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FM AMEMBASSY NEW DELHI
TO SECSTATE WASHDC IMMEDIATE 8090

UNCLAS NEW DELHI 000020 
 
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SENSITIVE 
SIPDIS 
 
H FOR NICOLE PETROSINO 
 
E.O. 12958: N/A 
TAGS: PGOV PREL MASS OREP KSTC KOMC PARM PK INCB IR
SUBJECT: SCENESETTER FOR CODEL HASTERT 
 
¶1.  (SBU) Summary: Speaker Hastert, your delegation's 
upcoming visit to India on January 10-13 provides a 
significant opportunity to advance the burgeoning India/US 
relationship.  After forty years of drift during the Cold 
War, the US and India are making up for lost time.  Thanks to 
the energy and prosperity of two million Americans of Indian 
descent, as well as American industry's discovery of the 
advantages and opportunities inherent in partnering with 
Indian companies, the foundation for this partnership is 
stronger than ever.  Microsoft, Cisco Systems, Intel, and 
others are doubling their investments in India because they 
realize that brainpower here is the natural resource 
necessary for the competitiveness of their companiQQ~3%QRthey also see India's 
market as one of growing importance. 
Twenty million Indians are among the richest consumers in the 
world, while 200 million more consume like Americans; their 
appetite for American goods is largely untapped.  As India's 
economy expands, hundreds of millions more consumers will 
seek imported US goods and services.  As a result, we aim to 
double trade in just the next three years.  The Government of 
India recently approved a $10.5 billion, 68 aircraft Air 
India purchase from Boeing, the largest commercial aircraft 
order worldwide in 2005, and bringing to $13.5 billion the 
orders Boeing has received from private and government-owned 
Indian carriers this year.  New nonstop flights between the 
US and India are proliferating, and visa issuances to Indians 
have skyrocketed.  India is now the leading non-US 
destination for NIH research grants, and the largest supplier 
of foreign students into US colleges and universities.  Our 
militaries are moving ever closer together with sophisticated 
joint exercises, shared research and development, and 
possible important aircraft and other acquisitions that could 
create thousands of American jobs. 
 
¶2.  (SBU) India and the US are cooperating more closely than 
ever, with joint efforts to spread the culture and values of 
democracy throughout the world.  More importantly, a cultural 
transformation is taking place here.  America is now 
increasingly viewed by elites, the middle class, and the 
business community as India's natural strategic partner and a 
land of vast opportunity and potential.  As reflected in 
India's effective response to the earthquake in Kashmir, and 
by free and fair elections there in 2003, the GOI today is 
enjoying an increasingly positive reputation among Kashmiris 
and is working hard to advance the Prime Minister's vision of 
an Indo-Pak relationship disentangled from old territorial 
disputes and focused on trade.  Pakistan-based terrorism, 
however, remains a huge irritant between the two countries, 
and there are deeply worrying signs that Kashmiri terrorists 
are linking up with Pakistan-based transnational terror group 
Lashkar-e-Taiba to perpetrate attacks throughout India in a 
futile effort to weaken the Indian state. 
 
¶3.  (SBU) Domestic Problems also remain, as the UPA 
government of PM Manmohan Singh is facing internal, 
electoral, and coalition troubles as it manages an uneasy 
partnership with leftists who remain deeply suspicious of the 
US and economic globalization even as the government seeks to 
advance a much-needed economic reform agenda. 
 
¶4.  (SBU) Overall trend lines are very positive, and India is 
a country experiencing new-found yet sustained dynamism that 
has breathed hope into the lives of all its citizens, even 
the most down-trodden.  Your visit here can help address the 
concerns of some Indians about the expanding bilateral 
partnership with the United States even as you help us to 
educate Indians about the clear benefits of partnership with 
the US and the opportunities in the President,s civil 
nuclear cooperation initiative.  By and large, recent polls 
such as those by the PEW Research Center show that 70 percent 
of Indians view the US favorably, and increasingly share our 
language, culture, and values.  A natural partnership that 
should have been forged in 1947 is finally taking flight 
today.  Its creation will enhance American security and 
prosperity for decades to come. 
 
Transforming US-India Bilateral Relations 
----------------------------------------- 
 
¶5.  (U) On July 18, the President and Prime Minister Singh 
announced a series of new initiatives aimed at upgrading the 
India/US relationship to a higher level.  These included: a 
US-India Disaster Relief Initiative to contribute to disaster 
prepaedness and future relief operations; the establishment 
of the US-India Trade Policy Forum to foster closer economic 
ties by recommending changes in the regulatory framework; a 
high-level private sector CEO forum to articulate business 
community views on key economic priorities; reaffirmation of 
the US-India Energy Dialogue to help ensure stability in 
global energy markets; an umbrella Science and Technology 
(S&T) agreement to strengthen the science and technology 
capabilities of the US and India, expand relations between 
their extensive scientific and technological communities, and 
promote technological and scientific cooperation in areas of 
mutual benefit; the launch of the US-India Information and 
Communications Technology Working Group; a US-India HIV/AIDS 
Private-Sector Corporate Initiative; a Global Democracy 
Initiative to Promote Democracy and Development; and a 
US-India Knowledge Initiative on Agricultural Education, 
Teaching, research, Service and Commercial Linkages. 
 
¶6.  (U) Since the July announcement, a wide variety of 
important visitors from both governments have worked to 
advance an ambitious agenda for transformation of the 
relationship.  Representative Burton and Senator Allen have 
already led delegations to India in the last month, and we 
expect, in addition to yours, delegations led by Senators 
Baucus and Kerry in January.  The President plans to visit 
India in late February or March of 2006 to see for himself 
the transformation in relations and push forward our broad 
agenda.  The Prime Minister and other top Congress leaders 
are committed to this partnership and increasingly convinced 
that India's democratic future requires the closest possible 
collaboration with the US.  Moreover, our knowledge-based 
economy,s future will benefit from close collaboration with 
India,s large reserves of human capital, half of who are 
under the age of 25. 
 
¶7.  (SBU) Your visit will also coincide with the largest US 
Army exercise with the Indian army to date.  Exercise Yudh 
Abyas (Battle Practice in Hindi) will take place 13-28 
January.  A company, approximately 130 soldiers from the 25th 
Infantry Division in Hawaii, will take part in a training 
exercise in the foothills of the Himalayas in Northern India 
focusing on counter-insurgency tasks in semi-urban and 
semi-mountainous terrain.  The US unit is using this training 
event as part of its training for a mid-2006 deployment to 
Iraq.  In September, a company from the India Army will 
participate in a reciprocal event in Hawaii. 
 
Civil-Nuclear Agreement 
----------------------- 
 
¶8.  (SBU) A key US nonproliferation goal is implementation of 
the July 18 US-India agreement on cooperation in India's 
civilian nuclear sector.  When fully implemented, the 
agreement will greatly enhance Indian adherence to 
international non-proliferation norms and reduce global 
competition for, and consumption of, remaining fossil fuels. 
The agreement calls for India to fully separate its civilian 
and military nuclear programs and allow IAEA inspections and 
safeguards at its civilian nuclear reactors.  Safeguarding 
India's large civilian nuclear industry will ensure that a 
large quantity of Indian reactors and their by-products will 
be subject to regular international inspection and will 
strengthen the global non-proliferation system. 
 
¶9.  (SBU) In return, India would receive assurances from the 
US that we would facilitate its efforts to modernize its 
civilian energy reactors to make them safer and to expand 
production.  India seeks to have nuclear energy rise from 
three percent of current total energy production to 10 
percent over the next 10 years.  The civil-nuclear energy 
agreement could pave the way for US companies to play a major 
role in the sector's expansion here, which would in turn 
result in jobs back home, less Indian consumption of fossil 
fuels and less competition with the US for scarce resources 
such as oil and natural gas. 
 
¶10. (SBU) Foreign Secretary Saran delivered the contours of 
India,s separation plan to Under Secretary Burns in late 
December. Burns will pay a visit to India later in January to 
consult further with Saran on the details of that plan. Once 
we finalize the separation plan with India, we will continue 
consultations with Congress to seek its approval to alter 
legislation in order to allow the resumption of full US/India 
civil nuclear cooperation. 
 
¶11.  (SBU) We are hopeful as a result of our new 
non-proliferation  partnership that the GOI will formally 
sign on to the Proliferation Security Initiative (PSI) soon 
as a reflection of the seriousness of its commitment to work 
with the US and its allies in combating the threat of 
proliferation.  It would be helpful for you to mention the 
importance of India joining PSI in your public and private 
meetings. 
 
Economic Reform 
--------------- 
 
¶12. (U) The Indian economy is growing at seven percent per 
year, one of the fastest in the world.  At the same time, the 
GOI recognizes the need for structural and regulatory changes 
to build market institutions, reduce the role of government 
in the economy, increase competition, and boost direct 
foreign investment.  It is attempting to package reforms in a 
way that links market opening to the delivery of tangible 
social benefits to key constituents, especially the rural 
poor.  A sustained growth rate of 7-8 percent will require 
India to achieve strong and sustained inflows of foreign 
capital, technology, goods and services (including training). 
 This makes the US -- as India's largest investor and trading 
partner -- an essential partner in the country's economic 
transformation, a fact not lost on Prime Minister Manmohan 
Singh, Deputy Planning Commission Chair Montek Singh 
Ahluwalia and Defense Minister Mukherjee, all economists by 
training. 
 
¶13. (U) The UPA government has moved steadily on economic and 
commercial issues of importance to us: it has concluded an 
Open Skies civil aviation policy; strengthened its IPR 
regime; taken steps to resolve our bilateral trade/investment 
irritants such as the Dabhol electric plant, raised foreign 
direct investment limits in several sectors, and lowered 
tariff rates on goods in sectors of importance to our 
industry.  On December 24, the GOI approved the purchase by 
Air India of 68 Boeing aircraft with a list price of about 
$10.5 billion, making it the world,s largest commercial 
airplane order during 2005 and bringing to $13.5 billion the 
orders Boeing has received from Indian carriers this year. 
Aside from its huge commercial consequences ) aircraft 
components are made in hundreds of factories across the US by 
thousands of workers ) the Boeing decision is an important 
political signal that reflects a GOI desire to make 2006 a 
year of clear and marked progress in our bilateral 
relationship. 
 
¶14. (U) Nonetheless, significant challenges remain.  India's 
infrastructure remains woefully underdeveloped, particularly 
in rural areas, where 60 percent of the labor force produces 
only 20 percent of India's GDP.  We have publicly urged the 
GOI to: 
 
--put infrastructural development on a war footing, 
 
--reduce and redirect uneconomic power and other subsidies to 
health and education, 
 
--open up areas of the economy where private investment is 
now restricted such as retail, real estate and food 
processing, 
 
--liberalize financial markets, reduce government dominance 
in banking, liberalize India's pension industry and develop a 
long-term capital market to tap India's vast private savings. 
 
 
¶15.  (U) Treasury Secretary Snow and USTR Portman concluded 
very successful visits to India in November that should lead 
to significant advancement of a variety of key issues under 
the Financial and Economic Forum and the Trade Policy Forum 
(TPF), prior to the President's trip to India.  At the 
conclusion of the TPF, Minister of Commerce Nath and Portman 
announced the goal of doubling US-India trade over the next 
three years.  The Indian Government's message was that it was 
committed to reform, but through a gradualist approach.  Our 
task is to prod the GOI to move toward a more accelerated 
pace of reform.  We would welcome your help in this regard. 
 
Indo-Pak Relations Hinge on Terror Waged Against India 
--------------------------------------------- --------- 
 
¶16.  (SBU) The Indians are very worried by the October 29 
Delhi bombings and continued terrorist incidents in Kashmir 
and beyond.  They are especially perturbed by reports that 
the December 28 shooting at the Indian Institute for Science 
in Bangalore bore the marks of a Pakistan-based 
Lashkar-e-Taiba terrorist group attack.  Indian news media 
have said the attack reflects a shift in tactics by 
Pakistan-based terror groups as they move away from terrorism 
within Kashmir and focus more on the institutions and 
companies that have made the Indian IT sector such a 
powerhouse.  Indian police are saying that the Lashkar,s 
southern India operational manager was involved, as well.  If 
this allegation is verified, Indians already shocked by the 
October 29 bombing will have even more doubts about 
Pakistan,s sincerity in claiming to want peace. 
 
¶17.  (SBU) Nevertheless, Prime Minister Singh has pursued a 
sustained policy of rapprochement toward Pakistan because the 
vast majority of Indians seek normalization and free trade 
and travel with their western neighbor.  India's aid to 
Pakistan following the earthquake reflects the PM's desire to 
try to keep moving ahead with Pakistan in several areas, 
including energy cooperation, trade, and people-to-people 
ties.  The bus service between Srinagar and Muzaffarabad that 
began in April has been cited in the media and by contacts as 
the most visible example of the improving Indo-Pak 
relationship, but it remains suspended until roads and 
bridges can be repaired; other related positive moves are 
increasing cultural and sports exchanges and the opening of 
two additional bus routes between Indian and Pakistani Punjab 
and a rail link between Rajasthan and Sindh that should be 
operational this Spring. 
 
Domestic Political View of India/US Relations 
--------------------------------------------- 
 
¶18.  (SBU) The opposition National Democratic Alliance (NDA), 
consisting of the Bharatiya Janata Party (BJP) and its 
regional party allies, remain deeply divided by ideological 
disputes despite the selection of a new party president.  As 
a result, the United Progressive Alliance (UPA) coalition 
faces diminished pressure from the Hindu nationalist right 
wing.  The UPA, which consists of the Congress Party and its 
regional allies, does not enjoy a ruling majority in 
Parliament, so coalition-management is key to its survival. 
Although it does not belong to the UPA, the Left Front (LF) 
of four Communist and Leftist parties keeps it in power by 
providing the necessary support of its 62 MP's, increasing 
the LF's stature and significance out of any proportion to 
its true level of popular support.  Its support, however, can 
be more of a curse than a blessing for the UPA, and has made 
the Leftists the de facto opposition as a result of the 
BJP,s disarray. 
 
¶19.  (SBU) Because of its ideological orientation, the LF has 
opposed some UPA economic liberalization policies and aspects 
of the improving US/India relationship, and denounced India's 
vote with the US on Iran,s nuclear program in the IAEA on 
September 24 as evidence that the UPA has abandoned India's 
traditional non-alignment stance under US pressure.  The LF 
has also demanded that India vote with Iran in future IAEA 
sessions or "face the consequences."  However, the Left,s 
bark is far worse than its bite.  When the Left protested 
US-India air exercises at a military base outside Calcutta in 
November, journalists discovered that the modest crowd 
consisted mostly of clueless villagers who had been paid a 
day,s wage to hold the red banner and chant slogans. 
 
¶20.  (SBU) The November resignation of Foreign Minister 
Natwar Singh due to alleged connections to the UN 
oil-for-food scandal roiled the political climate, allowing 
both the LF and the NDA to seize on charges of Iraq-related 
corruption within the Congress Party.  However these 
developments have been largely superseded by a bribery 
scandal involving members of Parliament caught accepting 
bribes on hidden cameras.  Most of the MP,s involved were 
from the BJP, which has promised to expel them from the 
party. 
 
¶21.  (SBU) India's growing partnership with the US has 
created frictions inside and outside the ruling coalition. 
Several regional parties that either belong to the UPA 
coalition or support it have joined the LF to attack the 
government for staking too much on relations with the United 
States.  Despite this opposition, however, key UPA leaders 
led by the PM himself have shown their determination to stay 
the course with the US.  Moreover, political commentators 
increasingly complain that the Left's stance is unhelpful to 
India's strategic needs. 
 
¶22.  (SBU) The UPA,s trump card is that, notwithstanding 
political parties, grumpiness, the vast majority of Indians 
enthusiastically support better ties with the US and fnhanced 
Indian integration into the opportunities and risks of the 
global economy.  Opposition by political parties to the 
UPA,s foreign policies should be viewed through the prism of 
parochial opportunism, and not usually out of principled 
ideological opposition.  Even the Left parties, who rely on 
Marxism to justify their positions, find that Chief Ministers 
of the states they govern (West Bengal and Kerala) 
aggressively court US and other foreign investors and seek to 
reform economic conditions. 
 
A Challenging Political Season 
------------------------------ 
 
¶23.  (SBU) The Congress-led United Progressive Alliance (UPA) 
government has weathered recent assaults from its left and 
right, but critical on-going political events could undermine 
its stability, including its recent defeat in a key election 
in the large state of Bihar, and its stance in any future 
IAEA action on Iran.  The BJP-led National Democratic 
Alliance attempted to use the November-December Parliamentary 
session to demand former Foreign Minister Singh and Congress 
Party President Sonia Gandhi,s resignations in response to 
the oil-for food scandal.  While Singh resigned from the 
cabinet, the UPA effectively deflected further opposition 
assaults.  In the final weks of the session, televised 
revelations of blatant corruption by MP,s, most from the 
BJP, shifted the focus away from the UPA.  Despite this, the 
PM remains beset with managing a painful official 
investigation of his party,s role in the oil-for-food 
scandal, preparing for a substantial reordering of Cabinet 
portfolios, and concerted opposition from the BJP.  In 
addition, the Left Front (LF) has joined with regional 
parties in a "Left and Secular Alliance" that is increasingly 
combative and could grow more powerful.  This matrix of 
impending political issues has energized the Left and right 
opposition and encouraged increasing criticism of Congress 
integrity as the party faces challenging elections in Kerala, 
West Bengal, Tamil Nadu and Assam and Pondicherry in 2006. 
 
¶24.  (SBU) You will first visit the state of Rajasthan, which 
is ruled by a BJP government headed by Chief Minister 
Vasundhara Raje.  Once considered among the least developed 
of India,s states, Rajasthan has made great strides in 
economic and social development under both Congress and BJP 
governments.  CM Raje is highly regarded in Delhi, but her 
administration faces corruption allegations and a growing 
rebellion among some of the BJP rank and file, which has cut 
into her effectiveness.  Our Deputy Chief of Mission, Bob 
Blake, will join you for your visit to Jaipur to brief your 
delegation and be available to answer any questions. 
 
Iran 
---- 
 
¶25.  (SBU) India,s large Muslim population and massive 
diaspora in the gulf region gives it an important stake in 
the international face-off over Iran,s WMD ambitions.  The 
GOI also hopes to use its relationship to cultivate Iran as a 
source of energy, a corridor for trade to Central Asia (most 
importantly to Afghanistan, to which Pakistan continues to 
deny India land-transit rights), and a partner in stabilizing 
Afghanistan.  Past high-level exchanges and intensified 
cooperation in the energy sector illustrate that the GOI 
places value in this relationship.  At the same time, firm 
Indian opposition to Iran's acquisition of nuclear weapons 
triggered the September vote against Iran in the IAEA that 
caused turbulence in Delhi's relations with Tehran and 
resulted in uproar in Parliament from left and right 
opposition parties and even from some within Congress.  New 
Delhi hopes to pursue its Iran strategy without jeopardizing 
its growing ties with the US, but cannot countenance an 
Iranian nuclear weapon.  New Delhi's ability to influence the 
new, hard-line regime in Tehran is being tested, as the 
controversy about Iran's nuclear program and President 
Ahmadinejad's vitriolic statements against Israel continue to 
boil and the GOI struggles with external and internal 
political pressure to avoid straining ties with Iran.  The 
UPA was relieved that the Iran issue did not come to a vote 
in November at the IAEA because it did not want to court 
controversy prior to the winter session of parliament.  If 
the civilian nuclear energy agreement with the United States 
goes through, we will have helped to dilute India,s need for 
Iranian energy resources, although plans for an 
Iran-Pakistan-India gas pipeline continue to plod ahead.  If 
we can convince Pakistan to allow India access across its 
territory to Pakistan, we will have weakened another reason 
why Delhi continues to manage a tightrope act between 
Washington and Tehran. 
 
Conclusion - An Historic Opportunity for America 
--------------------------------------------- --- 
 
¶27.  (SBU) Speaker Hastert, your delegation's program in 
India will give you an excellent view of developing India/US 
ties from the government, business and other perspectives. 
It is in both countries' common interest to work as partners 
to address the numerous pressing issues both in the region 
and around the world that lie ahead.  We are developing 
cooperation and trust that will grow in the years to come. 
Your visit can serve to encourage key audiences of the value 
of developing a natural strategic partnership with the United 
States.  We appreciate very much your taking the time to 
visit India and look forward to ensuring an informative and 
productive visit for you and your delegation. 
BLAKE