INTELLIGENCE REPORT -- INDIA: SEEKING IMPROVED RELATIONS WITH SOUTH ASIAN NEIGH

Created: 3/25/1997

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Iiilcllijicnce Report^

of Near Eastern and South Asian Analysis

India: Seeking Improved Relations With South Asian Neighbors

friendlier relations with India's South Asian neighborsornerstone of the United Front government's foreign policy. India in recent months has modestly bolstered cooperation with its neighbors on several fronts and Is moving to resolve contentious Issues that have soured relations in the past ^|

New Delhi sees improved regional relations as essential to achieving recognitionlobal power, its key foreign policy goal Recent setbacks in the international arena-such as India's failure toonpermanent seat in the UN Security Council-have led officials in New Delhi to conclude that friendlier relations with its neighbors are necessary to improve India's image and to secure increased support for its positions in international forums. Indian leaders also anticipate that closer regional ties will pay important economic dividends and reduce some of its security concerns. |

Nonetheless, progress on regional cooperation probably will be slowed by lingering animosities and suspicions, domestic political problems in some South Asian countries, and other political and economic constraints. Moreover, the initiative toward better relations is primarily the creation of Foreign Minister Gujral and could be easily reversedew administration in New Delhi. |

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India: Seeking Improved Relations With South Asian Neighbors

A Commitment to Closer Regional Tics: The Gujral Doctrine

India's United Front government has accorded the highest priority to improving relations with its South Asian neighbors since it came to power last June. Under the Stewardship of Foreign Minister Gujral, New Delhi has taken unprecedented initiatives toew chapter in its regional relations-dubbed the Gujral Doctrine by the Indian press-which often have been strained by disputes over territory', water sharing, trade barriers, security issues, and the perception that India seeks to dominate its smaller neighbors politically and economically. In addition. New Delhi hasore positive tone in its rhetoric toward its neighbors, stepped up diplomatic exchanges with them, andodest start at expanding regional cooperation and ironing out bilateral problems:

Gujral has told reporters that, as the largest country in the region. India must do more for its neighbors than it can expect in return, and it would no longer insistuid pro quo.

New Delhi, for example, has made progress with Bangladesh on several issues without requiring that Dhaka agree to grant India transit rights througholitically sensitive issue for Dhaka. India also has made unilateral concessions to Nepal in recent months.

Bangladeshi and Ncpalese officials have told US counterparts that New Delhi's more flexible stance has convinced them it is serious about establishing belter regionalI11

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The GujraJ Doctrine, as described by India's Foreign Minister, asserts India will take the lead in helping the South Asian nations of SAARC forge closer relations. The five basic tenets of the doctrine are:

Asymmetry; India will not insist on reciprocity in actions with its neighbors.

Nonuse of the territory of any South Asian country for activities aimed at destabilizing any other country in the region.

Noninterference in the internal affairs of neighboring countries.

Respect for the territorial integrity and sovereignty of South Asian states

Efforts lo expand economic cooperation are the most tangible sign of the United Front's good neighbor policy. Foreign Minister Gujral has stated that New Delhi views economic cooperationornerstone of its regional diplomacy. New Delhi appears to be working on several fronts to strengthen trade and other economic cooperation with its neighbors and to resolve contentious economic issues that have strained relations:

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recent months New Delhi has conducted talks with Bangladesh a; the ministerial and secretarial levels aimed at reducing barriers to trace andew water sharing agreement for the Gangesof the most sensitive issues in their relations. According to press reports, the two sides reached agreementorder trade accord, and New Delhi agreed to modest trade concessions to help redress the imbalance in bilateral trade. India ran0 nullum trade surplus with Bangladeshccording to IMF statistics. The two countries in Decemberyear water agreement for sharing Ganges River waters that providesuaranteed minunum flow to Bangladesh during the dry season. New Delhi and Dhaka recently hel3 expluraJory lalki o" electricity by India to Bangladesh.

The United Front government reached agreement with Nepalew trade agreement that grants Nepalcse imports expanded preferential access to the Indian marker, according toreports. New Delhi also agreed in principle to an overiancitransiiroute for Nepal through India to Chittagong Port in Bangladesh to facilitate Nepal's foreign trade. India and Nepal recentlyreaty for joint development of the Mahakali River that was negotiated under the previous Congress Party acbrurjistration. according to press reports.

During his visit to Sri Lanka in January, Foreign Minister Gujral signed an uvestrncat protectee agreement, announced the releaseillion in credit to Colombo, and staled India's intention to reduce tariffs and quantitative restrictions on its trade with Sri Lanka, according to diplomatic reporting.

Strengthening South Asian Cooperation I

New Delhi is seeking to strengthen regional economic ties within the framework of the South Asian Association for Regional Cooperationhis organization has made only limited progress since it was founded5 largely because of chrooic political tensions and New Delhi's insistence on dealing with its neighborsuaieral basis. In recent rnoruhs Indian officials have becorne more active participants in SAARC conferences and have emphasized in public stateroenu the uriporunce New Delhi attaches to the organization:

In an acknowledgment of India's past neglect of regional economic cooperation. Prime Minister Deve Gowda remarkedeeting of South Asian business leaders in November that 'the truth is that there is no time to lose, and weot of backlog to make up."

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According to press reports, India was instrumental in securing an

agreement in principle among from the South Asian stales to expand the list of goods eligible for reciprocal tariff concessions at trade negotiations in late November, offering unilateral tariff cuts ontems.

During his trip to Bangladesh in January, Prime Minister Deve Gowda remarked that India planned toinisterial-level conference in the near future to discuss promoting investment ties among the South Asian countries He also said that New Delhi wanted to address regional infiastracturc bottlenecks and transportation problemsriority basis.

Indian officials expect that bolstering SAARC will strengthen India's bargaining position in dealings with other regional groupings, such as ASEAN, according to press reports. Indian leaders appear increasingly aware that participation in regional economic groupings has spurred export and economic growth in other Asian countries. New Delhi is eager to protect its market share in South Asian countries from increased competition from South-cast Asian nations.

Fostering Political and Security C

New Delhi is pushing for mcreascd cooperation with its neighbors on security issues. Indian officials have long claimed that Indian separatists and militants train or enjoy safchaven In neighboring countries or transit them to enter India. New Delhi also is concerned about the potential for insurgencies and other security problems in neighboring countries spilling over into India's politically sensitive border regions:

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New Delhi and Kathmandu have been working more closely to monitor groups involved in anti-Indian activities based in Nepal, accordinglandestine source. Nepalese officials detained two suspected Sikh terrorists several months ago and deported them to India after they were found to have fraudulent passports, according to another clandestine source. In addition. India and Nepal have agreed toew border monitoring system, according to press reports.

Indian officials have curtailed their anti-Pakistani rhetoric. Gujral, for example, declined to exercise India's right of reply after Pakistani Prime Minister Bhutto's speech to the UN General Assembly last October excoriating India over human rights abuses in Kashmir.

New Delhi has continued low-level discussions with Pakistani officials aimed at resolving bilateral problems, like narcotics smuggling.

India has taken small steps to normalize trade with Pakistan, most of which in recent years has been routed through third countries, making it cosily and inefficient. New Delhi, for example, agreed to sellons of wheatons of sugar last year, according to press reports.hift from past policy. Indian officials allowed the goods to be transported directly from India to Pakistan via truck or train.

Indian officials have told Islamabad that they are interested in exploring the possibilityas pipeline from Central Asia across Pakistan to Iljdia-New Delhi Pakistanisaperroposals for the management, ownership, and financing ofipeline. I

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Public statements by Indian leaden suggest that they view the election of Nawaz Sharif as Prime Minister of Pakistan as an opportunity to make meaningful progress toward breaking the impasse in relations:

Prime Minister Dcve Gowda welcomedlection and pledged to "fully cooperate with Islamabad" to reopen dialogue- Deve Gowda said in late February the Indian and Pakistani ministers should meet to revive high-level contacts.

> Gujral announced in mid-February that India would promote business travel between India and Pakistan by easing visa restrictions, according to press reports.

Nevertheless, Deve Gowda confronts political constraints that could slow Indo-Paxi statu progress. The opposition Hindu nationalist Bharatiya Janata Party, for example, haso-confidence motion against Deve Gowda's government for being soft on Kashmir and. by extension, on Pakistani Such attacks could force Dcve Gowda to trumpet nationalist themes, damaging the atmosphere for Indo-Pakistani dialogue.

Can South Asian Cooperation Last?

New Delhi's good neighbor policy faces an uncertain future despite its promising beginning. The most intractable obstacle-historic animosities between India and the others-will take years of good-faith efforts to overcome. In the meantime, the process will be vulnerable lo setbacks, if not outright reversal. New Delhi would have few reservations about reverting to heavy-handed "big brother" tactics if it believed its vital interests were threatened, such as by Nepal's efforts to develop its hydropower potential in ways that would deprive downstream India of needed water J

Progress toward increased cooperation will be slowed by the weak political positions of key governments in the region. Most are preoccupied with staying in power and are operating uoocr severe pouucal constraints that limit their foreign policy options. India's United Frontarticular wj] be wary of handing its political opponents an issue or generaiing adverse public opinion by granting concessions or catering to neighbors' concerns at the expense of Indian interests.oose and fragile coalition of regional parties, the United Front must be sensitive to political opposition from the state level and must consult state leaders as it formulates foreign policy toward India's neighbors.

India's good neighbor policy might not survive the United Front's demise, because it is driven almost single-handedly by the Foreign Minister. Gujralree hand in formulating foreign policy; many of his Cabinet colleagues, including the Prime

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Minister, have virtually no experience or interest in foreign affairs, according to sources of varyingeak successor government probably would be loath to undertake bold new initiatives, while an administration led by the Hindu nationalist Bharatiya Janata I'arty would not be inclined to make agreements perceived to be against India's national interest. BJP president Advanially0 protesters in late January that .if the BJP were to come to power, it would review India's water-sharing agreement with Bangladesh with an eye toward voiding it J

Enhanced cooperation on the economic front faces additional hurdles. Strong protectionist sentiment in India and some of its neighbors will slow progress in reducing tariffs and other barriers that have hindered the growth of regional trade. The expansion of trade ties also will be limited by similar production patterns in many South Asian countries and the limited domestic markets of the smaller states. Financial shortfalls will hinder South Asian countries from pursuing joint development projects.

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Appendix A

India and Itsroubled History |

Indiaong history of disputes with its South Asian neighbors. New Delhi has made some progress in improving its regional relations-prijoariJyilateral basis-but contentious problems remainH

Pakistan. Tension between India and Pakistan has been one of the defining issues of South Asian politics since their independencen addition to their pivotal dispute over the status of Kashmir, relations have been strained over such problems as trade barriers, water sharing, and security threats. In recent months India and Pakistan have once more traded accusations that each is trying to destabilize the other by aiding and equipping cross-border militant operations in each other's territory I

Bangladesh. Diplomatic relations between India and Bangladesh have been strained during much of the pastears but appear to be improving. Disputes have centered on water rights and border demarcation. Illegal immigration between the two countries is another point of contention. Attempts by the Bangladeshi military to quell tribal groups inrompted thousands of refugees to flee to northeastern India, which complicated New Delhi's efforts to cope with its own antigovemment insurgencies.'

Sri Lanka. Security concerns about Sri Lanka have been high on India's agenda

recent years. New Delhi began indirectly supporting Colombo's counterinsurgency

efforts against Tamil separatists in Sri Lanka in theut of fear that violence

in Sri Lanka would spill over into India.7 Indian Prime Minister Rajiv Gandhi

agreed to send Indian peace keeping forces to Sri Lanka to help reestablish order and

disarm the separatists. The troops remained there for almost three years. Gandhi's

assassination inllegedly by militant Tamil separatists, protnpted New

Delhi to crack down on the Tamil militant presence in India's southern state of Tamil

Nadu, and it continues to closely monitor the activities of suspected Sri Lankan

militants in India

Nepal. New Delhi has always been wary of the close political rclatirsnship between Kaihiiiar.du and Beijing and has often accused Nepal of allying with Chinaounterweight toispute over trade and transit treaties in Ihehat resultedirtual Indian blockade of Nepal continues to fuel Nepalese concerns over Indian hegemony in the region. In addition, Nepalis resent the lndo Nepalese

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urity relations between the two countries-as

Treaty of

favoring India at their expense

Bhutan. In contrast to the others, New Delhi enjoys cordial relations with (he kingdom in Thimpu, but it comesrice for Bhutan esc sovereignty. Under the termsreaty of Friendship signed by ibe iwo countriesndia provides "guidance" for Bhutanese foreign policy, which limits Bhutanese freedom of action on issues of importance to New Delhi. In exchange. Bhutanese subjects have the same access to economic and educational opportunities in India as Indian citizens, and Bhutan receives annual economic assistance from New Delhi (hat has covered roughly three-fifths of its budgetary outlays in recent years. I

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napshot of Indian-South Asian Trade TVa> |

Chronic political tensions haveoll on India's economic relations with its neighbors. Regional trade, for example, accounted for lessercent of India's total official tradehe last year for which we have reliable data. The significant imbalance in official regional trade in India's favor has only added to South Asian worries about India's hegemonistic goals in the region.or instance. India exported to its neighbors almost eight times as much in dollar terms as it imported from them, according to IMF statistics. The large amount of smuggling between India and neighboring stales is clear evidence of potential for increased official trade if New Delhi can reduce longtime political and economic barriers. I

is India's most significant South Asian trade partner in terms of the value of goods traded.5 India's exports to Bangladesh0 million, while its imports were worthillion, according to IMF statistics. The large trade Unbalance in New Delhi's favorajor irriUnt in their relations. Dhaka has long complained that New Delhi has been slow to reciprocate steps Bangladesh has taken to reduce tariffs and other barriers to trade. India's main exports to Bangladesh are textiles, transport equipment, machinery, cement, coal, and rice, while its main imports are jute, fertilizer, and leather goods. In addition to tariffs and quantitative restrictions on trade, poor roads and other inadequate infrastructure in the northeastern stales of India bordering Bangladeshormidable barrier to increased trade.

India's exports to Sri Lanka have nearly tripled during the last five years, in largeof stronger economic growth on the Island. India has been Srisource of imports in recent years; ilercent of the<:jl 'he same period India's imports from Sn

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Lanka were roughlyc.ith IbcTeveTof its exports, according to IMF statistics. India's main exports to Sri Lanka include transport equipment, textiles, machinery, cement, and pharmaceuticals. Its primary irnports from Sri lanka are scrap metal, iron and steel, sugar, and spices.

India and Nepal enjoy preferential access to each other's marketsrade agreement that was renewed last December. Even so. Kathmandu complains that, despite tariff concessions from New Delhi, its exports to India are hinderedide range of nontariff barriers, including quantitative restrictions and bureaucratic obstacles

India's piedominance in Nepal's trade has diminished in recent years because new export opporrumties-for carpets, readymade garments, and handicrafts-and liberalized import policies have enabled Kathmandu to expand its trade with third

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counlrics. According to IMF statistics.ercent of Nepal's official exports went to India in the, but this bad droppedercentimilarly, the share of Nepal's imports that came from India declined fromoercent in the same period. Nepal accounts for lessercent of India's official foreign trade:

Key Indian exports to Nepal consist of transport equipment, machinery, and pharmaceuticals, while its mam imports are textiles, spices, pulses, and jute.

Flourishing smuggling is an important feature of economic relations between the two countries. Some estimates put the volume of smuggled goods between India and Nepal as high asimes that of official

Official trade between India and Pakistan haslow but steady increase in recent years despite the continuing strains in their political relations. The level of official trade5 wasercent higher thancording to IMF statistics. The bulk of their trade is unofficial, partlyesult of formidable tariff and nontariff barriers imposed on both sides. PrcsflMiftjBBVHF0urces estimate the value of these smuggled goods2ear, compared with official trade worth roughly SIillionccording to IMF statistics.

India's main exports to Pakistan include oil meals, cement, dyes, iron ore. and spices.

Major imports are fruits and nuts, sugar, textiles, spices, and leather.

India has been Bhutan's main trade putnerhen the closing of the

Bhutanese Chinese border disrupted Bhutan's historically close ties to Tibet,5

India accounted for roughlyercent of Bhutan's official foreign trade, according to

diplomatic reporting, while Bhutan accounted for lessercent of India's total

reaty of Friendship signed by the two countries9 provides for

trade and duty-free transit across India for landlocked Bhutan's imports from

countries:

India's main exports to Bhutan arc machinery, transport cqujpment.

foods luffs, consumer go-xis. and textiles, and its major imports include spices, minerals, and fruit.

India uriports surplus dectricity from Bhutan from the Chhukha Hydel Project. |

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