India-U.S. Relations: A Look back and forward

India-U.S. Relations: A Look back and forward

With a booming capitalist society, a large population, a strategic location and an established democracy, India would be a natural ally in a region of the world where the United States has few. However, only within the past 5 years has a once-chilly relationship between India and the United States really begun to thaw. India was a fickle partner during the United States’ half-century Cold War with the Soviet Union, as it was courted aggressively by both sides (Gujral, 1997). In fact, despite professing non-alignment with either party, India seemed to favor ties with the Soviet Union (Reassessment of Nehru, 2003).

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The United States was frustrated by its inability to win influence in this strategic nation that serves as a jumping point to Asia and the Middle East. Even after the Cold War, the United States’ relationship with India remained rocky over issues such as nuclear proliferation, India’s conflict with Pakistan, and high trade tariffs. However, a new era seems to be dawning in U.S.-Indian relations. Both sides have begun to look past historically divisive issues and to focus on natural synergies between the nations, particularly in the area of economic cooperation. Despite growing economic ties between the nations and increased understanding over India’s nuclear status, significant issues still remain in the development of a solid partnership between India and the United States.

A history of wariness

Although there has been some definite rockiness in the 20th century relationship between India and the United States, it would be inaccurate to label the relationship as overtly adversarial. It would be more appropriate to recognize that many of the frays in the link between India and the United States were caused by U.S. frustration in cases where India aggressively asserted its autonomy. As was discussed, the United States saw India as a must-have partner in its quest to stop the spread of Communism. India had a fledgling democracy, some history of stability that had been enforced by prior British rule, and was an important jumping point between Asia and Africa (Gujral, 1997). For the U.S., India was a perfect place to stop the spread of communism, while, to the Soviets, it was a perfect venue from which to launch communism throughout large swaths of the Third World (Hopkirk, 1995). Soviet revolutionary Vladimir Lenin planned to use India for his plan to “set the East ablaze” (Hopkirk, 1995).

India probably did the best thing for its national security when it professed non-alignment with either party, which was a brainchild of Indian leader Jawaharlal Nehru (Kapila, 2005). India never sided with the Soviet Union, but it did not become part of the American coalition to oppose it either. And, given the “with us or against us” mentality of the Cold War, India’s refusal to openly side with the United States, to the American viewpoint, did not make it an ally. The situation was exacerbated by the fact that India traded heavily with the Soviet Union, and accepted loans and aid from it (Reassessment of Nehru, 2003). Some scholars have argued that, despite professing non-alignment, India’s preference seemed to lean toward the Soviets, who were somewhat successful casting America in the same light as India’s previous colonial masters, Great Britain (Reassessment of Nehru, 2003).

The U.S. may have struggled to make India a Cold War friend, but it had more success building a relationship with Pakistan, a Muslim nation that had been carved out of India in 1947. Pakistan became an important economic and military partner for the United States (particularly during the Soviet occupation of Afghanistan), and America, in turn, seemed to lend some small level of support to Pakistan’s claim over the disputed Kashmir region in Northern India (Bloch, 2001). India and Pakistan were bitter enemies whose relationship is just now starting to heal. India, using the old logic that an enemy’s friend is also your enemy, saw America’s friendship with Pakistan as a major obstruction to better U.S.-Indian ties.

The end of the Cold War, marked by the 1991 disintegration of the Soviet Union, could have been an opportune time for the United States and India to bury the hatchet, but tensions again escalated. Trade between the countries was hindered by high tariffs set by the Indian government to drastically increase the price of foreign goods (Lavin, 2006). Further, India was lax in fighting illegal activities, such as the widespread cultivation of drugs (particularly opium and heroin), copyright and intellectual property piracy, and money laundering (India, 2006).

Arguably, the greatest tension between the U.S. And India was India’s decision to become a nuclear power. India’s first test explosion of a nuclear weapon occurred in 1974 and was condemned by the United States and other nations. Not only had India become a nuclear nation, but it was not a signatory of the international Nonproliferation Treaty, which meant it was not consenting to numerous safeguards to protect its nuclear technology from attack or being spread to rogue nations or organizations (Nuclear Weapons, 2002). This was more than the United States was prepared to accommodate, and it (along with a handful of other nations) slapped India with economic sanctions that lasted from 1998 to 2001, after India detonated a test nuclear weapon (Koppel, 2001). When Indian Prime Minister Manmohan Singh visited the White House in 2005, it was the firs time in five years that an Indian head of state had done so (Bowman, 2005).

Without question, U.S.-India relations in the 20th century have been marked by mistrust and conflict. These two nations, whose friendship would seem inevitable, have often had difficulty finding common ground. In the past 5 years, leaders have been able to work past these issues and, at the very least, establish a vibrant economic relationship and an understanding with regard to India’s military security. However, if the relationship between these two nations is to continue to blossom, there are still economic and security issues that will need to be resolved.

Economic cooperation between the United States and India

In terms of international business, India is arguably one of the most attractive partners in the world today. With over a billion people, it has a sizable consumer base. Further, as a remnant of British colonialism, many educated Indians speak English and it is the common language of business, despite the national language being Hindi (India, 2006). This makes India a potential source of abundant, inexpensive labor without the language barriers other nations present for American businesses.

Naturally, business between the United States and India was hindered somewhat by the bad feelings created by lingering trade sanctions. During the late 1990s, talks began in the Clinton Administration about ending sanctions against India and fully opening the country for American business, and the feat was finally accomplished by George W. Bush in 2001 (Koppel, 2001). In explaining the economic justification for waiving the sanctions, Bush said, “Trade with India is going to be an important part of our growth in the future. India has got a fantastic ability to grow, because her greatest export is intelligence and brain power” (President meets, 2001). While many American companies had already begun outsourcing specific types of work to India, such as call center staffing, IT support and software design, before the sanctions were fully lifted, after the sanctions were waived the levy really broke.

India has become known as the “King of Outsourcing” and the Indian economy has been growing at a rate of 7% to 8% a year, largely fueled by service sector growth (Bokhari, 2004 and India, 2006). Its inexpensive, educated and abundant labor force (India produces 2.5 million English-speaking college graduates a year) has been a godsend and a major cost saver for American companies, and approximately 50% of Fortune 500 companies are currently outsourcing information technology services to India (Fortune 500, 2005 and Bhatnagar, 2005).

The influx of American jobs into India has created a booming middle class with more purchasing power than ever before. In 1985, less than 10% of the Indian population was considered middle class – by the turn of the century that figure had more than doubled, and more than half of India’s population is expected to reach the middle class between 2020 and 2040 (Das, 2001). That would represent more than half a billion potential consumers of American products and services – enough to make any internationally-geared company salivate. In fact, in 2006 the United States sent a historic delegation of hundreds of business leaders to India to investigate outsourcing opportunities and ways to sell products to India’s booming middle class (Lavin, 2006).

But the difficulty American companies face in reaching India’s middle class presents one of the major areas of friction in U.S.-Indian relations. The United States government has called India’s economy “one of the most closed in the world” (India, 2004). India has established double-digit tariffs on a variety of import products, with some tariffs exceeding 30% and with tariffs even on medical products, which makes them cost-prohibitive to some of the poor (Medical device, 2000). High tariffs have contributed to the United States $8 billion-plus trade imbalance with India (India, 2004).

There have been numerous diplomatic and business lobbying efforts over the past several years to further open India’s markets to American goods. And, to a certain degree, those efforts have achieved success. India has reduced tariffs on a number of product categories and has cut its basic ceiling tariff rate from 25% to 20% (India, 2004). However, there were notable exceptions to that cut and India’s average weighted tariff actually increased to 28% in 2004 compared to 21% in 2001 (2006 Index, 2006). In short, tariffs continue to be high in key product categories.

The good news is that India has been receptive to discussions on lowering its tariffs, but India still remains a protectionist economy that is not completely open for business. The government even controls pricing in certain sectors – such as energy and pharmaceuticals – and tries to regulate pricing in others (India, 2004). India’s trade practices remain a sticky issue in U.S.-Indian relations and have closed off the Indian market to some American companies. Although dialogue is ongoing, this is an issue that will need to be addressed.

Security issues

Arguably India’s most pressing security issue is its rivalry with northern neighbor Pakistan, and most of the dispute between the two countries centers around who should control Kashmir in northern India. The dispute over Kashmir – which dates back to even before Pakistan’s founding in 1947 – has led to wars between the two sides and frequent lower-level military conflict and terrorist attacks. Both India and Pakistan have aggressively courted the United States’ support on the Kashmir issue and have been disappointed by America’s near neutrality, even though the United States probably has limited ability to mediate the conflict (Kapila, 2002). Both sides are suspicious about any words or activities from American officials that would seem to indicate the U.S. supporting one side or the other. In this way, the Kashmir issue has had a dominant influence on U.S.-Indian relations.

Needless to say, there was no small amount of paranoia in India when Pakistan became a key American ally after the terrorist attacks of Sept. 11, 2001. In exchange for Pakistan’s support, the U.S. agreed to sell Pakistan military technology, such as F-16 fighter jets – military technology that, if history is any guide, could one day be used on India (India takes, 2005). To appease India, the United States sold it slightly better technology (India takes, 2005). Such is the balancing game that is necessary if the United States hopes to maintain friendships with both India and Pakistan.

Whenever the Kashmir situation escalates, the United States, as the world’s greatest superpower, can not avoid being dragged into it. And it is critical to U.S.-Indian relations that the U.S. not appear to validate Pakistan’s claim to Kashmir, even though Pakistan is a key ally in the war on terror (Mandelbaum, 2002). Fortunately, this political hot potato seems to be cooling for the moment. Both India and Pakistan have been working more closely to peacefully resolve the Kashmir issue, a process that was largely spurred by the 2005 earthquake that devastated parts of Kashmir. The two sides have cooperated on transportation and economic aid issues and, thus far, have not allowed attempts by extremists to undermine the peace process (Musharraf upbeat, 2005). Any resolution of the Kashmir issue – or any moves that keep it on the back burner – will be helpful for U.S.-Indian relations.

The other major security issue in U.S.-Indian relations is India’s possession of nuclear technology and how the U.S. has dealt with it. When India first developed nuclear capabilities in 1974, the basic U.S. position was that India was a rogue nuclear state. India was not – and is not – a signatory to the Non-Proliferation Treaty, which establishes various safeguards in nuclear countries. The fact that India possessed civilian and weaponized nuclear technology and would not sign the non-proliferation agreement led the U.S. To slap India with economic sanctions that lasted from 1998 to 2001 (Gwertzman, 2005).

India, in its defense, maintains that the non-proliferation agreement is financially punitive to developing countries and that it has followed the provisions of the agreement, even without becoming a signatory (India takes, 2005). There is, in fact, evidence that India has been a conscientious nuclear power and the country has not conducted a test nuclear detonation since a global test ban treaty in 1998 (India takes, 2005). During the later years of the Clinton presidency and the early years of the Bush administration, America began to change its view of India as a rogue nuclear state. In fact, Bush was able to push through a Republican Congress in 2005 an agreement that allows U.S. nuclear technology to be sold to India for civilian purposes (Gwertzman, 2005). In supporting the agreement, Pres. George W. Bush stated that India had proven itself a responsible user of nuclear technology, which signified a major policy shift from the previous American insistence that nuclear nations be signatories to the non-proliferation agreement. In addition, the economic sanctions against India that were waived in 2001 allow for more military technology to be sold in India, and this business has become brisk and growing (Gwertzman, 2005).

The issue over India’s nuclear capabilities seems to be evolving into a non-factor in U.S.-India relations. The relationship between India and Pakistan is the greatest risk to U.S.-India ties, as the United States has essentially been playing both sides. If the Kashmir dispute flairs again, America will again be drawn into the middle. Further, if military conflict ever arises again between India and Pakistan, it will not go unnoticed in India when the Pakistani army is dropping American-made bombs from American-made jets. In essence, the United States may proclaim neutrality in such a conflict, but there is plenty to undermine the appearance of that neutrality. Peace between India and Pakistan is simply critical to U.S.-Indian relations.


India and the United States are still in the early stages of what will hopefully be a strong and prosperous friendship. These two nations both have a democratic tradition and are strategically important to each other. However, decades of mistrust and friction have left lingering issues that will need to eventually be resolved if relations are to fully flourish. On the economic side, India has developed protectionist trade practices that have caused a significant trade imbalance in India’s favor. American companies have imported thousands of jobs to India, but the nation’s tariffs keep it closed for business to many American companies who would like to sell to India’s considerable consumer base. As long as India keeps slapping American and other foreign products with punitively high tariffs, there will always be a degree of economic friction between the U.S. And India.

The major security issue between the United States and India will continue to be India’s relationship with Pakistan, which has become a critical U.S. ally in the war on terror. The United States has become a military and economic partner to both nations, and if tensions flair again over Kashmir, a neutral U.S. policy might not be acceptable to either side.

Clearly, there are remaining issues that must be resolved to broaden U.S.-Indian ties, but they are not necessarily any worse than the issues the U.S. faces with a great number of other nations. Important progress has been made by both nations in the past 10 years, and both sides seem interested in continuing the forward momentum.

Works Cited

2006 Index of Economic Freedom” (2006). Retrieved Nov. 29, 2006 from the Web site for The Heritage Foundation at

Bhatnagar, Parija (2005). “Is India’s outsourcing honeymoon over?” CNN, Aug. 24. Retrieved Nov. 27, 2006 from the Web site for CNN at

Bloch, Hannah (2001). “Pakistan seeks peace and credibility.” Retrieved Nov. 28, 2006 from the Web site for CNN at

Bokhari, Ashfak (2004). “Will India remain the ‘king’ of outsourcing?” Dawn, Feb. 9. Retrieved Nov. 28, 2006 from the Web site for Dawn at

Bowman, Michael (2005). “Bush Welcomes Indian Prime Minister to White House.” Bowman Report, July 18. Retrieved Nov. 28, 2006 at

Das, Gurcharan (2001). “India’s Growing Middle Class.” The Globalist, Nov. 5. Retrieved Nov. 28, 2006 from the Web site for The Globalist at

Fortune 500 firms simply love India” (2005). Economic Times, Nov. 5. Retrieved Nov. 29, 2006 from the Web site for Economic Times at

Gujral, I.K. (1997). “Defence and Security in the post-Cold War Scenario.” Retrieved Nov. 28, 2006 from the Web site for the Embassy of India at ( (gujral).htm

Gwertzman, Bernard (2005). “Scheinman: New U.S.-India Agreement Undercuts U.S. Allegiance to Nonproliferation of Nuclear Weapons.” Retrieved Nov. 28, 2006 from the Web site for the Council on Foreign Relations at

Hopkirk, Peter (1995). “Setting the East Ablaze: Lenins Dream of an Empire in Asia.” London: Oxford University Press.

India” (2006). Retrieved Nov. 27, 2006 from the Web site for the CIA World Factbook at

India” (2004). Retrieved Nov. 27, 2006 from the Web site for the Office of the United States Trade Representative at

Kapila, Subhash (2002). “United States Obsession with the Kashmir Issue.” Retrieved Nov. 29, 2006 from the Web site for the South Asia Analysis Group at

Kapila, Subhash (2005). “India’s Non-Alignment Doctrine: A Policy Failure.” Dec. 18. Retrieved Nov. 28, 2006 from the Web site for Boloji at

Koppel, Andrea (2001). “U.S. To consider lifting India sanctions.” CNN, Aug. 13. Retrieved Nov. 29, 2006 from the Web site for CNN at

Lavin, Franklin L. (2006). “Remarks by Franklin L. Lavin, Under Secretary of Commerce for International Trade.” Retrieved Nov. 27, 2006 from the Web site for the U.S. Embassy in India at

Mandelbaum, Michael (2002). “Kashmir – the Perpetual Tinderbox.” Retrieved Nov. 28, 2006 from the Web site for the Council on Foreign Relations at

Medical Device Regulatory Requirements for India” (2000). Retrieved Nov. 28, 2006 from the Web site for the U.S. Department of Commerce at

Nuclear Weapons” (2002). Retrieved Nov. 28 from the Web site for the Federation of American Scientists at

President Meets with Prime Minister of India” (2001). Retrieved Nov. 29, 2006 from the Web site for the U.S. White House at

Reassessment of Nehru” (2003). The Hindu, Sept. 9. Retrieved Nov. 27, 2006 at

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