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UNCLAS SECTION 01 OF 04 NEW DELHI 000269 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PTER PREL PINR KDEM IN
SUBJECT: INDIA SCENESETTER FOR CODEL LEWIS AND BACHUS 
 
¶1.  (SBU)  We welcome your upcoming visit as part of the 50th 
anniversary celebration of Dr. Martin Luther King, Jr's 
historic journey to India in February-March 1959.  The 
inspiration which Dr. King and other leaders of the American 
civil rights movement drew from Mahatma Gandhi is well known 
in India - and the Government of India has been pleased to 
co-sponsor events on this tour.  The message of Dr. King's 
visit - of non-violence, justice and human dignity - ring 
true today, underlying the deeply helped principles and 
values that unite the U.S. and India. 
 
¶2.  (SBU)  We offer this snapshot of the bilateral 
relationship as background for your visit.  The historically 
unprecedented level of U.S.-India collaboration encompasses 
everything from defense cooperation to agriculture and 
reflects widespread support in both countries for widening 
existing ties and building new ones.  India and the U.S. have 
begun coordinating foreign policies, working more closely 
together than we ever have before, as exemplified by our 
parallel efforts to assist Afghan reconstruction, to maintain 
regional stability in Nepal and to cooperate on law 
enforcement following the November terrorist attacks in 
Mumbai.  This cooperation reflects a transformation in India. 
 For many decades, the default position was distrust and 
suspicion, but now we see an India that seeks increasingly to 
further shared interests. 
 
21st Century Challenges: Health, Education, Energy 
--------------------------------------------- ----------- 
 
¶3. (SBU)  Despite India's steady economic growth during the 
past fifteen years, which accelerated in the last five years, 
an unhealthy population constrains economic growth in parts 
of India.  Some states in northern India possess health 
indicators on-par with the poorest countries of sub-Saharan 
Africa.  According to most recent estimates, India with 2.5 
million HIV/AIDS cases is the third highest HIV/AIDS infected 
population worldwide, after South Africa and Nigeria. One 
quarter of the world's deaths of children and women in 
childbirth occur in India.  Forty-six percent of children 
under three years of age are malnourished. 
 
¶4.  (SBU)  Poor health conditions take an economic toll in 
various ways, including continued expenditures on combating 
diseases that should have been eliminated and decreased labor 
productivity and human capacity.  India's education system is 
not providing the numbers of people with the necessary skills 
for the modern economy because of poor quality primary 
education and limited vocational training. The impact of poor 
basic education and work force development includes a sixty 
percent drop-out rate for children before grade 10 and 10 
million children are out of school. Finally, while India's 
energy consumption has more than doubled over the last 
quarter century, half of the country's population still lacks 
easy affordable access to electricity. India realizes the 
threats these challenges pose to its continued economic 
progress.  Indian public and private sector partners look to 
U.S. expertise and knowledge, including through the U.S. 
assistance program, to direct resources with appropriate 
policies, strengthened institutions and state-of-the-art 
technologies and expertise. 
 
Terrorism 
--------- 
 
¶5. (SBU)  The anger over the November Mumbai attacks may be 
less visible now, but India expects Pakistan to arrest and 
try Pakistanis involved in planning and organizing the attack 
and to dismantle terrorist infrastructure.  The November 
Mumbai terrorist attacks deeply angered the Indian public. 
This time, in addition to the reactions against 
Pakistan,Indians directed a new level of fury at their own 
political establishment, which they feel failed to protect 
them.  The public's anger pushed the Congress Party-led 
government of Prime Minister Singh to shelve the bilateral 
Composite Dialogue that was focused on resolving contentious 
 
NEW DELHI 00000269  002 OF 004 
 
 
issues, including ultimately Kashmir.  While the GOI and 
Congress Party leaders have made muscular statements 
demanding the GOP investigate and prosecute those involved in 
the attack and asserting that no option has been foreclosed, 
India's strategy has been to pursue a diplomatic rather than 
a military solution.  India has launched a worldwide 
diplomatic offensive to put pressure on Pakistan. 
 
Increased Law Enforcement Cooperation 
------------------------------------- 
 
¶6. (SBU) We believe the most constructive approach to take 
with the GOI is to offer assistance and to encourage the GOI 
to focus on improving security preparedness and prevention of 
terrorist attacks.  Historically, the GOI had been a 
reluctant law enforcement partner.  But after Mumbai, we have 
seen unprecedented law enforcement cooperation between India 
and the U.S., primarily with the FBI.  The Indians have also 
become far more amenable to accepting our many offers of 
counterterrorism assistance. 
 
Domestic Political Landscape 
-------------------------- 
 
¶7.  (SBU)  The political season entered its final lap this 
month when the two main political parties held political 
conferences to kick off their campaigns for the upcoming 
parliamentary elections.  The political establishment will 
now be single-mindedly focused on these elections until June 
when the new Parliament convenes and the next government is 
sworn in.  Domestic political considerations will be 
paramount for the next three months.  As the campaign heats 
up, we can expect the political attacks to get sharper and 
the rhetoric to become shriller. 
 
¶8.  (SBU)  The current Congress Party-led United Progressive 
Alliance (UPA) coalition government, which appeared to be in 
trouble only months ago, has recovered smartly.  It has 
successfully deflected the fall-out from the Mumbai terror 
attacks by keeping the international pressure on Pakistan and 
announcing plans to strengthen its capacity to fight 
terrorism.  In contrast, the opposition Bharatiya Janata 
Party (BJP), which had the wind in its sails last summer, has 
suffered of late.  It experienced a crushing loss at the 
hands of the UPA in a parliamentary vote last summer on 
US-India civil-nuclear initiative.  It continues to be racked 
by low intensity but persistent infighting that undermines 
its image of a well-disciplined political machine. 
 
¶9.  (SBU)  It is impossible to predict now which party will 
emerge on top in the national elections. But it is safe to 
say that that neither the Congress Party nor the BJP is 
likely to win a majority on its own and either will have to 
forge a coalition with the smaller regional parties to form a 
government.  While both the BJP and the Congress support a 
closer U.S.-India relationship, their ability to move forward 
aggressively will be constrained by the disproportionate 
power of smaller parties, which have narrower agendas that 
frequently do not extend to foreign policy issues.  The 
nuclear deal and a closer strategic relationship with the 
United States have generated an extraordinary public debate 
in India during the last year.  We have won this debate hands 
down and, as a result, the U.S.-India relationship has a 
strong foundation on which to grow over the coming decades. 
 
Civil Nuclear Cooperation 
------------------------- 
 
¶10. (SBU)  The U.S.-India Civil Nuclear Cooperation Agreement 
was approved by a large bipartisan majority in the House and 
Senate in September, signed by Secretary Rice and External 
Affairs Minister Mukherjee in Washington October 10, and 
brought into force by an exchange of diplomatic notes on 
December 6.  India viewed the signing of the Agreement as an 
historic event and shares our vision of the Agreement as an 
essential part of transforming our relationship.  The 
 
NEW DELHI 00000269  003 OF 004 
 
 
Agreement no longer dominates the headlines, but the goodwill 
it generated has contributed to improved cooperation 
following the Mumbai terrorist attacks. 
 
Regional Issues 
--------------- 
 
¶11. (SBU)  Under Prime Minister Singh's leadership, GOI is 
emerging as a responsible leader in the region, as well as in 
Asia at large.  India encourages democracy in the region, but 
is concerned about continuing political instability in both 
Nepal and Bangladesh and the surge in violence in Sri Lanka. 
We have followed closely as India and China have sought 
warmer relations by engaging in a strategic dialogue that 
separates the contentious border issues from a broader 
engagement.  India is the fifth largest donor to 
Afghanistan's reconstruction, pledging more than $1.2 billion 
to date.  While we have made remarkable progress in our 
bilateral relationship over the past decade, greater 
cooperation on regional and global issues remains an area for 
us to build on. 
 
Economic Ties 
------------- 
 
¶12. (SBU)  The U.S.-India economic relationship, for decades 
narrow and circumspect, is gathering steam and is becoming a 
key driver of our overall bilateral relationship.  The United 
States is India's largest trading partner and its largest 
foreign investor.  Two-way merchandise trade grew to a record 
42 billion dollars in 2007, with U.S. exports surging 75 
percent.  We may well meet our 2005 publicly stated goal of 
doubling bilateral trade by the end of 2008, once last year's 
final numbers are in.  At the same time, investment has 
surged between our countries in recent years, prompting 
agreement to launch negotiations in January on a bilateral 
investment treaty.  Led by its economist Prime Minister, 
India was proud to participate in the G-20 Financial Summit 
in November and publicly supports G-20 goals.  However, the 
government has reinstated some protectionist tariffs, 
undermining G-20 consensus to keep international trade 
flowing during these challenging 
economic times. 
 
¶13. (SBU)  The Indian economy continues to be the second 
fastest growing economy after China, even as the global 
slowdown and financial crunch moderate GDP growth from 9% in 
fiscal year (FY) 2007-08 to an anticipated 7% in FY 2008-09. 
Most of India's growth is domestically generated and the 
government's current pre-election expansionary budget 
provided a fiscal stimulus that should help sustain consumer 
demand.  India's conservative central bank had restricted 
many of the derivative innovations linked to the global 
financial crisis, creating insulation for much of the banking 
sector.  However, India's globalizing companies and banks are 
feeling the pinch of tougher foreign financing conditions, 
but this has not prompted the private sector or the 
government to denounce India's integration with the 
international financial system.  Rather, India's central bank 
and SEC-equivalent have liberalized foreign capital inflows 
and investment procedures while the GOI is considering easing 
foreign direct investment (FDI) constraints.  The government 
has also been quick to offer concessions to the 
labor-intensive textile and jewelry export sectors, hit by 
slowing global demand.  The government anticipates the 
slowdown will lead to 1.0-1.5 million job losses by March 31 
in these and other industrial sectors (out of India's 
400-million strong labor force), but there have been no 
protests to date. 
 
¶14. (SBU)  In the medium term, India will find it hard to 
increase or even sustain its high growth rates unless it 
undertakes a second generation of critical but politically 
difficult reforms -- especially in the financial, energy and 
agricultural sectors, education and labor laws.  While the 
government is led by economists who understand what needs to 
 
NEW DELHI 00000269  004 OF 004 
 
 
be done, its economic reform program was stalled for a long 
time as the UPA confronted strong opposition from the Left, 
the BJP and within the Congress party itself.  Since the Left 
withdrew its support in July 2008 over the US-India civil 
nuclear agreement, the government has implemented some 
non-legislative reforms, the largest being the opening of the 
pension sector, but further Parliamentary action appears 
unlikely until after national elections are held this spring 
and a new government is instituted.  Regardless of who wins, 
we expect the new government to continue economic 
liberalization.  As it is, lagging growth in agriculture and 
a weak - but improving -infrastructure constrain growth. 
Economic liberalization has been slow to come to the 
agricultural sector, which supports more than half of the 
country's population and yet accounts for only 18 percent of 
GDP.  The top Indian economic priorities are physical and 
human infrastructure development and spreading economic 
benefits into rural India. 
 
Agriculture:  An Opportunity to Build Partnerships 
--------------------------------------------- ---------- 
 
¶15. (SBU)  On agriculture, with the Agricultural Knowledge 
Initiative (AKI) in 2008 following its 2005 launch by 
President Bush and PM Singh, the Indians have told us they 
are eager to continue bilateral cooperation in this sector 
that employs more than half of all Indians workers, many at a 
subsistence level.  The Indians have responded positively to 
our concept of a four pillar approach --productivity, market 
efficiency, environmental sustainability, and 
finance/insurance -- that would procedurally look similar to 
our successful Energy Dialogue with India.  However, we will 
not be able to table our proposal to India until we can back 
it up with significant USG funding. 
 
 
MULFORD