The Heritage Foundation

Backgrounder on Asia

July 27, 1982

July 27, 1982 | Backgrounder on Asia

India and the U.S.

(Archived document, may contain errors)

199 I July 27, 1982 INDIA AND THE US INTRODUCTION Indira Gandhi begins a nine-day state visit to the United This will be her second meeting with Ronald States this week.

Reagan (they met only briefly at the Cancun economic summit last year) and a time for an extensive review of U.S.-Indian rela tions In recent months, India has toned down its strident Third World rhetoric, made some genuine economic progress and even indicated some reservation about the value of its close relations with the Soviet Union.

Americans have grown greatly disenchanted with "the world's largest democracy Aside from maintaining a democracy, which Indira Gandhi once threatened to destroy, few activities of the Indian government in foreign or domestic policy have earned the respect of the American people. While India has r eceived more foreign aid from the United States than has any country in the world, New Delhi consistently has criticized the U.S. for insuffi cient assistance and demanded, as a matter of alleged right massive transfers of wealth from the developed nation s of the North to the developing countries of the South in constructing a New International Economic Order. While borrowing substantial amounts of money from capitalist countries and institutions including a recent record 5.7 billion from the International Monetary Fund, -India consistently has denounced the capitalist system and squandered money on its own form of state socialism Over a period of many years, however I While criticizing the arms race among the superpowers and excoriating excessive defense s p ending compared to foreign aid in the West, India has built the fourth largest army in the world and has engaged in a major buildup of weaponry, mostly purchased from the Soviet Union. While denouncing American efforts to bolster the security of Pakistan a s a threat to India, New Delhi has said little and done less to thwart either Soviet imperialism 2 in Afghanistan or Vietnamese imperialism in Indochina. Finally while denouncing nuclear arms, India has exploded its own atomic bomb and still refuses to si gn the Nuclear Non-Proliferation Treaty.

India traditionally has played a prominent role in world politics, but it has become evident in the U.S. that, in the future, simply being "prominent'l will not guarantee American financial or other support for a country such as"1ndia.

Only through more concerted actions demonstrating devotion to effective econ0mi.c development, genuine non-alignment, and criticism of aggression will India win a receptive audience in the U.S. Otherwise, American aid and security ass istance in Asia, as elsewhere, should increasingly be diverted to countries that share American security concerns and demonstrate a willingness to allow the kind of economic freedom that stimulates development AFGHANISTAN AND INDIAN FOREIGN POLICY Since D e cember 1979, when the Soviets invaded Afghanistan the United States has focused increased attention on security problems on the subcontinent. With Soviet aggression in Afghani stan threatening the territorial integrity of Pakistan, the Reagan Administrati o n has supported a substantial increase of security assistance to the government of Pakistan's President Zia. The Soviet actions and U.S. reactions conspicuously revealed the peculiar orientation of Indian foreign policy which denounced U.S. assistance to Pakistan more vigorously than MOSCOW~S aggres sion in Afghanistan.

Although there is much speculation that the Indian government is concerned about the Soviet occupation of Afghanistan, India's representative to the U.N. emergency session of the General As sembly, Mr B.C Mishra, abstained on a resolution calling for the removal of foreign troops in Afghanistan. He said, at that time We are against the presence of foreign troops and bases in any country. However, the Soviet Government has assured our Governm e nt that its troops went to Afghani stan at the request of the Afghan Government...and we have been further assured that the Soviet troops will be withdrawn when requested to do so by the Afghan Government. We have no reason to doubt such assurances partic u larly from a friendly country like the Soviet Union, with.which we have many close ties 1 B. C. Mishra, General Assembly, Sixth Emergency Special Assembly, Plenary Meetings of the United Nations, January 10-14, 1980, p. 34. 3 The resolution passed by an o v erwhelming vote tive votes and abstentions came from the Soviet bloc. Indira Gandhi since has made vague statements calling for the withdrawal of all forces from Afghanistan, although not on the scale of India's denunciations of the U.S. involvement in Vi e tnam during the 1960s Almost all nega This May, President Chaldi Bendjedid of Algeria visited India characterizes much of India's stand on issues of foreign policy It called for the strengthening of collective autonomy between developing countries, Ita zo n e of peace" in the Indian Ocean which included a criticism of the American naval facilities on Diego Garcia, support for the terroristic Palestine Liberation Organiza tion and the South-West African People's Organization SWAPO criticism of the unwillingne s s of the industrial nations to implement the so-called New International Economic Order, and a call for the U.S. and the USSR to resume the process of detente.2 Noticeably missing was any reference to the Soviet invasion of Afghanistan or explicit mention of the Soviet naval buildup in the Indian Ocean The joint communiquC issued at the end or his visit THE SOVIET CONNECTION For the last two decades, India has been considered MOSCOW'S largest and closest ally in the noncommunist world. India has formally r e cognized the Vietnamese surrogates in Kampuchea when most of the noncommunist world has refused to do so. Soviet Foreign Minister Andrei Gromyko has characterized the importance of Indo-Soviet relations by saying Against the background of flare-ups of ten s ion and conflict situations in different parts of Asia, one should single out such an important factor for stability and peace as the Soviet Union's relations with the great country of India.3 India has benefited from vast amounts of Soviet military aid, diplomatic support, and some developmental assistance, and today the Soviet Union is India's largest trade partner. In May 1980, India and the USSR concluded a 1.6 billion arms deal estimated to be worth $3 to $4 billion in real market values.

The loan is repayable in seventeen years at only 2.5 percent interest annually-striking in comparison to French offers to finance arms purchase agreements at 14 percent. This latest arms purchase agreement typifies the longstanding military relationship between India and the Soviet Union Foreign Broadcast Information Service, Daily Report: South Asia, May 6 1982, Vol. 8, NO. 88, p. E2-3 India Wooed," Soviet World Outlook, March 15, 1980. 3 I 4 With the breakdown of Sino-Indian relations in 1959 that culminated in the S ino-Indian border war of 1962, the Soviet and Indian governments began negotiations for transfers of high technology warplanes It was not until 1964, however, that negotiations were concluded with an agreement that provided .India with 38 Mig-21s been the largest arms supplier to India. While India has purchased high technology weapons from others, such as France and Great Britain, the terms of payment as well as the quantity provided have dictated Indian preference for the Soviet Union It has been argued t hat, with the Western arms embargo placed on the subcontinent after the Indo-Pakistan War of 1965 it was 'Ibasically the nonavailability of Western arms that led to India's shift towards the Soviet Union If Since the 1964 agreement, the Soviet Union has B e sides the massive purchases from the Soviet Union, India has ordered Jaguar interceptor aircraft from Britain, the Mirage 2000 from France, and two Howaldstwerke submarines from West Germany. According to the International Institute for Strategic Studies p ublication The Military Balance, India has an army of more than 1,000,000 men, more than 1,000 main battle tanks (with an additional 1,000 light tanks) and more than 600 combat aircraft making India indisputably the most powerful military power in the Ind i an Ocean region.5 (See Table 1 for selected figures on Indian and Pakistani military hardware It should be noted, however, that in the past several months India has indicated some reassessment of her relations with Moscow. On a recent visit, Soviet Defens e Minister Ustinov met with a cool reception from the Indian government. While the Soviets celebrated the recent ten-year anniversary of the Treaty of Friendship and Cooperation between the USSR and India in Moscow, there were no such festivities in New De l hi, official or unofficial. Many "India watchers see these as examples of India's attempt to distance itself from the Soviet Union. Others view India's actions more as a calculated move to maintain Western assistance. 'Indeed, Indira Gandhi recently conte n ded that Ifwe don't think one friendship (with the Soviets) should exclude another (with the U.S.).If INDIA'S STRATEGIC POSITION IN SOUTH ASIA A point of continuing friction between the United States and India is the increase of U.S. military aid to Pakis tan after the Soviet invasion of Afghanistan. The Indian government contends that this aid, particularly the forty F-16 aircraft still to be P. R. Chari, "Indo-Soviet Military Cooperation: A Review," Asian Survey March 1979 p. 234.

International Institute for Strategic Studies, The Military Balance 1981-1982 pp. 79-80. 5 delivered to Pakistan, eventually will be used against India.

New Delhi contends, moreover, that it is unlikely that Pakistan will use the planes against Soviet forces.

When asked in an interview about the $3.2 billion military and economic aid program the Reagan Administration has promised Pakistan, Prime Minister Gandhi stated "we are against the collec tion of highly sophisticated arms in the This was incongruous in l i ght of the sophisticated Soviet aircraft which the Indian- government has bought and ordered. In fact, with Soviet help, India is now producing Mig aircraft. It is question able that U.S. sales to Pakistan will pose any real threat to India. It should be noted that recently Pakistan offered, and India accepted, a conference on negotiating a nonaggression treaty.

In assessing the military superiority of India over Pakistan Anthony Cordesman characterized the sales of U.S. arms to Pakistan by stating that: t he U.S. is responding to a massive Soviet effort and is acting to stabilize a situation that the U.S.S.R is doing its very best to destabilize and exploit It would be very nice if.this weren't the case, if any of India's constant moral posturing were just ified and if we only had to sell arms to polite little demo cracies like Austria and Switzerland In the case of the Indian Ocean area, reality means acting to check a vast Soviet effort and counterbalance an increasingly imperial India.

With hostile Iran t o its West, longtime adversary India to its East, and Soviet occupied Afghanistan to its North, Pakistan will not, even with the F-16s, pose a serious threat to India. Indeed despite the posturing as an innocent, endangered state, India is a nuclear power .

It exploded its first atomic device in 1974 under the leadership of Indira Gandhi. India's atomic program began in the early 1950s with assistance from the United States under the Atoms for Peace program. It was not until 1964, after the People's Republi c of China (PRC) exploded.its first nuclear device, that India began a program for nuclear explosives capabil ity. India now has four nuclear generating plants and one experi mental breeder reactor. The Indian nuclear weapons delivery capability is unknow n . In 1978, the U.S. Congress outlawed 6 "Behind the Nagging Feud With India U.S. News and World Report, December 21, 1981, p 34. Anthony H. Cordesman, "This Time Can We Begin With a Few Facts Armed Forces Journal International, December 1981, p. 27 6 0 0 0 0 U hl 0 ow 001 9 ab maJ om n L2 ma3 UUO 0 *rl a mrl d rl m t:E N rl U m 0 0 U m hl I N d L 0 0 hl In n U w aJ E OaQ Ooln mrl dvz wcu wos 0 'd a aJ 9) aJa b&U 110 MM 2 Urn c *d 3a oc UH ail C a Cg 7 atomic fuel shipments to countries--such as India--that have not signed the Non-Proliferation Treaty Table 1 contrasts economic and military strengths of states in the Indian Ocean region. In general, most of the equipment possessed by the People's Republic of China is of 1950s' vintage as is the limited equip m ent in Bangladesh. Most of the high technology equipment of India and Pakistan is that of the 1970s In terms of a possible military threat to India, it is estimated that the PRC has deployed nine regular infantry divisions in the Chendu Military Region on the Sino-Indian border totaling some 80 to 90 thousand troops, not including local militia.

Pakistan is significantly out-manned and out-gunned by India.

Bangladesh, the only other sizable country on India's borders, is deficient in terms of manpower and very weak in terms of military equipment. The Indian government each year justifies its multi billion dollar defense budget by stressing the need for moderniza tion of its forces for self-defense. The question is: Defense against whom I I I The Indian go vernment states that it is threatened by poten tial Chinese or Pakistani aggression, perhaps simultaneously. I Recent history has witnessed an Indian border conflict with China 1962) and three wars with Pakistan (1948-49, 1965, and 1971).

The governments o f the PRC and India held negotiations earlier this year to settle the 1962 border dispute. Only a small number overwhelming concern is with the threat posed by the Soviet Union, on whose border are stationed 69 regular divisions, or an estimated 1.5 milli o n men, including local reserve forces of PRC troops are deployed in the Chendu Military Region. Peking's I Pakistan is not in a military or geopolitical position to seriously threaten India. The Indo-Pakistani conflicts have not been exclusively the resul t of Pakistani aggression. For example in the 1971 conflict, it was generally agreed that the Indian government made a decision to back, by direct military interven tion, the secessionist movement in Bangladesh in order to split Pakistan in two, thereby re ducing its potential threat to India.

Overall, India appears to be less threatened by external powers than at any time since its independence. At the same time, however, India is undergoing massive military modernization and expansion. The Indian governmen t may wish to maintain its current security posture, but any reasonable threat assessment indicates that India's strategic situation does not warrant the amount of resources being expended on the military, particularly at a time when these resources could be allocated to vital domestic economic needs For a discussion of U.S. policy towards India on atomic and related policy matters see: Walter Andersen's chapter titled "Policy Toward India and the Indian Ocean" in Asia and U.S. Foreign Policy by James C.

H siung and Windberg Chai (New York: Praeger, 1981), pp. 191-208. 8 INDIAN ECONOMY The Indian economy has made great strides since gaining independence thirty-four years ago. Yet it has not grown as rapidly as have other noncommunist countries in Asia. Indi a 's average GNP growth rate was 3.1 percent, significantly less than the rate of growth of Indonesia at 7.5 percent, South Korea 8.7 percent, Malaysia 8.0 percent, Thailand 7.0 percent, and Sri Lanka 6.9 percent. Clearly, the economic policies of India hav e not enjoyed the same success as those of other nations in the region faced with similar economic challenges.1 The Indian economy faces formidable challenges It must sustain an enormous and still growing population of around 670 million people, whose year ly incomes average $240, making it the fifteenth poorest nation on earth.

As many developing countries have discovered, there is a reciprocal relationship between rising per capita income, with its concommitant increase in the level of education and health services, and decelerating popula tion growth. The fundamental question is whether India's economy will be able to provide the kind of growth that will produce those rising incomes.

Perhaps the brightest spot in India's economy in recent years is agricul ture dence, increases *in agricultural production were largely due to increases in the amount of land being cultivated. Since the mid-l960s, however, they have come to be attributable primarily to a rise in productivity, made possible by what is known as t he green revolution"-=the introduction of new technology in the form of superior seeds, fertilizer, irrigation, and pesticides thereby increasing crop yields and reducing the amount of time between sowing and reaping In the years immediately following ind epen While agriculture has been a bright spot, industry has not.

Admittedly, India has the tenth largest industrial economy in the world, and it is true that from independence in 1947 until about 1965, the industrial growth rate increased steadily, averaging 9 percent from 1960 to 19

65. But since then, the average annual growth has remained at only about 4 percent, or considerably below many other noncommunist countries in Asia. This helps to explain why India is the only country in the world where the pr oportion of the population living in the countryside (about 75 percent) has not dropped in the last twenty years. Inducements to migrate to the city have existed, but industrial jobs have not. In spite of this, cities and towns have been growing and will c ontinue to'grow. The government estimates that, by the end of the century, the number of cities with populations of 100,000 or more will have increased from the present 185 to 300; New lo Figures from the Far Eastern Economic Review, Asia Yearbook 1982, p p. 8-9. 9 Delhils population will rise to nine million and Bombay and Calcutta will have eleven million each. Industry will have to provide jobs for this growing urban population.

The reasons for Ind ia's slowdown are many. Industrial policy figures prominently It was decided from the beginning that domestic production should satisfy as much of the domestic demand as possible, in spite of the fact that the home market was poor and apt to grow slowly I n addition, investment was concen trated in capital intensive rather than labor intensive industries which would seem, on the face of it, to make no sense in a very populous country. There has also been an emphasis on nationalized industries and a xenophob ic discouragement of imports and foreign investment.

India has long been known for its tremendous bureaucracy.

Part of this may be attributable to a certain zest the Indians have for it, but much of it arises from central planning, a practice the current government is beginning to pull away from.

But the vagaries of Indian planning have led to problems. For example, new capital investment is referred to as "plan outlay1 and treated as sacrosanct, whereas spending for maintenance is not considered part of the plan and may suffer accordingly.

On the microeconomic level, government regulation becomes even more pernicious. Industrial capacity is determined by what planners estimate the demand will be. Expansion requires a license from the government. In addit ion companies with assets of 25 million or more are subject to special controls and find it especially difficult to get permission to expand. This is intended to prevent large companies from abusing their size and stifling competition, but, since the amou nt of capacity is limited and most of that already allocated it is difficult for any new company to acquire enough to get started.

Nevertheless, in the past four years, there have been encour aging signs. Import controls have been relaxed somewhat, and res trictions on foreign investment also have been eased. All companies, even the large ones, are being allowed to expand capacity by 5 percent a year for five years that Sri Lanka, in an effort to revitalize its own beleaguered economy, tripled its real grow t h rate after easing economic control from 1977 to 1980 It should be noted A great many Indians have a vested interest in keeping the status quo. The bureaucrats who control the economy are in an excellent position to extort bribes like to see India's heav i ly protected home market opened up to foreign competition. Moreover, they have derived considerable benefit from the black market economy, estimated to be anywhere Many businessmen would not from 20 to $60 billion per year exorbitant taxes have inenvitabl y to-which excessive controls and given rise.ll Trading on the l1 Rajiv Desai India's Economy: New 1982 Confidence Chicago Tribune, July 3 I I 10 black market goes unreported and untaxed and helps make up for much of the unprofitability of the legal econom y government must make a more conscientious effort to stifle bureau cratic inefficiency, make the marketplace freer, and encourage foreign investments If industry .is to grow and the economy to expand, the Indian ECONOMIC AID I agencies, both public and pr ivate, from many developed nations on a bilateral basis, and from international organizations. The World Bank recently announced that--as in the past--India continued to be their biggest borrower, followed by Indonesia and Brazil.

India regularly receives about 40 percent of all the so-called soft loans of the World Bank through the International Development Bank. From the U.S. alone, India has received loans and grants from 1946 to 1980 totalling $10.12 billion, of which $4.5 billion has been repaid In co n trast, India has received only $3.54 billion in all forms of assistance from the Soviet Union and Eastern Europe between 1954 and 1980 India currently receives foreign aid from a plethora of As proposed by the U.S. Agency for International Development for fiscal year 1983, India will receive $218.5 million in humani tarian aid and developmental assistance. The total bilateral aid to India from developed countries for'1980.was $967.7 million this does not include $1.49 billion from multilateral development agencies. For the same year, the Soviet Union assisted India with $800 million in loans and grants, primarily used to purchase Soviet equipment and goods.

AID has shifted its emphasis over the last five years from resource intensive aid to technology inten sive aid, which depends far more on follow-up by the Indian government with Indian private enterprise. In the AID Fy 1983 report to Congress, U.S. objectives in the region were characterized as follows U.S. interests in India are in its position as the ec o nomic'and political force in South Asia and a major spokesman on North-South issues. India can play a major role in determining the effectiveness of U.S policies in the region, particularly in Pakistan. The United States, as India's major non-petroleum tr a ding partner and second largest foreign private investor 500 million in 19811 has substantial interests in a growing Indian economy, already the world's tenth largest 12 l2 AID Congressional Presentation, N 1983, Annex 11, p. 47. 11 I U.S India should als o continue to reassess its close relations with the Soviet Union. Prime Minister Gandhi apparently hopes to downplay her relations with the Soviets during her visit to Washington, but she will balance this visit in September by going to Moscow. India may c o ntend that its "alliance" with the Soviet Union is a matter of convenience, based largely on the common .mistrust of the People's Republic of China. However, any realistic i Earlier this year, the International Monetary Fund approved a 5.7 billion loan es t imated at 5.68 billion, a 20 percent increase over last year, it might be argued that the IMF loan, which is not slated for any specific program but will go directly to the Indian government as a general loan, is indirectly funding the Indian defense esta b lish- ment Because India's 1981-82 defense budget is I I CONCLUSION In discussions with Indian officials, the United States should indicate clearly that in the future Washington will no longer be willing to unquestioningly underwrite the Indian economy an d ignore the foreign and defense policies of the Indian govern ment In the past, U.S. officials did not sufficiently monitor Indian policies, but instead appeared to support substantial economic assistance simply on the basis of widespread poverty in the c o untry. With relatively scarce resources available for international assistance programs, the Reagan Administration needs to very carefully examine the character of the economic program of nations receiving U.S. aid. At a time when the U.S. is reducing the role of government-in the U.S. economy to stimulate economic growth, it would be singularly incongruous to provide financial support for governments that continue to subscribe to the belief that government spending can lead to economic develop ment. I 12 g enuinely non-aligned position purchases from Western European countries, India still purchases the bulk of its military equipment from the Soviets. India must indicate a far more extensive de-coupling of its security relations with the Soviets before the U .S. should consider selling any military equipment (such as the F5G) to India. Overall, the vast Indian military buildup must be viewed with alarm as long as that nationls foreign policy is based on hostility to. Pakistan and benign acceptance of Soviet a nd Vietnamese imperialism in Asia.

Indian silence on the worst examples of foreign aggression in the post-World War I1 period must end; otherwise, the U.S. cannot take seriously India's alleged commitment to democracy and self determination Despite some re cent military Shortly before departing to the U.S., Indira Gandhi percep tively raised the fundamental problem India has in dealing with the U.S. as she noted that "There is a feeling here [in India that they [the Americans] are not really bothered about India."

Until India makes more significant changes in its foreign and domestic policies, Americans have few compelling reasons to be bothered about" the problems of India, particularly if such concerns must be manifested in increased U.S. aid. Only if frie ndly rhetoric from Indira Gandhi during her visit to the U.S is supplemented by the kind of positive actions outlined in this paper can the U.S. be expected to improve relations wth India.

Paul Olkhovsky Research Assistant

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