The Ties That Bind Delhi And Washington; Diplomats are starting to build on the two countries' strong business relations

BusinessWeek
Tuesday, March 15, 2005

The Ties That Bind Delhi And Washington; Diplomats are starting to build on the two countries' strong business relations

By Manjeet Kripalani in Bombay, with Stan Crock in Washington

As U.S. corporations rush to outsource everything from call centers to financial analysis to Bangalore or Bombay, business ties between India and the U.S. have never been stronger. The U.S. is India's largest trading partner, and two-way trade grew 17% last year, to $21 billion. Politically, though, New Delhi and Washington haven't been quite as cozy. Although the two countries set aside their differences of the Cold War-era -- when India typically sided with the Soviet Union -- during the Clinton Administration, the Bush White House hasn't exploited the thaw, and there's a lingering sense of mistrust in the two capitals.

Now Washington seems poised to bring its political relations up to the same level as the commercial ties. On Mar. 16, Condoleezza Rice will make New Delhi the initial stop on her first trip to Asia as U.S. Secretary of State. On the agenda will be stronger defense ties, expanded commercial cooperation, and a possible India visit by President George W. Bush. Rice will be followed in April by Transportation Secretary Norman Y. Mineta, who will sign an "open skies" agreement allowing Indian and U.S. airlines free access to each others' markets. "As India increasingly fills a global leadership role, we must build a strong bilateral partnership," Deputy Assistant Secretary of State Donald Camp told Congress on Mar. 2. Says Brahma Chellaney, a security analyst at the Centre for Policy Research in New Delhi: "India is ready for an equal strategic relationship."

Driving the rapprochement is concern over two regional rivals. China and Iran. Chinese Premier Wen Jiabao is expected in New Delhi in April to discuss commercial links and resolve border disputes. But analysts say Washington is eager to use India to create a counterbalance to China's growing strength in Asia. And the U.S. would like to keep India from getting too close to Iran, which has agreed to provide gas via a pipeline that would traverse Pakistan. "It's classic balance-of-power politics on a grand scale, containing China, containing Iran," says South Asia expert Stephen P. Cohen of the Brookings Institution, a Washington think tank.

THORNY ISSUES
Another motivating factor is arms sales. Washington makes it hard for U.S. companies to sell advanced weapons to India, which has budgeted $7.8 billion for defense purchases this year. U.S. companies would like a piece of that action, but India usually buys from Russia, France, and Israel. In recent months, Lockheed Martin Corp. (LMT ) has met Indian officials, seeking to sell planes such as its C130J cargo haulers and F16 fighter jets. At the biennial Bangalore defense exhibition in February, U.S. companies including Lockheed, United Technologies (UTX ), and Northrop Grumman (NOC ), rented 10,800 square feet of display space -- the second-biggest national representation (after Russia), and triple what they had at the last show in 2003.

Some thorny issues remain. When it comes to Iran and China, India's views "may not be the same as ours," Cohen says. India wants cordial ties with both countries, which loom large as commercial partners. The U.S. wants India to recognize Washington's security interests in Pakistan, which has backed the U.S. in its fight against terrorists in Afghanistan. India, though, has been at odds with Pakistan for more than five decades over Kashmir -- the Himalayan state on their border -- and bristles at the military and economic aid that the U.S. has showered on Pakistan. Just as important, New Delhi resents Washington for not backing its bid for a seat on the U.N. Security Council. "India isn't there yet," says a U.S. State Dept. official.

Nonetheless, Rice is likely to get a warm hearing from New Delhi. Indian policymakers note that as National Security Adviser, Rice initiated the "Next Step in Strategic Partnership," bilateral pact for sharing technology and civilian nuclear and space activities. "She has shown an ability to think differently," says an Indian Foreign Ministry official. If she can continue to impress the Indians, expect the ice to keep melting.