18. (C) Nepal: The February 1 dismissal of the government by King
Gyanendra complicated the India-Nepal relationship. While the GOI
described the incident as a ""serious setback"" to the cause of
democracy and reaffirmed its support for Nepal's political parties,
early indications are that it will take a cautious approach, so as to
not to encourage Nepal's on-going Maoist insurgency. The GOI remains
committed to do ""whatever is necessary"" to help Nepal defeat the
Maoists, and does not want the security situation there to deteriorate
further. The king's actions will further strain his already testy
relationship with New Delhi. Shared concerns about the political
crisis and the Maoist insurgency will continue to provide
opportunities for greater US-India dialogue and collaboration, taking
advantage of New Delhi's influence and insight into political dynamics
in Kathmandu.
19. (C) Afghanistan: India welcomed President Karzai's re-election and
expressed a desire for successful Afghan Parliamentary elections. With
India's policy towards Afghanistan moving to the post-Bonn phase, the
GOI is currently looking at the next phase of reconstruction projects,
which represent India's largest aid program anywhere.
Trafficking in Persons
----------------------
20. (C) Initially placed on Tier II in the 2002 Trafficking in Persons
(TIP) certification baseline survey, India slipped to the Tier II
Special Watch List in 2004 for failing to demonstrate increased
central government law enforcement response to its huge trafficking
problem and inadequate local prosecutions in Mumbai and Calcutta. The
US subsequently presented the GOI with a list of suggested actions,
including: A) creating and empowering a national anti-TIP coordinator;
B) designating and empowering a national anti-trafficking law
enforcement agency; C) encouraging state governments, particularly
Maharashtra and West Bengal, to increase significantly the number of
trafficking-related prosecutions and convictions; D) implementing the
1998 National Plan of Action; E) strengthening national anti-
trafficking law and F) increasing public awareness of trafficking.
Failure to demonstrate progress on this agenda could result in India
slipping to Tier III in the 2005 TIP certification process, and the
imposition of sanctions. GOI, NGO and private sector contacts admit
that India is deficient in TIP law enforcement, but argue that Tier
III placement could be highly counterproductive to USG/GOI relations,
particularly to anti-TIP cooperation.
21. (C) While the previous government virtually refused to discuss the
TIP issue, the UPA administration has been open to exploring greater
anti-TIP cooperation. The MEA Joint Secretary (Americas), and the
Secretary of the Department of
SIPDIS Women and Child Development (DWCD) have been very pro-active.
Strong Embassy efforts at the highest levels are bearing fruit. The
GOI has made significant movement on virtually every issue except
designating and empowering a national anti-trafficking law enforcement
agency. The GOI argues that since India's constitution enshrines law
enforcement as a state issue, it cannot directly enforce national laws
(including anti-TIP laws) at the state level.
22. (C) We understand that the DWDC Secretary will be appointed as the
nodal interagency TIP coordinator and that she will chair an
interagency meeting on February 4 to agree on a forward strategy that
is expected to include acceptance of U.S. training to improve law
enforcement, particularly in areas the U.S. has identified as weak,
i.e., Goa and Mumbai. In any case, USG/GOI anti-TIP cooperation will
continue to be a high Mission priority.
Social Issues
-------------
23. (U) HIV/AIDS in India is at a critical stage. With at least 5.1
million people infected, the number of people living with the disease
is second only to South Africa. The epidemic initially surfaced in
urban areas, but is showing clear signs of spreading to the
countryside. In response, the GOI has increased its HIV/AIDS
activities, especially in advocacy and awareness creation. Prime
Minister Manmohan Singh will head the GOI's National Council on AIDS
and play a critical role in expanding HIV/AIDS activities in India.
The GOI is also reviewing its HIV/AIDS program including current
prevalence estimates. These are encouraging signs but more needs to be
done, especially to reduce the stigma associated with the disease. In
addition, the GOI needs to increase significantly its own committment
of resources to make HIV/AIDS treatment more affordable. Expanding USG
assistance to India on HIV/AIDS and encouraging increased GOI
financing will be major focuses of the Mission this coming year.
Comment
-------
24. (C) US-India relations are increasingly dynamic, firmly on track
and further improvement is all but inevitable. There are few major
impediments that could change or halt this trajectory, although a
clash over Iran sanctions or a US decision to sell F-16's to Pakistan
would inevitably detract from the pace. As Congress solidifies its
hold on power, it will come closer to its goal of forming the
government without Left/Communist support, will grow more confident,
and we could see more scope for progress on issues we care deeply
about, such as economic reform, and possibly Iraq. A perception of
slackening US pressure on the issue of terrorist infiltration from
Pakistan could diminish India's confidence in the US as a neutral
observer in the Indo-Pak equation. The GOI would like normal relations
with Pakistan, so that New Delhi can better focus its attention
outside the region and on economic growth, but we do not expect a
dramatic improvement in ties with Islamabad in the coming year, or
dramatic innovation in the Indian approach to Kashmir. Although this
process will likely continue into the future, regardless of who is in
power in New Delhi, its speed and the scope of its development will be
influenced by the political quality of our relationship. Minimize
considered.
MULFORD
--
Truth resides in every human heart, and one has to search for it there, and to be guided by truth as one sees it. But no one has a right to coerce others to act according to his own view of truth. - Mohandas Gandhi
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