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Obama's India Problem

Author: Evan A. Feigenbaum
April 9, 2010

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U.S. Treasury Secretary Timothy Geithner this week completed a trip to India, a country taking its place at the top table of the global economy for the first time through its membership in the Group of 20 and the Financial Stability Board. Geithner isn't the first Treasury secretary to pursue broadened coordination with India. But his trip, in the wake of a global financial crisis from which India has emerged stronger and earlier than most other major economies, assumed a special significance. Geithner and Indian officials launched an expanded "Economic and Financial Partnership," aimed at enhancing coordination of macroeconomic policies and increasing financing for infrastructure investment in India.

But Geithner's passage to India--heavy on imagery and symbolism--took place on the heels of a more immediately substantive development: On March 29, the United States and India took a decisive step forward in implementing their historic civil nuclear initiative, completed in 2008. After months of negotiation, they agreed on procedures for India to reprocess U.S.-origin spent nuclear fuel under International Atomic Energy Agency safeguards.

This kind of attention to India is important, not least because skeptics in both countries have argued that the U.S.-India relationship is drifting. Count me among the skeptics.

A Rift Over AfPak Policy

Disagreements loom, particularly on the Obama administration's Afghanistan-Pakistan policy. Indeed, it would be difficult to overstate just how skeptical many in India's strategic elite are of the administration's approach. In New Delhi, Pakistan's role as a central go-between in efforts to promote reconciliation with elements of the Taliban is widely seen as a fool's errand. Many believe the administration's effort will fail. And they believe--deeply--that India will be left holding the bag once U.S. forces begin to withdraw in 2011.

There are other potentially divisive strategic issues, too: policies toward China, the Obama administration's arms control objectives, climate change priorities, and U.S. restrictions on high-technology cooperation.

The administration is unlikely to overcome this Indian skepticism anytime soon, at least on its approach to Afghanistan and Pakistan. It has committed and recommitted to its "AfPak" strategy. Thus achievements like the reprocessing agreement will be critical if the administration seeks to buttress other parts of the U.S.-India relationship.

In New Delhi, Pakistan's role as a central go-between in efforts to promote reconciliation with elements of the Taliban is widely seen as a fool's errand. Many believe the administration's effort will fail.

More than a decade of rapid economic growth has given India the capacity to act on issues of primary strategic and economic concern to the United States, including nonproliferation, climate change, and efforts to return the international economy to a path of sustained and balanced growth. The United States has developed a growing stake in a confident and reforming India--one that contributes to global growth, promotes market-based economic policies, helps maintain the global commons, and works to assure a mutually favorable balance of power in Asia.

Trade and Investment Roadblocks

Yet in both Washington and New Delhi, much has stalled out. In the United States, plans for a Bilateral Investment Treaty have slowed because the question of whether and how to do such treaties remains trapped in an interminable policy review. Meanwhile, India has completed free trade agreements with South Korea and the Association of Southeast Asian Nations and is on track to complete one with Japan.

Likewise with the liberalization of controls on high-tech exports to India. It, too, is stalled in a wider policy reassessment. And this is an important issue because, while most technology flows freely, even corporate India, not just the Indian government, complains that some of the remaining U.S. controls--especially in the nuclear and space sectors--combine with cumbersome licensing requirements to stifle trade and treat India like a pariah.

In India, meanwhile, another crucial component of the civil nuclear deal--a nuclear liability bill--has become mired in political controversy amid charges that its sole purpose is to satisfy U.S. companies. The bill is important to General Electric and Westinghouse. But it is also necessary if India is to accede to the global nuclear liability regime, including an international "insurance pool" for compensation in case of a nuclear accident, as India has long planned. Agreements on defense logistics and communications have been under discussion for years. Yet they, too, appear to be going nowhere in India, largely because of domestic politics.

With President Obama heading to New Delhi later this year, the administration needs to get more assertive, and soon. It cannot alter the political constraints in India. But at minimum, it can start smashing through the annoying bureaucratic logjams that have hamstrung cooperation from the U.S. end. And it could pursue some innovative avenues to broaden U.S.-India cooperation.

Obama's Challenge in Three Parts

One way to think about Obama's challenge is to divide potential achievements into three baskets: "low-hanging" fruit, more challenging initiatives, and long-term aspirations.

[The Obama administration] cannot alter the political constraints in India. But at minimum, it can start smashing through the annoying bureaucratic logjams that have hamstrung cooperation from the U.S. end.

The reprocessing agreement is an example of low-hanging fruit--agreements that have been under discussion for years, or are in active negotiation. Other examples include the two defense agreements, an accord on commercial space launches, and especially the liberalization of U.S. export controls. None of these will be easy to complete, but the administration's first challenge is to get at least some of them finished for Obama's trip.

Then there are the more challenging areas. These initiatives could take years to complete, so if the administration doesn't get started now, it may have little to show for its India policy three years hence. One example is the Bilateral Investment Treaty. Others include cooperation on cybersecurity, maritime security, and enhanced coordination in East Asia, the Persian Gulf, or Africa, where the U.S. and India have common interests but lack complementary policies.

Finally, there are the aspirational elements of a more global partnership. It is worth comparing the joint statements Obama adopted last year with China's president Hu Jintao and India's prime minister Manmohan Singh. The U.S.-China statement reached much higher and further in defining the global and regional dimensions of bilateral cooperation.

The administration needs to ramp up its relationship with India now. After all, even if Obama does everything right--and many Indians believe he has gone badly wrong in Afghanistan and with Pakistan--there will still be constraints on the U.S.-India relationship. India has moved beyond nonalignment, to be sure, but it has yet to coalesce around a new foreign policy vision. And although New Delhi may ultimately settle on a strategy that is conducive to a more open and global partnership with the United States, that is not assured.

The United States and India can do much better.

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