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RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE

UNCLAS SECTION 01 OF 07 NEW DELHI 005418 
 
SIPDIS 
 
FOR HHS SECRETARY LEAVITT FROM CDA STEVEN WHITE 
HHS PASS TO NIH 
STATE PASS TO USAID 
STATE FOR SCA; OES (STAS FEDOROFF); OES/PCI STEWART; OES/IHA SINGER 
PASS TO HHS/OGHA (STEIGER/HICKEY), CDC (BLOUNT/FARRELL), 
NIH/FIC (GLASS/MAMPILLY), FDA (LUMPKIN/WELSCH, GENEVA FOR HOFMAN) 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: TBIO SENV AMED CASC KSCA IN
SUBJECT: SCENESETTER PART I: THE DEPARTMENT OF HEALTH AND HUMAN 
SERVICES (HHS) SECRETARY LEAVITT'S JANUARY 7-11, 2007 VISIT TO 
INDIA 
 
NEW DELHI 00005418  001.2 OF 007 
 
 
¶1.  (SBU) Summary: Secretary Leavitt, your visit to India comes at a 
difficult juncture in what has been a time of deep transformation in 
Indo-U.S. relations.  Just as we were poised to accelerate and 
expand ties between our two democracies into a more comprehensive 
relationship, the ruling coalition, the United Progressive Alliance 
(UPA), appears to have buckled to coalition and Leftist pressure to 
stall an ambitious landmark U.S.-Indian civil nuclear agreement that 
would have brought India into the international nonproliferation 
mainstream and opened US-India cooperation in the civil nuclear 
field.  While the short term has been made cloudy and uncertain by 
this backpedaling on the civil nuclear deal, the long term prospects 
for a closer, abiding bilateral relationship and a vibrant, 
prosperous India are very strong - and still of strategic importance 
to the U.S.  Your visit helps demonstrate the vitality and breadth 
of our relationship, which now touches on almost all areas of human 
endeavor.  Your public message should be to highlight the natural 
complementarities of our two countries and show the public how our 
linkages in health and human services lead to closer ties.  The 
deeper those linkages - which bring visible benefits to ordinary 
Indians - the more the Left parties' intransigence and ideology will 
be seen as incurring heavy costs to India and its people. 
 
¶2.  (SBU) One of our major priorities now is to have Indian 
government policy makers use objective, and transparent 
science-based and market-acceptable  standards for developing 
policies and regulations that govern different aspects of 
international partnerships, including scientific, pharmaceutical, 
and biopharmaceutical collaborations, trade, and investment.  In 
addition to discussions on the important topic of Import Safety with 
government and industry leaders, your presence and advocacy will 
help encourage greater engagement and awareness about polio, avian 
influenza, and HIV/AIDS, vaccine development, and U.S.-Indian 
efforts to combat these and other diseases.  The Mission views your 
visit as a key building block in the ongoing transformation of the 
US-India bilateral relationship.  End Summary. 
 
¶3.  (SBU) Your visit will take you to three southern cities 
(Chennai, Hyderabad, and Cochin) followed by a visit to New Delhi. 
Mission is sending scenesetter cables in three parts.  The first 
cable will provide information on the three southern cities you will 
visit, status of civil nuclear deal, political climate, economic 
situation, and trafficking in persons.  The second cable will 
present information on U.S.-India collaborations on life sciences, 
vaccine development, health sciences, and public health.  The third 
cable will provide information and analysis on India's regulatory 
environment for food, devices, biotechnology, and drugs as well as 
information relevant to safety of consumer products.  This is the 
first of the three scenesetter cables. 
 
OVERVIEW OF THREE SOUTHERN STATES OF INDIA 
------------------------------------------ 
 
¶4.  (SBU) In South India you will visit three of the four states in 
India's most economically vibrant region.  The entrepreneurial 
dynamism found in south Indian metros like Bangalore, Hyderabad, and 
Chennai is a major factor in India's recent ascent as an emerging 
global power.  With a population of more than 220 million people, 
the south's four states taken together -- Tamil Nadu, Andhra 
Pradesh, Karnataka, and Kerala -- are geographically bigger than 
France.  Each of these states has a distinct language, but they all 
share a cultural and linguistic heritage that sets them apart from 
their northern neighbors.  Most south Indians are Hindu, though the 
states are home to large communities of Muslims and Christians as 
well, but tensions between the various communities are muted in 
comparison to the rest of the country. 
 
¶5.  (SBU) The outhern states generally have better social 
indicators -- literacy, infant mortality, and lifespan -- than north 
Indian states.  An emphasis on education and high density of quality 
educational institutions has resulted in the ready availability of 
skilled labor.  The southern states are also known for their good 
governance and, with the exception of communist-ruled Kerala, for 
 
NEW DELHI 00005418  002.2 OF 007 
 
 
their business-friendly policy environments.  Together, these 
factors have made south India a preferred desuination for foreign 
direct investment (FDI).  The three states of Karnataka, Tamil Nadu, 
and Andhra Pradesh are regularly among India's top five in drawing 
FDI, led by the phenomenal growth in the information technology 
sector.   But growth is not limited to Information Technology (IT); 
south India also is home to major manufacturing, aerospace, and 
pharmaceutical centers. 
 
¶6.  (SBU) South India is also politically distinct from the north. 
India's major national parties, the Bharatiya Janata Party (BJP) and 
the Congress Party, face stiff competition from, and often take a 
backseat to, various state-based regional parties in the south.  The 
BJP does not have control of a single southern state; Congress only 
controls one - Andhra Pradesh.  You will be meeting with Andhra 
Pradesh's Congress Chief Minister Y.S.R. Reddy.  Andhra Pradesh's 
major opposition party is an important regional party known as the 
Telugu Desam Party, which is lead by the charismatic Chandrababu 
Naidu. 
 
¶7.  (SBU) In Tamil Nadu, you will meet the 84-year-old MK 
Karunanidhi, Chief Minister and leader of the ruling Dravida MK 
party.  The DMK is one of several "Dravidian" parties that emphasize 
the distinctness of the local Tamil people.  Various Dravidian 
parties have ruled Tamil Nadu since 1968, when Congress was last in 
control in the state.  Kerala is currently run by a coalition of 
leftist parties led by the Communist Party of India (Marxist). 
Union Minister of Health and Family Welfare Ramadoss, who will be 
accompanying you on most of your Chennai program, is from the 
Pattali Makkal Katchi (PMK) party.  Although the DMK and PMK are 
formal coalition partners in the Tamil Nadu government, they have 
had a major falling out in recent weeks.  You may pick up on this 
tension during your meetings with Karunanidhi or Ramadoss, and both 
could seek subtlely to use your visit to their own political 
advantage. 
 
THE CIVIL NUCLEAR AGREEMENT 
--------------------------- 
 
¶8.  (SBU) President Bush and Prime Minister Singh pledged in July 
2005 to take a series of reciprocal steps that would culminate in 
the opening of India's formerly sanctioned civil nuclear market. 
India completed the first milestone on March 2, 2006 by releasing a 
plan to separate its civilian and strategic nuclear programs in a 
phased manner, and pledging to place its civilian facilities under 
International Atomic Energy Agency (IAEA) safeguards.  An 
overwhelming, bipartisan majority in the U.S. Congress then approved 
in December 2006 the Hyde Act, which allowed the U.S. and India to 
engage in civil nuclear trade. 
 
¶9.  (SBU) The U.S. and India concluded an Agreement for Peaceful 
Nuclear Cooperation, also known as the 123 Agreement, in July 2007, 
which sparked political turmoil when the Left parties threatened to 
withdraw their support from the ruling UPA government because the 
123 Agreement, they felt, brought India too close to the U.S. 
Although political uncertainty continues, the Indian government 
proceeded in December 2007 to negotiate with the IAEA for a 
safeguards agreement.  Once the IAEA talks conclude, the U.S. will 
seek to enact a policy change in the Nuclear Suppliers Group (NSG) 
to allow India to engage in civil nuclear commerce globally. 
Finally, the Administration will submit the 123 Agreement to the 
U.S. Congress for an up-or-down vote of approval.  Civil nuclear 
cooperation between the U.S. and India will offer benefits to both 
countries' citizens through enhanced energy security, a more 
environmentally-friendly energy source, greater economic 
opportunities, and more robust nonproliferation efforts. 
 
THE POLITICAL SEASON BEGINS 
--------------------------- 
 
¶10.  (SBU) A string of state-level election losses earlier this year 
and the bitter squabble between United Progressive Alliance (UPA) 
 
NEW DELHI 00005418  003.2 OF 007 
 
 
coalition allies over the U.S.-India civil nuclear agreement in 
recent months has weakened the Congress Party, which leads the 
current UPA in Delhi.  The recent landslide loss by the Congress 
Party to its chief rival, the opposition BJP, in the state assembly 
election in Gujarat was particularly damaging to the Congress Party 
for the margin of the loss as well as the fact that the party and 
its leadership put in an blundering and unfocused campaign against a 
BJP government which appeared vulnerable to anti-incumbency and 
internal dissidence.  The Congress Party suffered another defeat in 
the state assembly election for Himachal Pradesh where the results 
were announced on December 28.  In this weakened position, neither 
the Congress nor its UPA allies have much of a stomach for early 
national elections, which once appeared imminent due to the dispute 
over the US-India civil nuclear deal.  Whether national elections 
are held on schedule in May 2009 or earlier, the national and 
regional political parties have begun to prepare for and position 
themselves for the national polls.  The BJP recently decided to 
fight the next election under the leadership of former Party 
President and former Deputy Prime Minister L.K. Advani.  The BJP 
also tried to close ranks through a show of unity in the party.  The 
Congress Party recently elevated Rahul Gandhi to a senior position 
in the party and reorganized its party structure to try to re-brand 
the party as one of youth and the future. 
 
¶11.  (SBU) The UPA government will become more cautious until the 
national elections, whether they are held in 2008 or, as scheduled, 
in 2009.  It is unlikely to pursue any bold domestic or foreign 
policy initiatives.  These same political considerations are 
affecting the GOIs willingness to be proactive on Trafficking In 
Persons since it would otherwise open it up to criticism from 
opposition parties.  It will remain focused on trying to move 
forward its core economic and education reform issues, as outlined 
in this year's Independence Day speech from the Red Fort.  As the 
elections approach, we will see more populist proposals emanating 
from the government.  It will be useful to keep an eye on next 
year's budget, in which there will be great pressure on the 
government from innumerable interest groups to open its purse 
strings.  One issue on which we expect Prime Minister Manmohan 
Singh's government to remain courageous, however, is the U.S.-India 
relationship.  Manmohan Singh has invested a great deal of his 
personal political capital in improving our strategic relationship, 
particularly with the civil nuclear initiative, but also in other 
areas such as energy and agriculture cooperation.  In this, he 
appears to have Sonia Gandhi's full backing.  It does not hurt that 
a stronger U.S.-India relationship is expected to be a net positive 
for the government as it goes to the electorate. 
 
A COMPREHENSIVE ECONOMIC RELATIONSHIP 
------------------------------------- 
 
¶12.  (SBU) The bilateral economic relationship is a critical driver 
in deepening ties between our countries.  This is happening through 
government exchanges such as the Economic Dialogue and the Trade 
Policy Forum, and by our countries' private sectors, including the 
CEO Forum, that are boosting U.S.-India trade and investment to new 
heights. 
 
INDIA'S ECONOMIC TRAJECTORY - ONE OF TRANSFORMATION 
--------------------------------------------- ------ 
 
¶13.  (SBU) I know that you are well aware of India's economic 
performance that has seen Gross Domestic Product (GDP) growth jump 
in the last two decades from the 6 percent range to nearly four 
years straight of 8.5 percent compounded annual growth.  While there 
is some question whether this is simply cyclical, we perceive 
fundamental structural changes underway that are reshaping India's 
socio-economic landscape.  These include the significant rise in 
savings and investment, the declining share of agriculture in GDP, 
replaced by industry, and the "market-seeking" flows of foreign 
direct and portfolio investment into the country. 
 
¶14.  (SBU) Savings have risen over the past decade to hit roughly 33 
 
NEW DELHI 00005418  004.2 OF 007 
 
 
percent of GDP, a combination of more corporate saving and less 
government dissaving (debt financing).  While corporate savings may 
ebb a bit in the next decade, household savings are also beginning 
to rise and to become more fluid, moving from government subsidized 
post office savings deposits to commercial banks and mutual funds. 
Investment has also grown significantly in recent years, now at 35 
percent of GDP - again, mainly a function of corporate expansion 
plans, but the government's infrastructure goals are boosting public 
investment levels as well.  The savings-investment gap is clearly 
financed through imports and a trade deficit, but other inflows, 
including the FDI and portfolio investment noted above, have kept 
the balance of payments in surplus for three years with no end in 
sight, and foreign exchange reserves continue to rise, already 
surpassing USD250 billion, one of the largest in the world. 
 
¶15.  (SBU) The agricultural sector is critical to many households' 
incomes, since nearly 60 percent of India's workers are involved in 
agriculture.  But in terms of GDP, agriculture accounts for less 
each year, last year contributing just 18 percent to national 
economic growth.  On a macro scale, this decline lessens the 
volatility of growth that India's mainly monsoon-dependent 
agricultural sector brought, further making sustained GDP growth in 
the 9 percent range a likely scenario.  Politically, however, the 
government struggles with proposed reforms that would have a broad 
effect on the 650 million people who are dependent on this 
underperforming sector.  In India, the rural poor vote much more 
than the urban masses, so any dislocation in the agricultural sector 
has the potential to have wide-ranging political consequences. 
 
¶16.  (SBU) At the same time, India's manufacturing sector is finally 
showing signs of expansion and global attention.  Stuck at roughly 
14 percent of GDP for nearly two decades - a stark contrast to many 
Asian economies' growth trends - manufacturing grew to 17 percent of 
GDP last year, and with double digit growth continuing, appears 
likely to continue its increasing contribution to GDP. 
 
JUST TWO INDIAS? 
---------------- 
 
¶17.  (SBU) India clearly has stark differences in rural/urban ratios 
in social and economic indicators, and at just 30 percent 
urbanization, the largest rural population in the world.  Since much 
of the visible economic boom this past decade has been in 
knowledge-intensive industries, mainly in urban areas, there is a 
widely held perception of two widely different and diverging Indias 
in urban and rural India.  However, recent studies suggest that 
surprising developments are quietly underway outside India's cities. 
 One of the most important is that agriculture accounts for only 
half of India's rural economy; no longer is rural synonymous with 
agricultural.  Also critical for understanding India's 
transformation is that rural incomes have been growing faster than 
urban incomes in recent years. 
 
¶18.  (SBU) Changes are underway in India's villages and small towns, 
but definitions and methodologies of measuring these changes are 
lagging.  The non-agricultural rural economy that is seeing incomes 
rise includes the increasing use of casual or contract labor, 
outside factories, for apparel assembly; the rise in national 
markets for traditional handicrafts; the rise in tourism, especially 
domestic; emerging agro-processing industries; sale of land for 
industrial use; and creation of linkages for goods and services 
between major metros' demand and rural areas' supply.  These 
dynamics are likely to become clearer in the next few years, as 
domestic companies, especially in retail, have begun to turn their 
marketing focus to India's rural sector, as urban markets become 
saturated.  This "bottom of the pyramid" approach is the best 
indicator of how employment, income, and consumption tastes are 
changing outside of India's metros. 
 
¶19.  (SBU) However, poverty remains a considerable and sober 
challenge in India, with official (consumption-based) estimates 
placing about 26 percent of the population below the poverty line, 
 
NEW DELHI 00005418  005.2 OF 007 
 
 
which many consider an underestimation.  However, in considering 
India's growth story and its need for inclusive growth, it is 
probably more useful to think of regional and state differences that 
create more than just the two India's of its cities and countryside. 
 
 
BIG SHIFTS POSE CURRENT CHALLENGES 
---------------------------------- 
 
¶20.  (SBU) As manufacturing and industrialization take off, 
businesses need land, as seen in the attempt to establish special 
economic zones across the country.  Most States are developing their 
own policies for land acquisition or leasing, but are looking to the 
central government to articulate a resettlement policy for those who 
are displaced by transitioning land from agricultural to industrial 
use.  This is a challenge given India's land size is only one-third 
China's, yet supports nearly as many people.  For Indian landowners 
themselves, the transition is less problematic, as land prices have 
gone up considerably.  However, millions of landless agricultural 
workers and those who leased their land from bigger farmers do not 
receive any compensation for the loss of their livelihood when land 
is purchased from the farmers.  Before these changes, they were 
already among the most economically vulnerable. 
 
¶21.  (SBU) India's emerging organized retail sector, especially in 
produce, poses another challenge to the current socio-economic 
structure.  Currently, only 3 percent of retail is organized.  The 
procurement of agricultural products is under state government 
purview, and most have had laws that limited the sale of produce to 
state-sanctioned markets.  Thus, direct sale to private buyers was 
prohibited.  While the ostensible reason was to protect the farmer 
(through state supervision), the result has been a sanctioned 
monopoly that created middlemen - called commission agents - who 
often exploited the farmers' lack of selling options.  The result is 
that Indian farmers typically get 35 percent of the final retail 
price of their goods, while in countries with more organized retail, 
farmers get 65 percent of that final price. 
 
¶22.  (SBU) Organized retail would benefit farmers and consumers, but 
make uncertain the fate of small street vendors and shopkeepers, who 
number as many as 40 million.  These groups have joined together in 
several politically active associations to protest - and slow down 
or stop - the development of organized retail.  While Wal-Mart 
figures into the rhetoric because of its backend supply joint 
venture with Bharti Enterprises, much of the focus is on several 
large Indian companies, including Reliance.  The benefits to 
farmers, from higher sale prices, extension services that retail 
companies have offered, and improved infrastructure and supply 
chains, would be revolutionary. 
 
BILATERAL TRADE GROWING 
----------------------- 
 
¶23.  (SBU) India-U.S. two-way trade touched USD32 billion in 2006 
and, at present growth rates of over 20 percent, is expected to 
reach USD50 billion in 2009.  Despite this strong growth in the 
trade relationship, a number of impediments persist and could impact 
future trade in both directions.  U.S. exporters continue to 
encounter tariff and non-tariff barriers, despite Indian economic 
reforms and autonomous (non-WTO) reductions in duties applied to 
industrial goods.  On the other side of the ledger, safety of Indian 
imports to the U.S. will be an important area for bilateral work, 
and is addressed in more detail in the third scenesetter cable. 
 
¶24.  (SBU) Both countries have sought to advance our bilateral trade 
dialogue through the U.S.-India Trade Policy Forum, which is chaired 
by USTR and the Commerce Ministry and meets semiannually.  The five 
focus groups that comprise the Forum- agriculture, intellectual 
property, investment, services, and tariff and non-tariff barriers- 
interact regularly, often through videoconferences. 
 
¶25.  (SBU) Included among the bilateral Trade Policy Forum issues 
 
NEW DELHI 00005418  006.2 OF 007 
 
 
are a number of food and feed market access concerns related to food 
safety.  For example, the USG has been pressing the Indian 
government to allow in U.S. poultry, pet food, cheese and wheat for 
some time now.  But the Indian government has not only refused to 
accept the safety of these products or recognize our regulatory 
systems and standards, they have thrown up additional requirements 
not based on science.  In fact, the U.S. maintains a 5:1 trade 
deficit with Indian on food and agricultural products with Indian 
food/feed shipments to the U.S. of USD1.4 billion.  Further, the 
Indian government has requested the U.S. allow in imports of Indian 
fruit such as grapes, pomegranates and mangoes.  However, only 
mangoes have been permitted to enter the U.S. - using radiation 
treatment to mitigate pests - due to the GOI's inability to control 
and regulate insects, pesticide and antibiotic use, etc.  One 
particularly thorny issue which may arise during the HHS visit is 
Indian shipments of shrimp to the U.S. which face problems with 
antibiotics and feed, but also are part of an ongoing anti-dumping 
case. 
 
ECONOMIC POLICY-MAKING IN A COALITION 
------------------------------------ 
 
¶26.  (SBU) After delivering several key reforms, including a 
national value-added tax, Open Skies Agreement with the U.S. 
(India's first), improved patent protection through legislation, and 
privatization of major airports, reform momentum has noticeably 
stalled in the UPA coalition.  Several key legislative amendments to 
liberalize the banking, insurance and pension sectors are stuck in 
Parliament, mainly because of opposition by the Left parties.  The 
Finance Minister has acknowledged this, ascribing it to the 
challenge of heading a coalition.  The UPA is made up of eleven 
parties, with five more Communist and Socialist parties supporting 
it from the outside in order to help it secure a majority in the 
lower house of Parliament.  Given the UPA's inherent instability, 
and the harsh ideological divides between the Left and reformers 
like the Prime Minister and his economic team, the Ministry of 
Finance (MoF) has publicly described a newer approach to 
"opportunistic reform" - exploiting new economic developments or 
pressures that permit non-Parliamentary reforms to be enacted. 
 
¶27.  (SBU) Reforms become more difficult in the context of early 
election speculation.  It is received wisdom that the BJP's surprise 
loss in 2004 was because economic growth had not reached the rural 
sectors.  Thus, the UPA seeks to ensure that the "aam aadmi" (common 
man) feels that he is gaining - and perhaps as importantly - not 
losing from reforms.  Many reforms which carry early transition 
costs, such as market-based fees for electricity and water use, 
become more politically difficult in campaign season.  Other issues 
have become mired in "anti-poor" rhetoric that the ruling party is 
unwilling to contest now; for example, that commodity futures 
trading hurts farmers, that lower tariffs in agriculture hurt 
farmers, that retail hurts farmers and small shopkeepers.  Clear 
arguments exist to dispel these tropes, but the coalition shows no 
sign of taking them on. 
 
TRAFFICKING IN PERSONS 
---------------------- 
 
¶28.  (SBU) The Department of State is required by law to submit a 
report each year to the U.S. Congress on foreign governments' 
efforts to eliminate severe forms of trafficking in persons.  The 
report is intended to raise global awareness, highlight efforts of 
the international community, and encourage foreign governments to 
take effective actions to counter all forms of trafficking in 
persons.  Countries meeting minimum standards under U.S. law are 
placed in Tier 1.  Those assessed as not fully complying with 
minimum standards but which are making significant efforts to do so 
are classified as Tier 2.  Countries assessed as neither complying 
with the minimum standards nor making significant efforts to meet 
them are classified as Tier 3. 
 
¶29.  (SBU) To quote the 2007 Trafficking in Persons (TIP) Report: 
 
NEW DELHI 00005418  007.2 OF 007 
 
 
"India is placed on the Tier 2 Watch List for a fourth consecutive 
year for its failure to show increasing efforts to tackle India's 
large and multidimensional problem.  Overall, the lack of any 
significant federal government action to address bonded labor, the 
reported complicity of law enforcement officials in trafficking and 
related criminal activity, and the critical need for an effective 
national-level law enforcement authority impede India's ability to 
effectively combat its trafficking in persons problem." 
 
¶30.  (SBU) In June 2007, the Secretary of State determined that 
India would undergo a Special Assessment at the end of six months to 
decide whether India should stay on Tier 2 or fall to Tier 3.  That 
Special Assessment period ends this month.  There is not broad 
agreement within the Department of State on the level of progress 
shown by the Government of India, and it is not certain at this 
point what the Secretary will decide. 
 
¶31.  (SBU) The Department of State, through the Office to Monitor 
and Combat Trafficking in Persons (G/TIP), also provides funding for 
programs implemented by non-governmental and multilateral 
organizations.  India has traditionally been a large beneficiary of 
such funding, including USD 1 million in the current fiscal year, 
but the outlook for the future is less certain.  We are currently in 
the process of soliciting proposals for funding in 2008. 
 
¶32.  (SBU) During your visit to Hyderabad, you will meet leadership 
of five NGOs that work on prevention of TIP.  The NGOs are STHREE, 
Prajwala, Ankuram, International Organization for Migration, M.V. 
Foundation, and HELP, and they are actively involved in TIP, 
including collabortion with USG. 
 
¶33.  (SBU) Once again, we look forward to welcoming you to India and 
to working with your staff to ensure a successful and productive 
visit. 
 
WHITE