India's New Government, US Interests, CRS

Indias New Government and Implications for
U.S. Interests
K. Alan Kronstadt
Specialist in South Asian Affairs
August 7, 2014
Congressional Research Service
7-5700
www.crs.gov
R43679
Indias New Government and Implications for U.S. Interests

Summary
The United States and India have been pursuing a strategic partnership since 2004, and a 5
th

Strategic Dialogue session was held in New Delhi in late July 2014. A May 2014 national election
seated a new Indian government led by the Hindu nationalist Bharatiya Janata Party (BJP) and
new Prime Minister Narendra Modi. Top U.S. officials express eagerness to engage Indias new
leadership and re-energize what some see as a flagging relationship in recent years. High hopes
for the engagement have become moderated in recent years as expectations held in both capitals
remain unmet, in part due to a global economic downturn that has dampened commercial activity.
Yet the two countries, estranged through the Cold War period, have now routinized cooperative
efforts through myriad working groups on an array of bilateral and global issues.
Prime Minister Modi is known as an able administrator, having overseen impressive economic
development in 15 years as chief minister of Indias Gujarat state. But he also is a controversial
figure for his Hindu nationalist views and for communal rioting that killed up to 2,000 people,
most of them Muslims, in Gujarat in 2002. His BJP made history by becoming the first party to
win an outright parliamentary majority in 30 years, meaning Indias federal government is no
longer constrained by the vagaries of coalition politics. Domestic and international proponents of
Modis business-friendly policies are hopeful that these circumstances will make for more
effective governance and streamlined economic reforms. Detractors, concerned about protecting
Indias inherently secular nature under a Hindu nationalist government, and worry about future
respect for Indias freedoms of religion and expression.
This report reviews the major current issues in U.S.-India relations, including areas of both
cooperation and contention, the latter most visible in trade and economic engagement in recent
years. For a brief review of the election, as well as key government officials and parties, see CRS
In Focus IF00037, Indias Domestic Political Setting, by K. Alan Kronstadt.


Contents
Notable Recent Developments .................................................................................................. 1
Overview and Commentary ....................................................................................................... 2
A Historic Election and New Delhis New Government ........................................................... 6
Economic Policy Outlook ................................................................................................... 7
Foreign Policy Outlook ....................................................................................................... 8
Hindu Nationalism and Related Policy ............................................................................. 10
Issues in U.S.-India Relations ................................................................................................. 11
Economic and Trade Issues ............................................................................................... 11
Security and Defense Issues .............................................................................................. 12
Human Rights Concerns .................................................................................................... 13

Tables
Table 1. Key Active Areas of Engagement for the United States and India .................................... 2

Contacts
Author Contact Information........................................................................................................... 14


Congressional Research Service 1
Notable Recent Developments
1

On July 29, Secretary of State John Kerry and Secretary of Commerce Penny
Pritzker traveled to New Delhi for the 5
th
U.S.-India Strategic Dialogue, where
they met with newly-seated Indian Prime Minister Narendra Modi and External
Affairs Minister Sushma Swaraj, among others. In a joint statement, the two sides
reviewed bilateral dialogues and working groups on issues ranging from science
and technology to regional security and counterterrorism. Post-dialogue press
interactions suggested that the bulk of the dialogue focused on trade and
investment, energy, and climate change. The two sides intend to re-convene the
moribund U.S.-India Trade Policy Forum, and to expand the framework of
dialogue on commercial ties and technology exchange. They established a new
Joint Working Group on Climate Change with the stated goal of laying the
foundation for an ambitious climate change agreement for the post-2020
period.
2
Secretary of Defense Chuck Hagel will travel to India in August to
attempt to reinvigorate the defense partnership.
On July 10, new Indian Finance Minister Arun Jaitley presented a partial-year
national budget, widely seen as an early indicator of the new governments
interest in pursuing substantive new economic reforms. Most independent
observers were cautiously optimistic about the outlook for such reforms,
although some expressed disappointment that the government did not lay out a
clear path toward its stated goals of opening markets and attracting new
investment, and did not address the issue of intellectual property rights
protection.
3
The budget did not touch major subsidy and social welfare programs
initiated by the preceding government, highlighting the constraints of Indias
historical tendency toward populist initiatives meant to safeguard the poor. The
new budget does, however, pledge to raise foreign direct investment caps in the
insurance and defense sectors up from 26% to 49%, but still falls short of the
majority allowance that many Indian and international business interests had
hoped for.
On July 31, India blocked a World Trade Organization (WTO) trade facilitation
agreement that was negotiated among 160 countries, including India, in Bali in
December 2013. New Delhi insisted on extending the negotiating period, citing
its displeasure with the pace of separate negotiations over a so-called peace
clause for its food security programs, which would preclude a challenge to these
programs on subsidy grounds. Some analysts suspect that Prime Minister Modi is
giving a nod to the interests of his countrys hundreds of millions of farmers, a
demographic not typically supportive of his ruling party. Member governments
saw the trade facilitation deal as a breakthrough in the drawn-out Doha Round of
multilateral negotiations, and some worry that its obstruction could delegitimize
the WTO. Following Secretary Kerrys meeting with Modi, a senior State
Department official said that Indian decision sends a confusing wrong signal

1
This section written by Samir Kumar, Asia Section Research Associate.
2
See the July 31, 2014, Joint Statement at http://www.state.gov/r/pa/prs/ps/2014/07/230046.htm.
3
Rick Rossow, For India: A Balanced Budget, Center for Strategic and International Studies, July 10, 2014.

and undermines the very message that India is seeking to send.
4
New Delhi has
expressed hope that differences can be resolved when the WTO reconvenes in
September.
Table 1. Key Active Areas of Engagement for the United States and India
5

Issue Area Status
Intellectual Property Rights (IPR) U.S. concerns about Indias IPR standards have led the
USTR to place India on its Special 301 Watch List and
plan an Out-of-Cycle Review for September 2014.
Bilateral Investment Treaty (BIT) Negotiations to establish a BIT are ongoing; the U.S.
government views a finalized BIT as being a key step in
facilitating greater trade and investment with India.
U.S. Immigration Policy New Delhi views pending U.S. immigration legislation as
unfairly constraining Indias services trade sector by
capping the number of nonimmigrant works (H1-B) visas
available to its citizens.
U.S.-India Civil Nuclear Commerce Obstacles to initiating bilateral nuclear energy
cooperation, in particular Indias stringent liability law,
remain a source of frustration for U.S. officials and
companies eager to enter the Indian market.
Climate Change The United States and India seek to cooperate in efforts
to combat climate change. In addition to joint
exploration of alternative energy technologies, energy
efficiency, and sustainable forestry, the two countries
seek to cooperate on achieving a multilateral global
agreement on climate change in Paris in 2015.
Afghan Stability As U.S. troops depart Afghanistan this year, Washington
and New Delhi continue to engage closely to foster a
stable and democratic post-2014 Afghanistan.
Counterterrorism Bilateral cooperation on combatting terrorism has been a
critical element of the countries security relationship.
India continues to be targeted by multiple Islamist
militant groups, some of which threaten U.S. interests.
India-Pakistan Relationship The U.S. government continues to encourage India and
Pakistan to work peacefully toward increasing their
bilateral trade and enhancing security along their shared
border.
Overview and Commentary
IndiaSouth Asias dominant actor with more than 1.2 billion citizens and Asias third-largest
economyoften is characterized as a nascent great power and indispensable partner of the
United States, one that many analysts view as a potential counterweight to China. For the past
decade, Washington and New Delhi have been pursuing a strategic partnership based on shared
values and apparently convergent geopolitical interests. Numerous economic, security, and global
initiatives are underway. In 2005, the United States and India signed a 10-year defense framework

4
See the August 1, 2014, remarks at http://www.state.gov/r/pa/prs/ps/2014/230084.htm.
5
This section written with Samir Kumar, Asia Section Research Associate.

agreement to expand bilateral security cooperation. The two countries since have engaged in
numerous and combined military exercises, and major U.S. arms sales to India are underway. The
value of all bilateral trade has grown significantly, although the recent global economic downturn
has stunted that growth. Bilateral trade in goods and services was worth more than $97 billion in
2013; a total that has been fairly static for two years. Two-way investment also flourishes. Indians
receive about two-thirds of all H1-B (nonimmigrant work) U.S. visas, and some 100,000 Indian
students are attending American universities. The influence of a relatively wealthy and outspoken
Indian-American community of roughly three million is reflected in Congresss largest country-
specific Senate and House caucuses.
President Barack Obamas Administration has sought to build upon the deepened U.S.
engagement with India begun by President Bill Clinton in 2000 and expanded during much of the
previous decade under President George W. Bush. A bilateral Strategic Dialogue forum,
established in 2009, met for the fourth time in New Delhi in June 2013;
6
a fifth meeting, also in
New Delhi concluded on July 31, 2014. Still, independent analysts in both countries worry that
the partnership has lost momentum in recent years. Some saw a notable cooling of U.S.-India ties
in 2013 with the serious diplomatic dispute triggered by the December arrest of Indian consular
official Devyani Khobragade in New York.
7
And there are longer-running and more serious
disagreements over intellectual property rights protection; market access; U.S. immigration law;
and stalled efforts to initiate civil nuclear cooperation, among others.
In May 2014, Indias national election resulted in a convincing and historic win for the Bharatiya
Janata Party (BJP or Indian Peoples Party) and its prime ministerial candidate, then-Gujarat
state Chief Minister Narendra Modi.
8
The new Indian leader is known as a strong-willed and
effective, if perhaps autocratic, administrator. His reputation has been burnished by Gujarats
impressive economic performance during his 15-year tenurethe state accounts for more than
20% of all Indian exports while being home to only 5% of the population. Garnering an outright
majority in Parliament for the first time in 30 years, Modis new government promises fresh U.S.
engagement with an Indian leader reputed to be more pro-trade and pro-business than the
socialist-oriented ones of the past, and who vows to implement a more assertive Indian foreign
policy that could see the country shift away from its traditional non-alignment approach to
global politics. President Obama and other top U.S. officials have expressed an interest in
revitalizing bilateral fora so as to further boost trade and investment flows, deepen security
cooperation, and otherwise solidify the geopolitical alignment with India.
9

One area of potential friction relates to a guiding ideology of the new Indian government: the BJP
was born in 1980 as the political wing of the Rashtriya Swayamsevak Sangh (RSS or National
Volunteer Organization) a militant Hindu and social service group (roughly 82% of Indians are
Hindu and another 14% Muslim). Prime Minister Modihimself a longtime RSS memberand

6
See the relevant documents at http://www.state.gov/p/sca/ci/in/strategicdialgue/c58464.htm.
7
In December 2013, Khobragade, then Deputy Consul of Indias New York Consulate, was arrested on charges of visa
fraud and provision of false statements related to her treatment of an Indian national she had brought to perform
domestic work. The circumstances of her relatively brief detentionan unceremonious street arrest, strip-search, and
jailinginfuriated Indias government and many of its citizens, who argued that diplomatic immunity should have
obtained. Days later, the State Department approved New Delhis request that Khobragade transfer to Indias UN
Mission, thus affording full, rather than consular, immunity. In January, Khobragade departed from the United States,
but the indictment against her has not been dismissed.
8
See CRS In Focus IF00037, Indias Domestic Political Setting, by K. Alan Kronstadt.
9
Readout of the Presidents Call with Candidate Narendra Modi of India, White House release, May 16, 2014.

his party maintain a firmly Hindu nationalist perspective. He also is a controversial andamong
someeven reviled figure due to persistent suspicions about his possible role in horrific
communal rioting in Gujarat in 2002 that left up to 2,000 people dead, most of them Muslims.
Although multiple high-level investigations into Modis alleged role have resulted in no formal
charges, human rights groups and other analysts still widely accuse him of being complicit in the
anti-Muslim violence, or at least showing gross dereliction of duty in his response. Such
accusations led the Bush Administration to deny Modi a visa in 2005, and the U.S. government
subsequently had no official contacts with Modi until he met with the U.S. ambassador to India in
late 2013.
10
Some Members of Congress have continued to express deep concerns about Modis
past and his commitment to religious freedom.
11
Many observers warn that a BJP-majority
government could have dire consequences for human and civil rights in India, especially if it
chooses to implement openly Hindu majoritarian policies.
However, President Obama wasted no time in ending speculation on the visa issue by
immediately inviting Prime Minister Modi to visit Washington, DC (Secretary of State John
Kerry subsequently told an Indian audience that there is no doubt that the Indian leader will
receive a U.S. visa). Modi is set to visit the U.S. capital in late September. Following the election,
Secretary Kerry congratulated India for the successful democratic exercise and Modi for his
victory while calling the bilateral friendship absolutely vital.
12
On Capitol Hill, Members of
both chambers took positive note of Indias democratic exercise and its new government, and
expressed recognition of the importance of the bilateral relationship.
13
To date, 88 House
Members are signatories to a letter asking congressional leadership to convene a Joint Session for
the Indian leader to address.
14
Committees in both the Senate and House held hearings on U.S.-
India relations in July.
15

In D.C. policy circles, there is no consensus view on Indias new government beyond a general
agreement that Prime Minister Modi must confront a multitude of difficult problems and choices,
and that the domestic Indian expectations of their new leader are so broad and so high that they
are very unlikely to be met. Most agree that it will be exceedingly difficult, if not virtually
impossible, for Modi to fulfill voters economic aspirations given the significant restraints

10
The State Department took the 2005 action under the 1998 International Religious Freedom Act, which allows for
barring entry to foreign government officials found to be complicit in severe violations of religious freedom. Some
analysts contend that Washington risked lasting damage to the bilateral relationship by waiting too long before seeking
to forge substantive ties with Modi (the March 2005 State Department notice is at http://2001-2009.state.gov/p/sca/rls/
rm/2005/43701.htm; Anish Goel, Can the United States and BJP Do Business? Foreign Policy (online) February 13,
2014).
11
H.Res. 417, introduced in November 2013 and currently with 51 co-sponsors, commends the State Departments
2005 visa denial. To date, the bill has not emerged from committee.
12
See the May 20, 2014, State Department release at http://www.state.gov/secretary/remarks/2014/05/226344.htm.
13
H.Res. 607, introduced on May 29, 2014, recognizes the importance of Indias historic elections and calls for
working with Indias new government to strengthen the bilateral strategic partnership. To date, the resolution has 24
co-sponsors, but has not emerged from committee. S.Res. 523, introduced on July 24, 2014, with three co-sponsors,
expresses the sense of the Senate on the importance of the U.S.-India strategic partnership.
14
The July 21, 2014, letter notes that an Indian Prime Minister has addressed a Joint Session of Congress in each of the
past three decades, and it seeks to continue that tradition (see http://sherman.house.gov/media-center/press-releases/
sherman-leads-83-house-members-in-effort-to-invite-pm-modi-to-address).
15
The Senate Foreign Relations Subcommittee on Near Eastern and South and Central Asias July 24, 2014, hearing
statements are at http://foreignaffairs.house.gov/hearing/subcommittee-hearing-us-india-relations-under-modi-
government. The House Foreign Affairs Subcommittee on the Asia Pacifics July 29, 2014, statements are at
http://foreignaffairs.house.gov/hearing/subcommittee-hearing-us-india-relations-under-modi-government.

presented by Indias federal system, by still widespread resistance to fiscal stimulus in an
environment of high deficits, and by an expectation of potentially decisive political opposition in
Parliaments upper chamber.
16

One U.S.-based commentator characterized Washingtons reaction to Indias election results as a
mix of curiosity, hope, and concern. In this view, the interest is evoked by the strong electoral
win of a Delhi outsider, the optimism emanates mainly from the business community, which
anticipates a stronger reform impulse, and the worries are about the potentially negative effects of
past U.S. shunning of Modi, as well as his record of taking a hardline posture toward Indias
religious minorities. On this last point, another analyst contends that the trajectory of U.S.-India
relations transcends any single leader and that there have been no signs that Modi will rock this
boat as prime minister. Notably, Modi never appeared to discriminate against any U.S. firms in
Gujarat during the post-2005 visa ban period.
17

A minority view contends that conceiving of the United States and India as natural partners is
misguided. In this account, New Delhis implicit approval of Russias early 2014 aggression in
Ukrainestrongly opposing sanctions on Moscow and calling its interests in Crimea
legitimateis a recent demonstration that U.S. and Indian strategic interests can and do
continue to diverge.
18
In the words of two prominent observers, [T]he linkages between the
United States and India remain more aspirational than accomplished, with many unfulfilled
expectations.
19
Meanwhile, a senior Indian analyst conveys a perspective among some that
recent changes in regional and global circumstancesespecially those that have Washington
focused on crises in regions where New Delhi plays a negligible rolehave tended to lower the
salience of this indispensable partnership in the eyes of both partners.
20

While the chances for a dramatic resuscitation of bilateral ties may be poor in the short-run,
many analysts continue to urge Washington to view a stronger India as being in Americas
interests. Undergirding this argument is the assumption that New Delhis future economic and
security policies are highly likely to take courses that benefit the United States, even if
indirectly.
21
U.S. officials thus are encouraged to demonstrate full openness to working with the
Modi government, in part as a means of ameliorating the raw sensitivities many Indians appear to
have about national respect, sensitivities that were exposed by the Khobragade incident in a fierce
reaction that surprised many observers in the United States. These analysts also offer that
Washington can demonstrate for New Delhi that U.S. leaders are serious about the rebalance to

16
Narendra Modis Ambitious Agenda Will Face Difficult Obstacles, New York Times, May 16, 2014; Milan
Vaishnav, Indians Expect an Economic Superman (op-ed), Bloomberg News, May 12, 2014.
17
Tanvi Madan, Hope, Concern, and Curiosity, India Today (Delhi), May 30, 2014; Sadanand Dhume, American
Enterprise Institute Resident Fellow, private meeting, Washington, DC, February 27, 2014.
18
New Delhi reportedly refused to include any language critical of Russia in the Joint Statement emerging from the
July Strategic Dialogue (Indian Media Say Delhi Walks Diplomatic Tightrope Over Crimea, BBC News, March 20,
2014; Ukraine Speed Bump in Delhi Ties With US, telegraph (Kolkata), July 31, 2014).
19
James Clad and Robert Manning, New Beginning? What a Modi Victory Means for India and the U.S., Foreign
Policy (online), May 15, 2014.
20
Siddharth Varadarajan, Why John Kerrys Great Expectations Wont Be Met by India (op-ed), NDTV.com (New
Delhi), July 31, 2014.
21
Ashley Tellis, Productive But Joyless? Narendra Modi and US-India Relations, Carnegie Endowment for
International Peace, May 12, 2014.

Asia and that India can play a vital role in such policy, perhaps especially in the area of maritime
security and codes of conduct.
22

A Historic Election and New Delhis New Government
23

In April and May of 2014, India once again broke its own record by conducting the largest
democratic exercise in human history: Of its 815 million eligible voters in 29 states and 7 union
territories, a record 66.4% turned out to seat a new Lok Sabha (House of the People)the lower
chamber of Parliament and the locus of national powerand, with it, a new prime minister. The
outcome was historic in numerous ways. The victorious BJP won a majority of the bodys 543
seats, becoming the first party to do so since 1984 and the first-ever non-Indian National
Congress Party to rule Indias federal government without coalition partners (the dynastic,
Nehru/Gandhi Congress Party suffered what was by far its worst-ever national defeat, although it
continues to lead 11 state governments). The BJPs 282 seats allowed the party to elevate Modi to
the prime ministers seat, and he was sworn in to office on May 26. Modi is Indias first-ever
lower-caste prime minister, the first born after the countrys 1947 independence, and the first not
to have been steeped in Delhis rarified political circlesan outsider in more ways than one.
Indias smaller upper parliamentary chamber of a maximum 250 seats, the Rajya Sabha (Council
of States), is on a different election schedule from that of the Lok Sabha. This body may review,
but not veto, revenue legislation, and has no power over the prime minister or his/her cabinet.
Still, the BJPs governance agenda can be impeded in the Rajya Sabha, where the former
incumbent Congress Party holds a plurality of seats (68) and can align with other BJP opponents
to block certain legislation.
24
Moreover, many key reforms that may be pursued by the new
governmentincluding in tax policy, labor laws, land acquisition, subsidy cuts, and infrastructure
project clearancewill be dependent on the participation of state governments, only eight of
which are currently controlled by the BJP or its allies.
Analysts identify convincing reasons to believe that the Indian electorate did not elect Narendra
Modi for his bold Hindu nationalism. Instead, Modis mandate most likely derived from the
electorates acute desire to see uncorrupt governance in New Delhi and a repaired economy with
plentiful jobs, and not from support for any parochial agenda.
25
Moreover, with Muslim votes
split between the numerous secular alternatives to the BJP, Modis electoral outlook was much
improved. Winning a majority of seats with less than one-third of votes cast (the BJP won 31% of
the popular vote) was possible only through a significant splintering of the countrys anti-BJP
vote. This leads some to argue against the historic election narrative: More than two-thirds of

22
Lisa Curtis, US-India Relations in 2014: After the Election, Opportunity for Revitalizing, Heritage Foundation,
June 2014.
23
A fact sheet on the election, as well as key government officials and parties, is CRS In Focus IF00037, Indias
Domestic Political Setting, by K. Alan Kronstadt.
24
Later in 2014, the BJP will contest state elections in Delhi, Haryana, and Maharashtra, the last being Indias second
most populous state and home to Mumbai, the countrys premier business hub. Rajya Sabha representation is dictated
by control of state legislatures (the BJP leads the government in only 5 of Indias 29 states), meaning these elections
are important to the BJPs governance agenda and will be closely watched outside of India.
25
International Peace, May 12, 2014.

votes were cast for non-BJP candidates, the BJP continued to fare poorly in most of the countrys
south and east, and regional parties continued to account for roughly half of all votes cast.
26

Prime Minister Modi has pared down the size of the cabinet considerably, from 71 ministers
under the previous government to 44 today. Key officials include recent BJP President and
current Home Minister Rajnath Singh; External Affairs Minister and Overseas Indian Affairs
Minister Sushma Swaraj, a BJP parliamentary stalwart; and Arun Jaitley a corporate lawyer now
serving as Finance Minister, Defense Minister, and Corporate Affairs Minister. Modis longtime
lieutenant and home minister in Gujarat, Amit Shah, is the new BJP chief. Skeptical observers
found in Modis cabinet picks signs of business as usual in Indias often venal political culture:
13 cabinet ministers are said to be facing sometimes serious criminal charges and most are over
60-years-old, belying Modis campaign claims to be a champion of the countrys youth.
27

Among the sea of commentaries on Modi are numerous negative portrayals of his personality.
While his millions of supporters see in Modi a strong-willed, incorruptible, and effective leader
who will defend and enrich the nation, critics take a darker view. Their arguments commonly
portray Modi as having a ruthless and dictatorial style of governance. By some accounts, Modi
has welcomed being the focus of a cult of personality and has consciously cultivated an autocratic
image.
28
Detractors also identify a disregard for rule of law in Gujarat under Modi, including
allegations that Gujarati authorities staged at least 20 extrajudicial killings from 2003-2006.
29

Economic Policy Outlook
The impressive growth of Indian national wealth, especially that occurring in the middle years of
the last decade, has been central to the countrys newfound visibility and importance in global
political calculations. Most observers foresee India becoming the worlds third largest economy
by 2030; in purchasing power parity terms, India already has supplanted Japan in share of global
GDP. However, Indias economic growth rate is at a ten-year low, and fiscal and current account
deficits have widened significantly. The country today is in the midst of its worst economic
slowdown since the 1980s, with two full years of sub-5% annual growth and persistently high
inflation. Experts generally agree that, for Indias international influence to continue to grow
and thus further boost its attractiveness as a U.S. partnerthe countrys negative economic trends
need to be reversed.
Modi is widely viewed in Washington as being good for business, especially through efforts to
create a more stable and tax-friendly investment climate. Foreign investors, anticipating Modis
win, were seen to be behind the roughly 25% surge in the value of Indias top stock index in the 8
months leading up to the election. When the results were announced, another rally led to a new

26
Adam Ziegfeld, Indian Election Isnt as Historic as People Think (op-ed) Washington Post (online), May 16, 2014.
27
In 2010, Shah was arrested and charged with murder in orchestrating a faked police encounter as Gujarat home
minister. The case is ongoing. Before this election, nearly one in three members of the Indian Parliament had criminal
cases pending against them, an increase from a decade ago when about one-quarter had such status. State legislatures
show similar rates of actual or alleged criminality among members (Milan Vaishnav, Crime But No Punishment in
Indian Elections, Carnegie Endowment for International Peace, January 24, 2014).
28
In a leaked diplomatic cable, one senior American diplomat reportedly described Modi as an insular, distrustful
person who reigns by fear and intimidation (cited in Narendra Modi and the New Face of India, Guardian
(London), May 16, 2014).
29
Sunny Hundal, Does Narendra Modi Threaten Secular and Liberal India? (op-ed), CNN.com, May 16, 2014.

record high and propelled the Mumbai stock market into the worlds top ten for the first time ever.
During the election campaign, Arun Jaitley, now finance minister, said that luring both foreign
and domestic investment into fast-tracked major projects in infrastructure and skills development
would be the primary goal of the new government.
30
This tack has been central to the Gujarat
miracle that Modi may seek to recreate at the national level.
31

Although generally favored by the domestic and international business community, the BJP
hardly is a party of free traders, but rather is home to stiff debate over pro-market versus
protectionist policies. India remains a mostly socialist country with an embedded tradition of
state-led welfare initiatives. Thus, predicting future BJP economic policy can be difficult, and,
while new space will be opened for private sector initiatives, and within an improved investment
climate, a D.C.-based expert contends that this will not automatically translate into a free rise for
either India, Inc. or corporate America.
32
Moreover, even if Modi does move energetically to
lure investment and fast-track projects in the country, Indias federal system provides state
governments with considerable say over reforms in key sectors such as energy infrastructure; in
some cases this extends to veto power. Indeed, experts agree that state bureaucracies can present
major obstacles to reinvigorating Indias investment climate; one recent study revealed that 40 of
Indias top 50 stalled projects were being held up by red tape at the state level.
33

Foreign Policy Outlook
Along with an array of urgent domestic priorities, Modi faces a busy foreign policy schedule to
include appearances at five multilateral summit meetings before years end: the BRICS (Brazil,
Russia, India, China, South Africa) summit in July;
34
the UN General Assembly meeting in
September; the concurrent East Asian and India-Association of Southeast Nations (ASEAN)
summits in November; followed by the G20 and South Asian Association for Regional
Cooperation (SAARC) summits later that month.

30
Reviving Investment is Key, Says Man Tipped to Be Indias Finance Minister, Reuters, April 13, 2014.
31
Certainly Gujarat became wealthier under Modi, and the Gujarat miracle and Modinomics became political
buzzwords during the campaign. Yet the states strides during Modis tenure may have been over-hyped. Some argue
that Modi inherited rather than created Gujarats strong, export-based economy. Gujarat already was leading in several
key economic indices in the decade before Modi took power, and during the 2000s several other large states
outperformed Gujarat in terms of growth rates and foreign investment per capita. Analysts also note that Gujarat fares
poorly on measures of health and education, suggesting its ineffectiveness in translating development into social
improvement (Aseema Sinha, Understanding Economic Reform of Public Services in a High Growth State of India,
in Vikram Chand, ed. Public Service Delivery in India: Understanding the Reform Process (New Delhi: Oxford
University Press, 2010).
32
International Peace, May 12, 2014. One Indian economist contends that, while in opposition from 2004 through 2013,
the BJP supported welfare and subsidy programs just as often as did the ruling party, suggesting that a dramatic shift
toward the generally pro-market policies the BJP followed while in power from 1999-2004 is unlikely (Ila Patnaik in
Will Indias Economy Surge After the General Election? (interview), Carnegie Endowment for International Peace,
February 4, 2014).
33
Expectations Are Too High for a Modi Economy, Wall Street Journal, April 8, 2014. Study cited in Milan
Vaishnav, Indians Expect an Economic Superman (op-ed), Bloomberg News, May 12, 2014.
34
The BRICS summit notably established a new multilateral development bank and currency stabilization fund to be
headquartered in Shanghai, with India holding the first presidential term. The bank has an initial authorized endowment
of $100 billion.

As a campaigner, Prime Minister Modi said little about what kinds of foreign policies he would
pursue, and the BJP Manifesto devoted only 1 of its 42 pages to foreign policy discussion,
notably vowing a shift toward active alliance-seeking (a web of alliances).
35
Modi has,
however, lauded the pragmatic approach to foreign relations taken by the previous BJP-led
government, which was in power from 1999-2004, and is widely seen as most likely to pursue
economic growth through non-confrontational engagement with Indias neighbors. This
assumption holds even as aides reportedly have promised that an India under Modis leadership
will take a tougher line on territorial disputes with Beijing and rivalry with Islamabad. By inviting
the six other SAARC leaders to attend his inauguration in person, Modi was seen to be
emphasizing Indias relations with its immediate neighbors, including Pakistan.
36

SAARC accounts for all of Indias contiguous neighbors but for China. South Asian regionalism
is poorly developed, having long been hindered by India-Pakistan antagonisms. Yet New Delhis
recent signals that it will prioritize near relations are lauded by independent analysts and could
lead to a more promising environment for economic growth. As a campaigner, Modi singled out
Bangladesh as a source of migrant Muslim infiltrators while being welcoming of its Hindu
refugees. And Bangladeshs long border with Indias West Bengal state gives the Kolkata-
based government an outsized role in India-Bangladesh relations. Likewise, the presence of a
large ethnic Tamil community in the southern Tamil Nadu state causes the Chennai-based
government to monitor the status of the Tamil minority in Sinhala-dominated Sri Lanka.
China has been viewed warily by Indians ever since Beijing launched a brief, but bloody 1962
war that created what is still the worlds longest disputed border.
37
China long has been a major
supporter of Pakistan and is increasing its presence in the Indian Ocean Region in ways that could
constrain Indias regional influence. The Chinese also are irked by the presence of the Dalai Lama
and the Central Tibetan Administration on Indian soil. As an unapologetic nationalist, many
prognosticators see Prime Minister Modi as eager to demonstrate his bona fides vis-a-vis Beijing.
Yet China has also emerged as Indias largest trade partner in recent years. As chief minister,
Modi made four business-oriented trips to China and eagerly developed commercial links
between Gujarat and China. Greater Chinese investment capital (especially in the vital
infrastructure sector), technology, and management skills are welcomed by many in India.
Pakistan for decades has confounded India by fueling a separatist insurgency in Indias Jammu &
Kashmir state, employing Islamist proxy groups that conduct terrorist attacks on Indian soil and
overseas interests, and obstructing New Delhis access to Afghanistan and Central Asia. Prime
Minister Modis leadership, and his status as a Hindu nationalist with a record of hardline rhetoric
toward both Pakistan and Muslims, could increase the risk of greater tensions and even open
conflict with Pakistan, especially if another major terrorist attack in India is traced to Pakistani
soil such as that in 2008 when 163 people were killed in Mumbai, 7 Americans among them.
Some such concerns dissipated when Modi invited the Pakistani prime minister to New Delhi to
witness his swearing-in. And, here again, experts say Modi likely will seek to balance mutual

35
See the BJP election Manifesto at http://www.bjp.org/manifesto2014.
36
The founding members of SAARC are India, Pakistan, Bangladesh, Sri Lanka, Nepal, Maldives, and Bhutan. The
United States holds observer status, as do Australia, Burma, China, the EU, Iran, Japan, Mauritius, and South Korea.
37
To this day, India accuses China of illegitimately occupying nearly 15,000 square miles of Indian territory in
Kashmir (the Aksai Chin region), while China lays claim to 35,000 square miles in the northeastern Indian state of
Arunachal Pradesh.

antagonism with his need to expand the Indian economy, a goal that would only benefit from an
increase in what is now relatively miniscule bilateral trade with Pakistan.
Japan, according to many analysts, may be the country most ripe for rapidly deepened relations
with an India under Narendra Modi, who made two business trips to Japan as Gujarat chief
minister. Modi is said to have a warm personal relationship with Japanese Prime Minister Shinzo
Abe and Japanese companies have made major investments in Gujarat over the past decade.
Abes firm stance on Chinese expansionism and greater emphasis on the role of Japanese military
power may make Japan an increasingly attractive partner for India. Modi plans to visit Japan in
August and describes the two countries as sharing fundamental identity of values, interests and
priorities.
Afghanistan plays a key role in Indias regional policy, and Indian leaders envisage a peaceful
Afghanistan that can serve as a hub for regional trade and energy flows. By many accounts, India
and Pakistan are vigorously jockeying for influence in Afghanistan, and high-visibility Indian
targets have come under attack there, allegedly from Pakistan-based and possibly -supported
militants. Prime Minister Modi likely will seek ways to remain deeply engaged with the next
Kabul government while avoiding any additional conflict with Islamabad over the Indian
presence there.
Israel did not receive formal recognition from India until 1992. Yet bilateral relations have
blossomed in the 21
st
century, with booming trade driven mainly by gemstones and defense
wares. Israel now roughly equals Russia in the value of defense exports to India. Prime Minister
Modi, with reportedly close ties to Israeli business leaders, visited Israel as chief minister. New
Delhi has thus far maintained a studied neutral position on the current conflict in Gaza, and has
joined the United States in calling upon both sides to exercise maximum restraint.
Iran has had long-standing positive relations with India, but frictions have arisen in the 21
st

century as New Delhi has grown closer to Washington. Most recently, India fully cooperated with
U.S.-led sanctions by significantly reducing its importation of Iranian oil, at some cost to its
relationship with Tehran. Yet Iran remains a key source of hydrocarbons to meet Indias growing
energy needs, and New Delhi has continued to develop Irans Chabahar port, in large part to
provide India with access to Central Asian markets bypassing Pakistan. Prime Minister Modis
emerging posture toward Iran could be telling, as he may find himself facing mutually exclusive
choices between cooperating with Iran or cooperating with those countries seeking to isolate the
Islamic theocracy due to its controversial nuclear program.
Hindu Nationalism and Related Policy
Because Hinduism does not have a specific sacred text to which conformity can be demanded,
Hindu fundamentalist is not an apt term to describe a purveyor of Hindutva or Hindu-ness.
Moreover, for parties such as the BJP and its antecedents, Hinduism as a concept almost always is
concurrent with nationalism, the core belief being that India is an inherently Hindu nation, even if
establishment of a strictly Hindu state is not a goal. In this regard, proselytizing religionsIslam
and Christianity, in particularcan be characterized as a threat to the Hindu nation.
38

38
See Christophe Jaffrelot, The Hindu Nationalist Movement in India, Columbia University Press (New York, 1998).

Hindu nationalists have a relatively short, but long-standing list of political goals. Leading
Hindutva and widely-held RSS aspirations include scaling back laws and government programs
designed to benefit the religious minorities, Muslims in particular; establishing a Uniform Civil
Code (to replace current personal law based on religious customs and thus standardizing all
national laws regarding such topics as marriage, divorce, and inheritance); repealing Article 370
of the Constitution, which grants limited autonomy to the Muslim-majority state of Jammu &
Kashmir (a step that, if implemented, would allow citizens from other Indian states to buy
property in J&K); redrafting public school textbooks to remove what are alleged to be insults to
Hindu gods and excessive praise of the subcontinents past Muslim rulers; constructing a Ram
temple on the site of the Babri Mosque that was razed in 1992 (a policy endorsed in the BJPs
2014 Manifesto); and preventing cow slaughter (cows are deeply revered animals in Hinduism).
Issues in U.S.-India Relations
Along with the economic, security, and human rights issues discussed below, the United States
and India engage closely on myriad other global and multilateral issues, including science and
technology; space; healthcare; education; and sustainable growth, energy, and climate change,
among others.
39
India, a non-signatory to the Nuclear Nonproliferation Treaty, maintains a nuclear
arsenal of an estimated 90-110 warheads, and apparently is working to develop that arsenals size
and sophistication. With the signing of the U.S.-India Civil Nuclear Agreement in 2005, and
Congresss 2008 endorsement of that deal, the issue of Indian nuclear weapons has receded from
the top-tier position it previously occupied in the relationship. The Administration currently
supports Indias phased entry into several multilateral arms control organizations.
Economic and Trade Issues
The U.S. government aspires to reach $500 billion in annual bilateral trade with India by 2024, a
more than five-fold increase from the $97 billion total in 2013.
40
According to the lead U.S.
diplomat for the region, the most immediate need in this regard is to complete Bilateral
Investment Treaty (BIT) negotiations to finalize a pact that will help us move past the
choppiness that comes from not having an overarching investment framework (American
foreign direct investment into India topped $28 billion in 2013, and cumulative Indian investment
into the United States grew from under $100 million in 2000 to more than $5 billion in 2012).
The Obama Administration also continues to raise concerns about the lack of investment
diversity and urges India to create a transparent, straightforward way of attracting foreign
investment, offering private capital a way to share in Indias opportunity. This will entail a
setting in which contracts are upheld and honored across jurisdictions, and perhaps most
importantly, intellectual property rights (IPR)based on international normsmust be
recognized.
41

39
These include the Nuclear Suppliers Group, the Missile Technology Control Regime, the Waasenaar Arangement,
the Australia Group. See the July 2014 Joint Statement on this. and an array of other issue-specific documents from
2013 at http://www.state.gov/p/sca/ci/in/strategicdialgue/c58464.htm and from 2014 at http://www.state.gov/secretary/
travel/2014/t20/index.htm.
40
This goal was first voiced by Vice President Joe Biden in Mumbai in July 2013 (see http://www.whitehouse.gov/the-
press-office/2013/07/24/remarks-vice-president-joe-biden-us-india-partnership-bombay-stock-excha).
41
Assistant Secretary for South and Central Asia Affairs Nisha Desai Biswals April, 25, 2014, remarks on The
United States and India: Global Partners in a Global Economy at http://m.state.gov/md225209.htm.

The U.S. Trade Representatives annual Special 301 Report on the Administrations IPR
concerns has listed India every year since its 1989 inception. Currently appearing with nine other
countries on the Priority Watch List, India is singled for its challenging and environment for
IPR protection and enforcement. The 2014 report reviews issues of concern to U.S. and other
stakeholders that include exceptionally high rates of audiovisual piracy, counterfeit
pharmaceuticals, high tariffs on medicines, and a weak IPR legal framework and enforcement
system. It cites an industry studys finding that rights holders lost sales worth nearly $12 billion in
2012. An Out-of-Cycle Review for India, expected to be complete in September, is a tool to
boost engagement with certain trading partners so as to address and remedy U.S. concerns.
42

The Obama Administration continues to maintain that Indiaand its economic connectivity with
neighbors to both its east and westis vital to the prosperity and stability of the entire region. To
facilitate connectivity, the Administration seeks to advance initiatives that better link India with
Central Asia (via a New Silk Road) and with Southeast Asia (via the Indo-Pacific Economic
Corridor).
43
Combined with Modis more strident nationalism, the new Indian government
could, in the view of some analysts, serve to assist the U.S. policy of rebalancing toward Asia.
44

Washington is widely urged to take a pragmatic stance with New Delhi and focus especially on
finding ways to resolve outstanding trade-related disputes, perhaps through a reinvigoration of the
bilateral Trade Policy Forum, which has not met since 2010. Longer-range goals could be
bringing India into wider multilateral trade groupings in the Indo-Pacific region.
45

New Delhi also is eager to import natural gas from the United States. Prime Minister Modiwho
ran a campaign that promised rapid infrastructural improvements, including in the energy
sectorhas emphasized the role of renewable fuels, but Indias soaring demand will require it to
rely on carbon-based fuels for the foreseeable future. Proponents of exporting liquefied natural
gas (LNG) to India argue that doing so would help cement the bilateral partnership while not
subjecting U.S. consumers to significantly higher prices.
46

Security and Defense Issues
The United States views defense cooperation with India in the context of common principles and
shared national interests such as defeating terrorism, preventing weapons proliferation, and
maintaining maritime security and regional stability. Many analysts view increased U.S.-India
security ties as providing an alleged hedge against or counterbalance to growing Chinese
influence in Asia, although both Washington and New Delhi routinely downplay such motives.
India is in the midst of transforming its military into one with global reach, particularly with a
blue-water navy, and the issue of U.S. arms sales to India has taken a much higher profile in the
new century, with India planning to spend up to $100 billion over the next decade to update its
mostly Soviet-era arsenal. No less significant are bilateral military-to-military contacts. Since
2002, the United States and India have held a series of combined exercises involving all military

42
See USTRs 2014 Special 301 Report (released April 2014) at http://www.ustr.gov/about-us/press-office/press-
releases/2014/April/USTR-Releases-Annual-Special-301-Report-on-Intellectual-Property-Rights
43
Assistant Secretary for South and Central Asia Affairs Nisha Desai Biswal, April, 25, 2014, op cit.
44
Neil Joeck, Why Modis Victory Means a New Chance for the U.S. to Make Good on the Asia Pivot, Foreign
Policy (online), May 24, 2014.
45
Alyssa Ayres, The U.S. Needs to Modi-fy Its India Policy, Foreign Policy (online), May 20, 2014.
46
See, for example, LNG Exports by US Will Strengthen Indias Energy Security, Economic Times (New Delhi).
March 11, 2014.

services. Such relations have been a key aspect of U.S.-India relations in recent yearsIndia now
conducts more exercises and personnel exchanges with the United States than with any other
country. Navy-to-navy collaboration appears to be the most robust in terms of exercises and
personnel exchanges. The Pentagon is reported to be eager to expand maritime cooperation with
New Delhis new government.
47

Another key facet of the emerging partnership between the United States and India is greatly
increased intelligence and counterterrorism (CT) cooperation. Despite meaningful progress in this
realm, there appears to be an asymmetry in the willingness of the two governments to move
forward: Washington wants more cooperation from India and is willing to give more in return, but
officials in New Delhi remain hesitant and their aspirations are more modest. Indian wariness is
rooted in lingering distrust of U.S. intentions. New Delhis rancor at reports of U.S. spying on the
BJP is the most recent expression of this.
48
Serious structural impediments to future cooperation
also exist in the view of observers in both countries. Chief among these is the fact that, in India,
state governments are the primary domestic security actors and there is no effective national-level
body with which the U.S. government can engage and coordinate.
While in Asia in May, Secretary of Defense Chuck Hagel emphasized the Administrations view
that India is a key global partner and that the United States welcomes its increasingly active role
in regional institutions. For many observers, reform of Indias defense procurement and
management systemsincluding an opening of Indian firms to more effective co-production and
technology sharing initiativesis key to continued bilateral security cooperation, making high-
level engagement on the Defense Trade and Technology Initiative (DTTI) a priority.
49

Independent proponents of robust U.S.-India defense links have expressed optimism that Modi
may seek and be able to effect further changes in Indias FDI caps and offsets policies that
currently deter international defense firms from engaging in joint projects. Some also urge the
drafting of a revamped formal framework for bilateral defense engagement (the current
document, inked in 2005, expires next year), along with a greater diplomatic push to engage the
Modi government on regional security matters, Afghanistan perhaps leading among them.
50

Human Rights Concerns
Many of Indias citizens suffer from human rights abuses. According to the State Departments
Country Reports on Human Rights Practices for 2013, the most significant of these include
police and security force abuses, including extrajudicial killings, torture, and rape;
widespread corruption at all levels of government, leading to denial of justice; and separatist,
insurgent, and societal violence. ... The law in some states restricts religious conversion, and
there were reports of arrests but no reports of convictions under those laws. ... Rape,
domestic violence, dowry-related deaths, honor killings, sexual harassment, and
discrimination against women remained serious problems. Child abuse and forced and early

47
U.S. Hopes Pacific for Cooperation With India Navy Under Modi, Reuters, May 19, 2014.
48
India Seeks Assurances From U.S. Over Spying Reports, Reuters, July 3, 2014.
49
While in Asia, Secretary Hagel also announced that his Undersecretary for Defense Acquisition, Technology, and
Logistics, Frank Kendall, will lead the U.S. DTTI delegation as successor to Deputy Secretary of Defense Ashton
Carter, who departed the Pentagon in December (see the May 31, 2014, remarks at http://www.defense.gov/Speeches/
Speech.aspx?SpeechID=1857).
50
Vikram Singh and Joshua White, How U.S. Can Reinvigorate India Defense Ties (op-ed), CNN.com (online), June
5, 2014.

marriage were problems. Trafficking in persons, including widespread bonded and forced
labor of children and adults, and sex trafficking of children and adults for prostitution were
serious problems. Caste-based discrimination and violence continued, as did discrimination
against persons with disabilities and indigenous persons. ... Religiously based societal
violence remained a problem.
51

Religious freedom may represent the single most fraught issue-area, one with the potential to
produce serious differences in the bilateral relationship if Modi seeks to move forward with the
emotive, Hindutva initiatives promised in the BJP Manifesto.
52
Domestically, the BJP victory
could empower Hindu nationalists in ways that may lead to increased domestic communal
frictions and violence. Human rights groups reportedly may find their activities constrained under
a Modi government, and they express concerns about Modis commitment to minority rights, his
past willingness to tolerate suppression of free expression, and the vigor with which some of his
supporters have quashed dissent. Experts agree that, when it comes to fears of new communal
violence, Modis actual performance in power is key, and to date he appears to understand that
domestic divisiveness will only serve to hamper his economic and political ambitions. If Indias
economic woes substantively continue into next year and beyond, Modi might choose to revert to
seeking political support through religious politics, as he did earlier in his career.

Author Contact Information
K. Alan Kronstadt
Specialist in South Asian Affairs
[email protected], 7-5415

51
See http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm?year=2013&dlid=220392.
52
See the State Departments International Religious Freedom Report for 2013 at http://www.state.gov/j/drl/rls/irf/
religiousfreedom/index.htm?year=2013&dlid=222329.

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