SCENESETTER FOR CODEL HAGEL

UNCLAS SECTION 01 OF 08 NEW DELHI 002231

SIPDIS

SENSITIVE
SIPDIS

H PLEASE PASS TO SENATOR HAGEL FROM AMBASSADOR DAVID MULFORD

E.O. 12958: N/A
TAGS: PREL PGOV MASS OREP KSTC KOMC PARM INCB PTER
ECON, IN, PK, IR
SUBJECT: SCENESETTER FOR CODEL HAGEL

REF: STATE 47580

Summary
--------------


1. (SBU) Senator Hagel, your delegation's 8-12 April visit
to India provides a significant opportunity to assess the
accelerating transformation of the India-US relationship
following President Bush's historic March 1-3 meeting and
help shape the next phase of this growing partnership. After
forty years of mutual indifference during the Cold War, the
US and India are making up for lost time. Twenty million
Indians are among the richest consumers in the world, while
200 million more consume like Americans. As India's economy
expands, hundreds of millions more will seek out imported US
goods and services. As a result, we aim to double trade in
just the next three years. 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 in the US. 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. The unique relationship that has taken
form, built on the personal ties of two million Americans of
Indian descent, booming business links between American and
Indian firms, shared values of democracy and tolerance, and
the newly-forged links of nuclear, space, agricultural, and
high-tech cooperation, will become one of America's most
significant partnerships for the 21st century.


2. (SBU) India and the US are beginning to coordinate our
foreign policies for the first time, with joint efforts to
sustain Afghan democracy, defeat the Maoists in Nepal and
spread the culture and values of democracy throughout the
world. This reflects a cultural transformation that is
taking place here. America, viewed for decades as a Cold War
bogie man by suspicious leftist elites, is now increasingly
seen as India's natural strategic partner and a land of vast
opportunity and potential. Reflecting this new mood, the GOI
is working hard to advance the Prime Minister's vision of an
Indo-Pak relationship is entangled from old territorial
disputes, despite the substantial irritant of Pakistan-based
terrorism. Problems remain -- a vocal froup of Communist
parliamentarians (whose support keeps the PM's coalition in
power) oppose globalization, free trade, and the US-India
relationship, to include a joint strategy on curbing Iran's
WMD program. In addition, the UPA government continues to
manage an unwieldy and fractious governing coalition even as
it fends off challenges from the BJP, Leftists, and regional
parties. The common threat that the US and India face from
terrorism has given impetus for growing cooperation on
intelligence-sharing and cooperative counter-terrorism
efforts but this field has greater potential than we have yet
realized.


3. (SBU) Overall trend lines are very positive, and India is
a country experiencing newly found yet sustained dynamism
that has breathed hope into the lives of many of its
citizens. Your visit here can help address the concerns of
some Indians about the expanding relationship with the United
States even as you help us to educate others about the clear
benefits of partnership with the US. By and large, recent
polls such as those by the Pew Research Center show that 70

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percent of Indians view the US favorably, and increasingly
appreciate 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. End Summary.

President Bush's Visit to India
--------------


4. (SBU) President Bush's landmark March 1-3 visit to India
heralded a new dynamic era of a strong US-India partnership
based on common objectives and shared values. "Our two great
democracies are now united by opportunities that can lift our
people, and by threats that can bring down all our progress,"
the President declared at his historic March 3 speech in
front of the Old Fort in New Delhi. The convivial relations
and substantive dialogue between the President and Prime
Minister Singh reinforced a transformed and energized
strategic partnership that will help make the world a safer,
more stable place, as the US and India work together to fight
terrorism and promote democratic values worldwide.

Heavy Focus on Substantive Achievements
--------------


5. (SBU) President Bush's visit brought many
accomplishments, from the civil nuclear initiative to
agreement to establish a US consulate in Hyderabad. On the
economic front, we agreed to intensify efforts to increase
trade and investment, building on the US role as India's
number one bilateral (the EU is a bigger trade partner) trade
and investment partner, and India's status as a growing
destination for US exports. Seeking to bolster global energy
security, the US welcomed India's participation in a wide
range of international activities to develop cutting-edge,
environmentally friendly technology that could help meet the
world's energy needs. As part of the energy initiative,
India released its civil nuclear separation plan, which will
make its entire civil nuclear program transparent for the
first time. The two leaders also reaffirmed the importance
of counter-terrorism cooperation and enhanced joint defense
activities, including a Maritime Cooperation Framework that
will help prevent transnational crimes like piracy and
mitigate the effects of natural disasters. Pointing to the
vast potential for collaboration between the countries, the
President announced, "The partnership between our free
nations has the power to transform the world."

Civil Nuclear Initiative
--------------


6. (SBU) President Bush and Prime Minister Singh announced
that they had reached an historic understanding on India's
proposed separation of civil and military nuclear facilities
and programs, one element of the US-India civil nuclear
cooperation initiative that the two announced in July 2005.
This initiative removes an important source of discord that
constrained the US-Indian bilateral relationship for over
thirty years and promises a profound transformation in the
way the United States and India will partner to promote
democracy, stability, prosperity, and peace in the region and
globally. India's separation of its civil nuclear facilities
and programs, including a commitment to negotiate permanent
safeguards and an Additional Protocol with the IAEA, are
significant nonproliferation gains. This initiative will

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also open up US-India trade and investment in nuclear energy
for the first time in three decades, while helping meet
India's energy needs in an environmentally friendly manner
and reducing global competition for scarce hydrocarbons. As
you know, Secretary Rice and Under Secretaries Burns and
Joseph have briefed Congress about the proposal to amend
legislation and the Administration will encourage partners in
the Nuclear Suppliers Group (NSG) to adjust guidelines, which
will allow for full civil nuclear commerce with India.


7. (SBU) We also continue our path finding cooperation in
other areas of energy. The US-India Energy Dialogue was
initiated by President George W. Bush and Indian Prime
Minister Manmohan Singh in September 2004 and launched by US
Secretary of Energy Samuel Bodman and India Deputy Chairman

SIPDIS
of Planning Commission Dr. Montek Singh Ahluwalia in May

2005. The Energy Dialogue has five Working Groups --
Civilian Nuclear Energy; Oil and Gas; Coal; Power and Energy
Efficiency; and New Technology and Renewable Energy -- each
of which has held several meetings since the Bush-Singh
summit in July 2005. The Dialogue aims at our mutual
interests in promoting government and private sector
cooperation to advance the security, reliability, and
environmental-soundness of world energy supplies and in
supporting India's sustainable economic growth through energy
sector reforms and more efficient utilization and expanded
production and consumption of energy resources. A few of the
many activities include: the Civil Nuclear Energy workshop in
Mumbai (Jan 9-13, 2006); Clean Coal Technology seminar (Nov
2005); a Power Efficiency Seminar (March 2006); a Bilateral
exchange with the US New Energy Technology Laboratories
(March 2006); and a Natural Gas and Coal Bed Methane Seminar
(March 2006).

The Economic Relationship
--------------


8. (SBU) The US-India economic relationship, for decades
narrow and circumspect, is gathering steam and promises to be
a key driver of our overall bilateral relationship in the
21st century. The United States is India's largest trading
partner and its largest foreign investor. Two-way trade grew
to about $27 billion last year, its highest level ever, with
US exports surging 30 percent. Our publicly stated goal is
to double bilateral trade in the next three years, an
ambitious but not unrealistic target. The US-India economic
partnership extends beyond trade and investment, however. The
increasingly complex economic links being forged between our
two countries are having a profound impact on our respective
economic outlooks in the 21st century. American companies
understand that abundant brainpower here is the natural
resource necessary for the competitiveness of their firms.
They also see India's market as one of growing importance.
Two million Indian Americans and many millions of Indian who
travel regularly to the US are helping weave the economies
(and societies) together.


9. (SBU) President Bush's March 1-3 visit raised the
trajectory of the economic relationship to new heights. He
and Prime Minister Manmohan Singh agreed on a wide range of
initiatives on trade, agriculture, energy security, and
innovation and the knowledge economy, signaling that the
economic component of the bilateral relationship will be a
top priority for the two nations. They also convened a
meeting of the CEO Forum, a group of CEOs from some of the

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largest American and Indian companies, to accept a report on
what the two governments can do to further bolster trade and
investment. The intense bilateral economic engagement with
the Indians over the last two years has yielded a wide range
of economic successes, including $13.5 billion in Indian
orders last year for Boeing airplanes and settlement of the
thorny Enron-related Dabhol power project dispute. The top
Indian economic priorities are ensuring reliable supplies of
energy to sustain economic growth and spreading the benefits
of this growth into rural India. For both these priorities,
the Indians realize that we are critical to their agenda.
They need our support internationally and they want access to
our technology to enhance energy security and to develop the
agricultural sector.


10. (SBU) The Indian economy continues to set a torrid pace,
with GDP growing at over 8 percent this year. An important
economic advantage for India in the coming decades will be
its young population, with 70 percent below the age of 36 at
this time. Another significant trend we detect is a palpable
improvement in the Indian business community's confidence
about its ability to compete in the international economy.
Yet, India will find it hard to sustain the high growth rates
in the medium term unless it undertakes a second generation
of some critical but politically difficult reforms -- cutting
subsidies, reducing government's role in the economy,
building infrastructure and liberalizing the agricultural and
financial sectors. Fortunately for India, its government is
led by a group of economists who understand very well what
needs to be done. Their room for maneuver is constrained,
however, as they must carefully navigate the political
minefields created by their communists allies on the left,
the opposition on the right, and populist blocs within the
ruling parties.

Domestic Politics
--------------


11. (SBU) The opposition National Democratic Alliance (NDA),
consisting of the Bharatiya Janata Party (BJP) and its
regional party allies, remains distracted by internal
ideological disputes and a recent party split 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, and depends
for survival on the Communist-dominated Left Front (LF),so
coalition management is key to its survival. Although they
do 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 MPs, increasing the LF's
stature and significance out of any proportion to its true
level of popular support. Their 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
continuing disarray and lack of fresh ideas. Increasingly
disenchanted with the UPA, Left leaders have made no secret
of their determination to form a new non-UPA government at
the first opportunity, while Congress hopes to win a
Parliamentary majority in the next national election and rule
without LF support. Although the UPA can call for a mid-term
election at any time, it appears likely the UPA government
will serve its full five year term until 2009.


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12. (SBU) Because of its ideological orientation, the LF has
opposed many UPA economic liberalization policies and what
they consider the subordination of Indian foreign policy to
the US. The LF denounced India's votes with the US on Iran's
nuclear program, for example. The LF also demanded that
India vote with Iran in future IAEA sessions or "face the
consequences." However, knowing that the Left cannot bring
down the government over the issue, the UPA has continued its
principled opposition to Iran's nuclear program, not allowing
the LF objections to derail policy.

The Domestic Impact of Growing US Ties
--------------


13. (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. The PM has stoutly defended India's
ties with the US and the nuclear deal on the floor of
Parliament. Moreover, political commentators increasingly
complain that the Left's stance is unhelpful to India's
strategic needs.


14. (SBU) The UPA's trump card is that, notwithstanding the
grumpiness of political parties, the vast majority of Indians
enthusiastically support better ties with the US and enhanced
Indian integration into the opportunities and risks of the
global economy. Pew Trust polls over the last four years
consistently show that more than 70% of Indians have a
favorable impression of the US. 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 the 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
--------------


15. (SBU) The Congress-led United Progressive Alliance (UPA)
government continues to weather assaults from its left and
right, even when on-going political events distract from the
Prime Minister's ability to advance his reform agenda. These
have included recent attacks on Sonia Gandhi in Parliament
for holding a "position of profit" as Chairperson of the
National Advisory Commission (NAC),the UPA's defeat in a key
election in the large state of Bihar, and domestic discontent
over its stance in the IAEA on Iran (fanned by the Denmark
cartoon controversy and opportunistic politicians). After
Natwar Singh resigned from the cabinet following accusations
in the Oil for Food scandal, the UPA effectively deflected
further opposition assaults. Following this tumultuous
period, televised revelations of blatant corruption by MPs,
from the BJP and other anti-Congress parties, shifted the
focus away from the UPA, allowing the Prime Minister to
return to his intended course in foreign and domestic
affairs. Sonia Gandhi's resignation from Parliament and as
NAC chief effectively deflected the most recent Parliamentary
attacks, even as she retained her party and coalition

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presidency. However, the constant dalliance of the UPA's
Left Front partners with opportunistic regional parties in a
"Left and Secular Alliance" keeps the UPA from taking too
many bold initiatives, and draws attention away from national
issues to state-level politics where the regional parties
hold more sway. 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 and the possible early
elections in Uttar Pradesh (India's largest state).

Indo-Pak Relations Hinge on Terror Waged Against India
-------------- --------------


16. (SBU) Indian citizens are very worried by what appears
to be a trend toward more deadly terrorist attacks spreading
beyond the traditionally troubled state of Jammu and Kashmir.
These recent attacks include the October 29 Delhi bombings,
the December 28 shooting at the Indian Institute for Science
in Bangalore, and most recently a March 7 series of bombings
in the Hindu holy city of Varanasi. Indian news media
speculate that the attacks reflect a shift in tactics by
Pakistan-based terror groups as they move away from terrorism
within Kashmir and focus on traditional Hindu sites in an
attempt to attract more media and international attention and
provoke communal tensions, as well as targeting the new
centers of commerce that have given India the foundation for
its economic growth. These worries are planting doubts in
the minds of Indians 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 October 2005 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; other related positive moves are
increasing cultural and sports exchanges, the opening of two
additional bus routes between Indian and Pakistani Punjab and
a new rail link between Rajasthan and Sindh, and the PM's
March 24 offer of a Treaty of Peace, Security, and Friendship.

Other Regional Issues
--------------


18. (SBU) Under Prime Minister Singh's leadership, the
Government of India has emerged as a responsible leader in
the South Asia region, as well as Asia at large. India has
joined as a full partner in international efforts to rebuild
Afghanistan, pledging more than $600 million to Afghanistan's
reconstruction, focused specifically on building
infrastructure, strengthening the country's democratic
institutions, and training the country's newly elected
leaders. As an alleged staging ground for terrorist attacks
within India, Bangladesh causes constant concern for the
Indian government, which also seeks the country's cooperation
in importing natural gas from Burma. President Kalam's March
10-13 trip to Burma, as well as a recent trip to South Korea
and the Philippines, illustrated India's "Look East" policy,

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in which the PM Singh administration seeks to increase its
influence in Southeast Asia, countering China's growing
presence in the region. Meanwhile, India and China have
sought warmer relations by engaging in a strategic dialogue,
and separating the contentious border issues from the surging
economic links (bilateral trade has been growing at about 40%
annually). India and China concluded on March 13 the latest
round of talks aimed at settling their long-running border
disputes. The Maoist insurgency in Nepal also causes alarm
in New Delhi, but India has preferred to work quietly behind
the scenes in the hope that continued agitation for
democratic reform, led by the political parties in Nepal,
will pressure the monarchy to restore democratic government,
followed by peace talks with the Maoists. The Indian
government has implemented a similar policy in Sri Lanka,
where it hopes that talks between the government and LTTE
continue under the guidance of the Norwegian mediators. That
India and the US increasingly share a common outlook on
regional issues reflects the transformation of relations and
the forging of a meaningful partnership.

Iran
--------------


19. (SBU) India's large Muslim population and massive
diaspora in the gulf region give 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
has guided India's responsible votes with us in the IAEA,
despite causing turbulence in Delhi's relations with Tehran
and uproar in Parliament from left and right opposition
parties and even from some within Congress. New Delhi's
ability to influence the 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 GOI characterized a recent port visit in Cochin by
two Iranian naval vessels as a goodwill port call, and denied
press reports that training had taken place. Advancing the
civilian nuclear energy initiative helps to dilute India's
need for Iranian energy resources, although plans for an
Iran-Pakistan-India gas pipeline continue to plod ahead.

Military Ties Multiplying
--------------


20. (SBU) Since lifting sanctions in September 2001, the US
and India have conducted a series of joint and
service-to-service exercises of increasing scope and
capability. The seventh and largest in a series of naval
exercises, Malabar 05 was held in the Arabian Sea off the
Indian Coast, and featured aircraft carriers from both
countries deploying F/A-18 Super Hornets and Indian Sea
Harriers in air combat tactics. The Maritime Security
Framework endorsed by President Bush and Prime Minister Singh
in March 2006 will ensure further collaboration between both
countries' navies, especially in anti-piracy and disaster

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relief activities in the Indian Ocean. US and Indian Air
Forces participated in Cope India 06 held at Kalaikunda Air
Station in West Bengal, the largest air combat exercise
between the US and Indian air forces to date. Exercise Yudh
Abyas ("Battle Practice" in Hindi),the largest US Army
exercise with the Indian Army to date, occurred in January
2006 in the foothills of the Himalayas and focused on
counter-insurgency tasks in semi-urban and semi-mountainous
terrain. The success of the exercise highlights the
importance of sustaining the growth of military-to-military
relations.


21. (SBU) Eager to purchase what it believes is superior
technology and secure long-term military ties with the US,
the GOI has shown growing interest in acquiring defense items
and building an arms relationship with the US. Among the
larger potential arms sales on the horizon, the Indian Air
Force will soon purchase 126 multi-role combat aircraft to
replace some of its aging Russian aircraft, and the US plans
to offer both the F-16 and F/A-18 fighters to fill India's
requirement. Bell Helicopter intends to compete the Model
407 in response to an Indian Army requirement for the
purchase of 60 light helicopters, with a follow-on
co-production contract for an additional 137 units. In
addition, the Indian Navy is seeking to acquire the USS
TRENTON (LPD) as a "hot transfer" in December 2006, which, if
successful, will mark the first major platform sale to the
GOI. Meanwhile, the Indian Army has purchased and is in the
process of receiving twelve Firefinder Radars worth
approximately $200 million.

Conclusion - An Historic Opportunity for America
-------------- ---


22. (SBU) Senator Hagel, your delegation's program in India
will give you an excellent view of developing India/US ties
from government officials and other well-placed commentators
and analysts. In the wake of the President's historic visit,
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. While this is a
delicate process, we are developing cooperation and trust
that will grow in the years to come. You can expect your
Indian interlocutors to ask for your position on the civil
nuclear legislation introduced by Chairman Lugar and Chairman
Hyde on March 16. Your visit can serve to encourage key
audiences of the value of developing a natural strategic
partnership with the United States, and the great importance
we attach to receiving the advice and guidance of our
legislative branch. We appreciate very much your taking the
time to visit India and look forward to assuring an
informative and productive visit.


23. (U) Visit New Delhi's Classified Website:
(http://www.state.sgov.gov/p/sa/newdelhi/)
MULFORD