SCENESETTER FOR CODEL HASTERT

UNCLAS NEW DELHI 000020

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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