Chapter 3

Deve Gowda and Indo-U.S. Relations : Political, Economic

and Security Issues (1996-97)

India’s eleventh parliamentary election in May 1996 saw no single political party

emerging as a clear winner. The elections produced a hung parliament. The Bharatiya Janata

Party (BJP) emerged as the largest party in parliament with 160 seats, the Congress (I) got

141 seats and the National Front-Left Front (NF-LF) combine, (a coalition of 15 political

parties) secured 120 seats. The President of India, Shankar Dayal Sharma, invited the BJP, as

the single largest party to form the government. Accordingly, a BJP-led minority government

with Atal Behari Vajpayee as its leader, was sworn in on May 16. But this government lasted

for only 13 days. Faced with the prospect of losing a no-confidence motion in parliament,

Vajpayee and his council of Ministers resigned. President Sharma then invited the NF-LF

combine to form a new government. After considerable deliberations among themselves, the

NF-LF leaders chose former Karnataka Chief Minister, H.D. Deve Gowda, as the new Prime

Minister of India. Deve Gowda and his council of Ministers assumed office on June 1, 1996.

The NF-LF combine was named as the United Front (UF) government. In the US, Bill

Clinton was re-elected as the President of the country. This chapter proposes to analyse the

course of India-U.S. bilateral relations during the Deve Gowda premiership. Three major

segments of the bilateral relationship, - namely, political, economic and security segments, -

would be analysed in detail in this chapter for a comprehensive view of India-U.S. relations

during 1996-1997.

The year 1996 was important for both India and the U.S. since it was an election year

in both countries. The term of the Narasimha Rao government in India was over. In the U.S.,

President Clinton was seeking a second term as the American President. In his election

campaign, Clinton emphasised non-proliferation, the CTBT and preservation of human rights

as the major areas of American foreign policy1. As mentioned in the previous chapter, all

these issues were of crucial importance for India-U.S. relations. India went to the polls in

May 1996 with serious corruption charges against the government of Narasimha Rao2. It was

1See, U.S. Information Service, “The Presidential Election, 1996”, Official Text (Calcutta, November 1995), pp

3-4.

2It was alleged that a leading share-broker of the country had paid Rs. one crore in cash to the Prime Minister. See in this connection, The Statesman (Calcutta), March 16, 1996, p.1.

101

mainly due to these corruption charges, the Rao government was voted out of power, and the

Deve Gowda government assumed charge. A change of government in New Delhi after five

years brought new dimensions in domestic and foreign affairs. The course of India-U.S.

relations assumed significance in this altered perspective. The analysis in this chapter would

begin with India-U.S. political relations under the Deve Gowda government

Political Relations

Deve Gowda headed a coalition of 15 political parties that included mostly the

centrist and leftist political parties [like the Janata Dal, the Communist Party of India, the

Communist Party of India (Marxist), the Forward Bloc etc.]. I. K. Gujral was named as the

External Affairs Minister of this coalition government. Since the coalition included parties

that had divergent views, the UF, issued a policy statement that would act as a set of guiding

principles for this coalition government after it assumed office. The document entitled “ A

Common Approach to Major Policy Matters and A Minimum Programme ”, highlighted

priority areas of operation for the UF government. The document promised to strengthen

Indian federalism, support secular principles, improve infrastructural facilities, and increase

spending on social and humanitarian services such as health care, housing for the poor,

drinking water facilities in every village along with road and sanitation3. With regard to

foreign investment in India, a major departure from the earlier Rao government could be

observed in this ‘Policy Statement’. The document stated in clear terms that the UF

government would try to discourage foreign direct investment in low priority areas4.

However, the document emphasised upon the need of attracting foreign investment in other

areas5. The UF policy statement carefully avoided the contentious issue of economic

liberalization6. The statement however, noted the importance of pursuing macroeconomic

policies aimed at achieving higher growth. In foreign affairs, the ‘Policy Statement’ under-

scored the need to improve relations with India’s neighbours7. It also placed special emphasis

on good relations with the U. S., Russia, Japan and other countries. It stated, “While India has

good relations with all countries of the world, it has especially warm relations with the United

3See “United Front’s Policy Statement”, as reprinted in Mainstream (New Delhi, June15, 1996), pp. 13-19. 4 Ibid 5Ibid

6Ibid 7Ibid. pp. 17-18.

102

States and Russia as well as Japan… These warm relationships will be emphasised while

strengthening relations with all countries of the world”.8

One area where the UF government had set a new course was India’s efforts to

improve relations with her neighbours, including Pakistan. Good neighbourly relations in

South Asia were of crucial importance to U.S. foreign policy interests in the region

particularly because of its non-proliferation agenda at the time.9 The government of Deve

Gowda concentrated on improving relations with all of India’s neighbours. Shortly after

taking charge as India’s External Affairs Minister, I. K. Gujral said, “I am a strong believer in

regional co-operation… With the Indian economy being the largest in the region. I am willing

to have asymmetrical relationship… The central shift from my predecessors will be that I am

not am advocate of quid pro quo. I believe that larger nations must have larger hearts also”.10

While talking about his government’s foreign policy, the Prime Minister said, “Our priority is

to evolve better relations with our neighbours. We seek actively to promote cooperation both

bilaterally and within the framework of the SAARC”.11 These statements of the Foreign

Minister and the Prime Minister were not only political rhetoric, they were put to practice in

India’s efforts to improve relations with her neighbours.

Normalization of Relations in South Asia and the U. S. Response

The government of Deve Gowda worked hard to improve relations with China,

Bangladesh, and Pakistan. A landmark agreement was reached between India and China on

Confidence Building Measures (CBM) along their disputed borders. The agreement was

signed by the Chinese Foreign Minister Qian Quichen and I. K. Gujral in the presence of the

Chinese President Jiang Zemin and Indian Prime Minister Deve Gowda on November 29,

1996 in New Delhi.12 The Chinese President was on a historic tour of India, - the first ever

visit to India by a Chinese Head of the State. Apart from the Agreement on CBMs, three

other agreements were also signed between the two countries: (1) India-China Agreement on

cooperation for combating drug trafficking and other crimes; (2) Agreement concerning the

8 Ibid

9 See, n.1, pp.3-4.

10See I. K. Gujral’s interview with Raj Chengappar, in India Today (New Delhi), June 30, 1996,

p. 77

11Prime Minister Deve Gowda’s Independence Day Speech in New Delhi, August 15, 1996; visit, http://www.pmindia.nic.in/speech/content.asp. Accessed on October 3, 2002. 12 See, The Times of India (New Delhi), November 30, p.1.

103

maintenance of the Consulate General of India in Hong Kong; and (3) Agreement on maritme

transport. However, the Agreement on CBM was the most significant because it was a major

landmark in the de-escalation of hostilities in the South Asian region. Article 1 of the

Agreement provided that “ neither side shall use its military capability against the other

side”.13

Relations with Bangladesh were also strengthened. Prime Minister Deve Gowda sent

the West Bengal Chief Minister and veteran political leader, Jyoti Basu, to Bangladesh for

discussing the contentious Ganga river water issue. Basu’s visit and the initiative taken by

Deve Gowda paved the way for an agreement between the two countries on the sharing of the

Ganga river water. On December 12, 1996, the Indian Prime Minsister, and his Bangladeshi

counterpart, Sheikh Hasina signed “The Ganga Water Accord 1996”. The treaty, valid for

thirty years with a provision for review every five years or earlier, was also a landmark

agreement on long standing problem with India’s smaller neighbour.14

The Deve Gowda government also expressed its willingness to improve relations with

Pakistan. This was evident from Gujral’s attitude towards Pakistan. In his government’s

efforts to improve relations with Pakistan Gujral refused to respond to any adverse statements

emerging from Islamabad.15 This gentle approach of the Indian Foreign Minister helped to

reduce tension in the subcontinent.16 But the dismissal of the Benazir Bhutto regime in

November, 1996 put a spanner in India’s efforts.17 However, improvement in relations with

China, long time adversary, and Bangladesh, a not-so-friendly neighbour, pointed to the fact

that despite its short term (June 1996 to April 1997), the Deve Gowda government was able

to instill a sense of confidence regarding India’s goodwill among its neighbours.

India’s efforts in this area, and her attempt to de-escalate tension particularly in the

Sino-Indian border, and in South Asia, drew American attention and accolades. The Clinton

administration, interested as it was in peace and stability in South Asia, hailed these efforts of

the new Indian government. According to the U. S. Ambassador to India, Frank Wisner,

“Prime Minister Deve Gowda’s measured response has kept the door open to resumption of

dialogue at senior government levels. He has told me he offers sincerity and will meet

13.The Henry L. Stimson Centre, A Handbook of Confidence Building Measures for Regional Security (Washington, D. C, 1998), pp. 205-10. 14. See, The Telegraph (Calcutta), December 13, 1996, p.1. 15.Sumit Ganguly, “India in 1996 : A year of Upheaval”, in Asian Survey, Vol. XXXIV, No. 2 (Berkeley, University of California, February 1997), p. 131. 16. Ibid. 17.S. M. Naseem and Khalid Nadvi, The Post-Colonial State and Social Transformation in India and Pakistan (Karachi, Oxford University Press, 2002), pp. 51-52

104

sincerity with sincerity. I am cheered for I believe Pakistan brings the same spirit to the

table”.18 The Deve Gowda government tried sincerely to resume political dialogue with

Pakistan, and the U. S. viewed this as a positive step for bringing peace and stability in South

Asia.

The Deve Gowda government also gave special attention to the problems in Kashmir.

After assuming power, the UF government wanted to expedite the political process in

Kashmir. Prime Minister Deve Gowda visited Kashmir in June 1996 and talked to political

leaders and peoples’ organizations there. In his Independence Day Speech on August 15,

1996, he announced that elections to the state assembly would be held in September 1996.19

Deve Gowda also held talks with political leaders and some former militants in New Delhi

regarding restoration of peace and normalcy in the valley. All these efforts showed the

intention of his government to start a fresh dialogue over the future of Kashmir12

The U.S. welcomed these efforts to find a solution to the Kashmir militancy. Frank

Wisner told a gathering of defence officials in Pakistan : “an implicit dialogue has begun

between political leaders from Kashmir and the government in Delhi. Prime Minister Deve

Gowda has lent his support to dialogue last month… This new disposition to communicate

can serve to develop confidence between the parties, an essential element if a reconciliation

and peace are to emerge…”.20 The Deve Gowda government felt that efforts for peace in the

subcontinent required a political solution to the Kashmir problem. So the new Prime Minister

tried several strategies, including holding of the assembly elections, in Jammu and Kashmir,

which were held between September 30 and October 7,1996. Despite a call to boycott the

elections by the All Party Hurriyat Conference (An alliance of 26 political, social and

religious organisations, the All Party Hurriyat Conference was formed on March 9, 1993 as a

political front to further the cause of Kashmiri separatism. The amalgam has been

consistently promoted by Pakistan in the latter's quest to establish legitimacy over its claim

on the Indian State of Jammu and Kashmir) the turn out of voters was 55%, quite impressive

for a state tormented by violence.21 In spite of criticism within India and outside that the

Parliamentary (May 1996) and Assembly (Sept.-Oct. 1996) elections in Jammu and Kashmir

were not free and fair22, the U.S. defended the holding of such elections in Kashmir as a

18. United States Information Service, “Ambassador Wisner’s Speech at the Command and Staff College, Quetta, Pakistan” in Official Text (New Delhi, July 10,1996), p.3. 19. Prime Minister Deve Gowda’s Independence Day Speech in New Delhi, August 15, 1996, n. 11. 20.See n.18, p. 3 21.See Sumit Ganguly, n. 15, p. 133. 22.See in this connection, Ajith Pillai, “Vote Marshalled”, in Outlook (New Delhi) , June 5, 1996, pp. 10-15.

105

prelude to restoration of the political process in the troubled state.23 Some analysts were of

the opinion that the Deve Gowda government could be credited with initiating the peace

process in Kashmir after a long time. According to one observer, “it was not until 1996 that

the Indian government was able to repress the military successfully to hold both local and

parliamentary elections, and re-instal a civilian government in the state”.24

The United States also made it clear, despite provocations by the then Pakistani Prime

Minister Benazir Bhutto to internationalize the Kashmir issue25, that the Kashmir problem

must be solved through bilateral talks between India and Pakistan26. The U.S., as observed

earlier, seemed to endorse some of the policy decisions of the Deve Gowda government such

as improvement of relations with neighbours, and restoring normalcy and peace in Kashmir,

and the initiation of a political process in the state.

Diplomatic Tangle

A minor diplomatic tangle however, caused a few hiccups in India-U.S. relationship

during the Deve Gowda regime. The Indian government, in February1997, asked two Central

Intelligence Agency (CIA) officials in the U.S. Embassy in New Delhi to be withdrawn

following clandestine meetings with a senior Indian Information Branch (IB) official.27 The

U.S. retaliated within a fortnight when the U.S. administration asked two junior level officers

from the Research and Analysis wing (RAW) posted in the Indian consulate offices in San

Francisco and Chicago to leave the country.28 These incidents pushed an otherwise normal

India- U.S. relations some steps backward. The episode had, as one American official put it,

“a chilling effect”29 on Indo-U.S. intelligence cooperation. As one senior Indian diplomat

23.See Ambassador Wisner’s speech, n. 18, p.4. 24.Reeta Chowdhuri Tremblay, “Indo-U. S. Relations and the Kashmir Issue” in Ashok Kapur, Y.K.Malik, Harold A. Gould, and Arthur G. Rubinoff (eds.), India and the United States in a Changing World (New Delhi, Sage, 2002), p. 501 25. In her speech before the U. N. General Assembly on October 3, 1996, Benazir Bhutto asked the General Assembly to endorse a conference for peace and security in South Asia. Bhutto said that besides Pakistan and India, all five permanent members of the U. N. Security Council as well as Germany and Japan should participate in the said conference which would deal with, among other things, Kashmir and the Nuclear Arms issue. Source : Website of the US Department of state, http://www.usinfo.state.gov/regional /nea/sasia. Accessed on October 5,2002. 26. See Tremblay, n. 24, pp.525-529. This is an excellent account of the history of the Kashmir problem and the American views about problem since 1947. 27. For details, see, The Times of India (New Delhi), February 8, 1997, p.1. 28. See The New York Times, (New York), February 21, 1997, p.11. 29. See, India Today (New Delhi), March 15, 1997, p. 73.

106

remarked, “the ability to work together in areas like counter-terrorism through intelligence

sharing between the two countries is going to be impaired.”30 However, the U.S. Embassy in

New Delhi, in an official statement, tried to put relations back to normal track. The statement

sounded optimistic as it read, “We will put this behind us. We have to work out mutually

acceptable areas of cooperation”.31

Apart from this minor diplomatic row, India-U.S. relationship at the political level

during the Deve Gowda period was normal. The U.S., as observed earlier, welcomed India’s

initiatives to improve relations with neighbours, and to bring peace in Kashmir. The thrust

area of the Deve Gowda government’s foreign policy, mainly steered by the External Affairs

Minister I. K. Gujral, was improvement of relations with other South Asian countries. And in

this endeavour, the Deve Gowda government received support from the U.S. administration,

because American non-proliferation and human rights policies also required a peaceful and

politically stable South Asia. Since the interests of the two countries largely converged on the

peace process in South Asia, India-U.S. political relations during the Deve Gowda period did

not witness much trouble.

As observed in the earlier chapter, economic relations between the two countries got

closer during the Narasimha Rao period, due to Indian economic reforms. When the UF

government assumed office, there were doubts regarding the future of Indian economic

liberalization, because the Left parties within the UF, were not very favourable to economic

reforms.32 In this context, it would be important to analyse India-U.S. economic relations

during the Premiership of Deve Gowda.

Economic Relations

H. D. Deve Gowda came to power at a time when Indian economic liberalization

programmes were in full flow, when both India and the U. S. appeared optimistic that

economic liberalization would bring the two countries closer. After the Rao government that

initiated economic reforms, the Deve Gowda government was supposed to carry on the

second phase of economic reforms in India. The United Front’s Policy Statement was

30. Ibid 31. Ibid 32. The General Secretary of the Communist Party of India (CPI) said in an interview, “In the case of the U.F., formed by 13 parties of which four were Left parties, most parties represented either the regional bourgeoisie or the bourgeoisie in general. The economic Ministries were mostly in their hands and on many occasions, the Left differed with the Liberalisation policies”. See in this connection, interview with A.B. Bardhan, General Secretary of the CPI, Frontline, Vol. 15, No. 20 (Chennai, Sept. 26 – Oct. 09, 1998), pp. 63-64.

107

however silent on the issue of economic liberalization launched by the previous

government.33 The contentious issue of economic liberalization was not mentioned in the

policy document probably due to compulsions of domestic politics.34 The declaration in the

Policy Statement about discouraging foreign direct investment (FDI) in low priority areas

was also done to appease coalition partners, especially the left parties, in the government. The

policy document, however, stated the need of attracting foreign direct investment in other

areas and of attaining sustained macroeconomic growth.35 These contradictory approaches in

the Policy Statement raised doubts about the UF government’s commitment to economic

reforms, both within and outside the country.36

The UF Policy Statement was prepared in consultation with the coalition partners as a

set of guiding principles for the government. Since the coalition partners had a major say in

the formulation of the document, it was silent about economic liberalization in India. But

Prime Minister Deve Gowda took care to dispel doubts about his government’s commitment

to economic reforms. Soon after assuming charge, Deve Gowda said in clear terms that

Indian economic reforms would go on.37 This assurance was necessary to apprise the outside

world that India would not alter the path of economic liberalization. It was necessary, in fact,

for India’s large foreign trading partners and investors, like the U.S., to know that economic

reforms would continue in India, and the UF government was able to dispel all doubts about

its commitment to economic reforms within a short period of time. According to one Indian

journalist, “with the coalition government surer of its economic policy than expected, the U.

S. feels reassured that the trade relations will not go downhill”.38 In fact, trade relations with

the U.S. improved during the Deve Gowda period. The performance of the domestic

economy was also very satisfactory and India’s growing domestic sector gave a boost to her

external trade and commerce.13

The performance of the domestic economy can be measured in terms of the National

Income which rose from Rs. 936,548 crores (cr.) in 1995-96 to Rs. 1089,563 cr. in 1996-97

(in current prices)39. Per capita income also rose from Rs. 10,158 cr. in 1995-96 to Rs. 11,591

33. See “United Front’s Policy Statement”, n.3, pp.13-19. 34. Some partners in the coalition government, especially the left parties, were initially averse to economic reforms. See n. 32 35. “United Front’s Policy Statement”, n. 3, pp. 13-19. 36. See Sumit Ganguly, n. 15, p. 133. 37. See the Prime Minister’s interview with Javed M. Ansari in India Today (New Delhi) June 15, 1996, pp. 32-33 38. Raj Chengappa, “Cautions Optimism” in India Today , June 30, 1996, p. 78

39 See, Tata Services Ltd., Statistical outline of India : 2000-2001 (Mumbai, April, 2000), pp. 1-5.

108

cr. in 1996-97 (in current prices)40. The Agricultural Production Index (API) also rose

considerably during the Deve Gowda period. In 1995-96, the API (1981-82=100) was 160.7,

whereas in 1996-97, it was 175.741 Foodgrains production also increased during this time.

Total foodgrains production in 1995-96 was 180.4 million tones. It rose to a substantial 199.4

million tones in 1996-97.42 The Industrial Production Index (IPI) also registered upward

growth. The IPI (1980-81=100) was 122.3 in 1995-95, but it rose to 129.1 in 1996-97.43

Encouraged by a good performance of the domestic economy, overall Indian exports also

grew in this period. While Indian exports amounted to Rs.106,353 cr. in 1995-96, it

amounted to Rs. 118.817 cr. in 1996-97.44

Trade with the U. S.

The healthy growth of the domestic economy gave a boost to India’s trade relations

with other nations. As India’s largest trading partner, the U.S. was engaged in increased

trading activities with India since the early 1990s. As mentioned in the previous chapter,

among all the segments of India-U.S. relations, the economic segment performed reasonably

well after India’s economic liberalization in 1991. This strengthening of economic relations,

continued during the Deve Gowda period as well. Bilateral trade figures during the first UF

government bears testimony to this trend.

Table 3.1

India-U. S. Bilateral Trade: 1995-97 (In U. S. $ Billion)

1995 1996 1997

Exports 5736 6169 7321

% Growth +8.2 +7.5 +18.7

Imports 3296 3318 3616

% Growth +43.6 +0.7 +9.1

Balance (Export-Import) 2440 2851 3705

Source:Website of the Embassy of India, Washington, D.C, visit, C, http://www.indianembassy.org/indoustrade.asp .Accessed on October 6, 2002.

40. Ibid 41. Ibid 42. Ibid 43 Ibid 44. Ibid

109

According to Table 3.1, Indian exports to the U.S. grew at 7.5 per cent in1996, and at

18.7 per cent in 1997 compared to the growth of Indian exports at 8.2 per cent in 1995. This

indicates that there was a marginal fall in percentage growth of exports in 1996, compared to

1995, but a very significant rise in 1997. A noticeable concern in 1996 was the negligible

percentage growth (0.7) of Indian imports from the U.S. Although it improved in 1997 to 9.1

per cent, the gap between exports to the U.S. and imports from the U.S. persisted, indicating a

large trade balance in favour of India. This was not a very healthy trend in bilateral trade and

pointed towards an one-way trade. In this context, it may be worthwhile to look at India’s

trade balance with selected industrial countries over the years :

Table 3.2

India’s Trade Balance with Industrial Nations

(In Rs. Crores)

Year France Germany U.K. Japan Canada OPEC U. S. A.

1980-81 -133 -309 -336 -151 -270 -2,743 -676

1990-91 -538 -924 -766 -206 -278 -5,210 -448

1995-96 -313 -3,906 +311 -843 -253 -15,286 +5,550

1997-98 -142 -2,243 -1,126 -916 + 46 -21,869 +11,468

Source: Tata Services Ltd., Statistical Outline of India : 2000-2001 (Mumbai, April, 2000),

pp. 86-87

It can be observed from Table 3.2 that India shared a negative trade balance with all

the industrial nations up to 1990-91. This indicated that Indian exports to these countries was

less compared to India’s imports from these nations. Except for the U.S., this trend continued

after the cold war. India registered a positive trade balance with the U.S. after she opened her

economy in 1991. India also recorded a positive trade balance with the U. K. in 1995-96, and

Canada in 1996-98. As observed earlier, the increase in Indian exports to the U.S. after 1990-

91 helped India to register a positive trade balance with the U.S. But Indian imports from the

U.S. did not register the same rate of growth after the Cold War. As a consequence, a large

trade balance, favouring India, was created in relation to the U.S. after 1990-91. It should be

remembered, however, at this point that during the Deve Gowda period, Indian economic

reforms were at a very early stage. Therefore, it was not possible to plug all the loopholes in

Indian trade by this time. The consistent growth of Indian exports to the U.S. since 1991 was

110

however, a very welcome trend in India-U.S. bilateral trade. This trend was sustained during

the Deve Gowda period also, and Indian imports registered 9.1 percent growth during the

India-U.S. trade (Table 3.1). This indicted that the UF government was conscious about

achieving a strengthened trade relation with the U.S. during its short stay in office. Table 3.3

shows India-U.S. trade during the 11 month period of the UF government.

Table 3.3

Volume of India-U.S. Trade During Deve Gowda Period (In U.S. $ Million)

Year Month Exports Imports Balance 1996 June 445.90 228.90 217.00 July 564.00 259.40 304.60 August 583.80 250.40 333.40 September 590.10 273.40 316.70 October 637.90 387.40 250.50 November 478.90 390.00 88.90 December 426.40 240.20 186.20 1997 January 555.50 250.30 305.20 February 539.90 285.00 254.90 March 623.80 394.50 229.30 April 577.00 308.70 268.30

Source: Website of the Embassy of India, Washington, D.C., visit, D.C, http://www.indianembassy.org/indoustrade.asp. Accessed on October 6, 2002.

It can be observed from Table 3.3 that the export import gap was at its minimum in

November 1996. It was also not very high in December, 1996. Indian imports from the U.S.

also registered substantial growth in October 1996, November 1996, February 1997 and

March 1997. As a result, trade balance was reduced in these months compared to the

preceding months.

American Investment

Along with trade, investment constitutes an important area of bilateral economic

relations. Investment and trade are not competitive, but complimentary to each other in the

context of a liberalized economy. It is a recognized fact that international investment boosts

international trade.45 Since India’s economic liberalization in 1991, American business has

45. See in this context, A. Breton, Competitive Governments: An Economic Theory of Politics and Public Finance (New York, Cambridge University Press, 1995), pp. 56-57.

111

steadily invested in India. During 1996-97, U.S. investment constituted the bulk of the total

foreign investment in India. A major portion of the investment went into industries like

telecommunications, food processing, power and oil refinery, financial and non-financial

services, electrical equipment, electronics and computer software.46 Portfolio investment by

American financial and banking institutions also grew steadily in India since the opening of

the Indian economy. Table 3.3 charts the steady growth of American Portfolio Investment in

India :

Table 3.4 U. S. Portfolio Investment in India: 1993-97

(In $. Million)

1993 1994 1995 1996 1997

Total 827 2165 1191 3058 1747

U. S. 228 1382 587 1166 1144

Percent of total 27.6 63.8 49.3 38.1 65.5

Source: Website of the Embassy of India, Washington, D.C., visit, D.C, http://www.indianembassy.org/indoustrade.asp. Accessed on October 6, 2002.

It can be observed from Table 3.4 that Portfolio investment in India by U.S. financial

institutions has risen from U.S. $ 228 Million in 1993 to U.S. $ 1144 Million in 1997. In

1993, American investment amounted to only 27.6 percent of the total portfolio investment in

India. It increased to 65.5 percent of the total portfolio investment in India in 1997. The

growth in investment inflow was due to a major overhaul of India’s industrial policy in 1991.

In that year, the Rao government removed any prior approval of foreign equity up to 51

percent of the total for 35 industries. The Deve Gowda government added 13 more industries

to the list in 1996.47 The result of this bold step could be seen in the significant rise in

portfolio investment by the American financial institutions in 1997 (Table 3.3).

Apart from direct investment, collaboration by foreign companies is another form of

investment. During 1994 to 1997, foreign collaboration which involved foreign investment,

grew rapidly in India. In 1994, foreign collaborations involving foreign investment approved,

were to the tune of U.S. $ 4591 million. In 1995, such approved collaborations rose to U.S. $

9588 million. In 1996, they were to the tune of U.S. $ 9300 million. In 1997, approved

46. Prem P. Gandhi, “India-U.S. Economic Relations : A Perspective”, in Ashok Kapur, Y. K. Malik, Harold A. Gould and Arthur G. Rubinoff (eds.), n. 24, pp. 333.-339. Also visit the Indian Embassy website in Washington D. C., http://www.indianembassy.org/indoustrade.asp. Accessed on October 6, 2002. 47. Ibid

112

foreign collaborations involving foreign investment rose to U.S. $ 14795 million.48 Several

American Companies were involved in joint collaborations during this period. Noted among

them were Pepsi Cola, Coca Cola, H.J. Heinz, Kelloggs, General Motors, IBM, Gillette,

Philip Morris and others.49 The approved amount of foreign collaborations, Specially in 1996

and 1997 showed that the UF government was not averse to foreign direct investment in key

sectors of the economy, despite the negative views of some coalition partners in this regard.

In January 1997, the Deve Gowda Government took a bold step considering the

nature of the coalition government that included parties with opposing views on economic

liberalization. The limit of equity participation for a foreign company was raised to a

maximum of 74 percent from 51 percent approved by the previous Narashimha Rao

Government. For Non-Resident Indian (NRI) investors, this limit was raised to 100 percent.50

As a result, with the exception of some strategic ‘key’ industries such as defence, railways

and atomic energy, most of India’s industries were open to foreign equity participation.

Under the Deve Gowda government, India moved towards a system where most investment

proposals were approved very quickly and without obstructions.51 India’s Commerce and

Industry Minister, Murasoli Maran informed the Lok Sabha that “from August 1991 to

December 1996, a total number of 3583 proposals envisaging a foreign investment of Rs.

889.6 billion have been cleared by the Foreign Investment Promotion Board (FIPB)”.52 The

sharp increase in approved foreign collaborations in 1996- 97 may be attributed to this policy

decision of the Deve Gowda government.

However total foreign direct investment (FDI) in India was small in relation to India’s

size and potential. A big gap also existed between approvals and the actual flow of FDI into

India. Since these were early days of economic reforms in India, the foreign investors

appeared to be not too sure about the actual investment climate in India. This was also true of

the Narasimha Rao period, when the Indian economy was opened for the first time. During

the Deve Gowda regime too, approvals outnumbered actual FDI in India. Table 3.5 would

illustrate this trend :

48. For all these statistics see, n. 39, pp. 162-165. 49. See, Prem P. Gandhi, n. 46, pp. 343-346. 50. Ministry of Commerce and Industry, Government of India, Annual Report : 1996-97 (New Delhi, April, 1997), pp. 20-22. 51. This was acknowledged by the U. S. Department of State. See in this context, U. S. Department of State, India 1998: Country Report on Economic Policy and Trade Practices (Washington D. C. : U. S. Government

Printing Office, 1998), pp. 387-389. 52. The Lok Sabha Secretariat, Lok Sabha Debates, 11th Series, Vol. IX, No.7 (New Delhi, February 28, 1997), p. 149.

113

Table 3.5

Foreign Direct Investment: Approvals and actual Flows14

Year Approvals Actual Flows Actual Flows: US $ million US $ million Per cent of

Approvals 1995 11,245 2,100 18.7

1996 11,142 2,383 21.4

1997 15,572 3,330 21.1

Source : Chronicle Year Book 2002, (New Delhi : Chronicle Publications, 2002), p. 361

As Table 3.5 above shows, actual flows of FDI marginally increased during the UF

regime, but they remained far below the approved amounts. Substantial macro economic

growth was partially affected as the result of this lack of adequate inflows of FDI during the

first UF government. The real GDP growth rate dropped from 7.1 percent in 1995, to 6.8

percent in 1996, and further lower to 7.0 percent in 1997.53

However, the initial confusion over the commitment of the UF government about

economic reforms disappeared as the government took steps to raise equity participation in

case of FDI and added more industries to the list of automatic approvals for FDI. Several

industries including electricity generation and transmission, mining services, construction and

maintenance of roads, bridges, ports, harbours and runways were open to 74 percent equity

participation in case of foreign investors. The Prime Minister also sent positive signals to

foreign investors about the inevitability of the economic reform process. In an interview with

a leading American news magazine, Deve Gowda said, “economic liberalization has become

a fait accompli. All political parties have accepted the policy… Reversing economic

liberalization is ruled out. I would like to make this very clear.”54 He reiterated this position

when he led a high power team that included Finance, Industry and External Affairs

Ministers, a number of senior bureaucrats, and leading businessmen to the Annual Meeting of

the World Economic Forum in Davos, Switzerland in February 1997. In Davos, he met

several Heads of Government, including a few from industrial nations (Japan,Canada, Russia)

and discussed trade and investment opportunities with them. Deve Gowda also tried to dispel

fears about his government’s commitment to economic reforms. In his address to the World

Economic Forum, Deve Gowda said, “We need to accelerate the reform process… there is no

53. Ibid 54. Prime Minister Deve Gowda’s Interview with Lally Weymouth, in News Week (New York : December 16, 1996), p. 41.

114

question of delaying by bureaucracy… Fear should be removed from your minds”.55 The

actions of his government in respect of trade and investment policies, FDIs and equity

participation by foreign investors in India bore out the commitment of the Prime Minister to

economic reforms.

U. S. Aid

Another area where relations between the two countries had sometimes floundered

and at other times prospered, was U.S. aid to India. The United States remained the single

largest Aid giver to India during the period under study. In 1995, total U.S. aid to India was

$190 million whereas aid from other countries was $ 2.7 billion. In 1996, American aid to

India was $ 139 million as against $ 2.5 billion aid from other countries. In 1997, U.S. aid to

India amounted to $ 136.3 million.56 India’s total external debt stood at $ 90.8 billion in

March 1997. Debt service payments of $ 14.1 billion in 1996-97 dropped to around $ 12.6

billion in 1997-98.57 Roughly two-thirds of India’s foreign currency debt was composed of

multilateral and bilateral debt, much of it on highly concessional terms. The addition of new

debt slowed substantially during the fiscal year 1996-97, as the Deve Gowda government

maintained a tight check on foreign commercial borrowings and defence-oriented debt and

encouraged foreign equity investment rather than debt financing. As a consequence of this

policy, the ratio of total external debt to GDP fell from 39.8 percent in the fiscal year 1992-93

to 25.4 present in 1996-97.58

Differences Over the IPR

However, there were contentious issues between the two countries regarding

financial/legal matters, the most important being differences over Intellectual Property Rights

(IPR). The U.S. alleged that India’s patent protection was weak and this had adversely

affected American pharmaceutical and chemical firms.59 The U.S. government complained

that India’s patent act prohibited product patents for any invention intended for use or capable

of being used as a food, medicine or drug or relating to substances prepared or produced by

chemical processes. Consequently, the U.S. alleged that many American invented drugs

___________________________

55. Prime Minister Deve Gowda’s Address to the world Economic Forum in Davos, Switzerland as reprinted in India Today (New Delhi), February 28, 1997, p.25. 56. See, U.S. Department of State, n.51. pp. 390-95. 57. Ibid 58. Ibid 59. Ibid.

115

were widely reproduced. This was viewed as ‘piracy’, and it resulted in an estimated annual

loss of $ 450 million to the U.S. pharmaceutical industry.60

The U.S. believed that as a signatory to the Uruguay Round of the GATT 61 which

included provisions on Trade-Related Intellectual Property Rights (TRIPS), India must

introduce a comprehensive system of product patents not later than 2005. But according to

the U.S., India moved very slowly towards enacting laws on product patents.62 In 1994, the

Rao government proclaimed a temporary ordinance for patent protection in accordance with

the WTO-TRIPS agreement.63 The ordinance however lapsed and the Indian Parliament did

not produce any further law. This irked the U. S. In July 1996, the U. S. initiated WTO

dispute settlement procedures over India’s failure to implement its TRIPS obligation. Later,

in late 1997, the second UF government of I. K. Gujral pledged to introduce a bill in the

Indian Parliament on this patent protection issue in accordance with the TRIPS obligations.64

During the Deve Gowda period, therefore, the IPR issue created a sense of dissatisfaction in

the U.S. regarding India’s stance on the issue.

On the whole, it may be said that India-U.S. economic relations during the Deve

Gowda period was quite satisfactory. The UF government, despite initial confusions,

successfully carried forward the reform process initiated by the previous Rao government.

The U.S. was pleased with the UF government’s decision to add more industries to the list of

automatic approvals for FDI, and raising the level of equity participation by foreign

companies up to 74 percent. The Deputy U.S. Trade Representative, Jeffrey Lang, who

visited New Delhi in October 1996, said that the U.S. considered India as a growing market

and as an important business partner.65 In his discussions with Indian leaders, Lang

addressed issues such as India’s balance of 15payments exemption, and opening up of the

consumer goods market. He praised India’s efforts at liberalizations of the economy, and

argued in favour of financial sector liberalization including the insurance industry.66 It can be

noted from Lang’s observations that the U.S. was placing more emphasis on expanding

60. Ibid 61. The General Agreement on Tariff and Trade (GATT) was originally created by the Bretton Woods Conference, after World War II. The GATT's main purpose was to reduce barriers to international trade. This was achieved through the reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series of different agreements. The GATT was an agreement, not an organization. The functions of the GATT have been replaced by the World Trade Organization (WTO) which was established on January 1, 1995. For more on the Uruguay Round of GATT, and WTO, see, Petros C. Mavroidis, The General Agreement on Tariffs and Trade: A Commentary (New York, Oxford University Press, 2005), pp. 10-25. 62. U.S. Department of State, n. 51, pp. 390-95. 63. See, “Ordinance for Patent Production”, in The Economic Times (Calcutta), December 20, 1994, p. 1. 64. U.S. Department of State, n. 51, pp. 390-396 65. See, U.S. Information Service, “Deputy USTR Holds Trade Talks with India”, Official Text (Calcutta, October 1996), p. 2. 66. Ibid

116

economic relations with India. By acknowledging India as a ‘business partner’, the U.S. was

looking for strong economic relations with India.

Security Relations

While the economy provided the base for a strengthened relationship, nuclear and

security issues continued to bother India-U. S. relations during the Deve Gowda period.

Differences over the Comprehensive Test Ban Treaty (CTBT), that first cropped up during

the Rao premiership, became quite severe during the Deve Gowda regime. At the same time,

the nuclear cooperation between China and Pakistan which was fuelling an arms race in

South Asia, and the apparent failure or unwillingness of the U.S. to control or stop this

cooperation, also generated mistrust in India-U.S. bilateral relations. But the bone of

contention was definitely the CTBT, as it adversely affected bilateral relations.16

Differences Over the CTBT

By the time Deve Gowda assumed office, relations between India and the U. S. had

already become acrimonious over the CTBT issue. As discussed in the previous chapter, the

government of P. V. Narasimha Rao had taken an unyielding stance at the CTBT negotiations

in Geneva that started in 1994. The Rao government had made it clear at the Conference on

Disarmament (CD) in Geneva that discussed the CTBT that India would not sign the CTBT

as she thought that the treaty was discriminatory and against India’s national interests.67 This

has been the general consensus in India, and the Deve Gowda government too, pressed

forward with the same argument. On August 20, 1996, India formally vetoed the draft

text of the CTBT in Geneva, which had been prepared by Ambassador Jaap Ramaker of

the Netherlands and his team in the ad hoc committee. India opposed it on the grounds that it

did not address India’s security concerns. According to Ms. Arundhati Ghose, India’s

Ambassador to the CD, “the text did not serve the purpose of promoting the realization of the

universal disarmament goals. Continuing nuclear weapons development and proliferation in

our region which raise national security concerns for us, were in no way addressed by the

text”.68

67. See in this context, Pranab Mukherjee, “Should India Sign the CTBT?”, in World Focus (New Delhi), Vol. 19, Nos. 6-7, June-July, 1998, pp. 21-22. Mukherjee was Foreign Minister in the Rao government. 68. See, Website of the Indian Embassy in Washington D.C., ‘Statement by Ms. Arundhati Ghose at the Disarmament Conference”, August 21,1996, visit, http://www.indianembassy.org/speech-cd.asp. Accessed on October 10, 2002

117

Despite India’s opposition, the CTBT draft was eventually brought before the United

Nations General Assembly (UNGA), and on September 10, 1996 the UNGA passed the treaty

with 158 nations voting in favour of it.69 India, Bhutan and Libya voted against the treaty

while five other countries abstained from voting. The Indian External Affairs Minister, I. K.

Gujral, apprising Lok Sabha about the voting in the UNGA, said, “the vote was preceded by

an active debate which focused on the disarmament perspective in which CTBT should have

been placed… There was a widespread expectation of concern over the procedure adopted

and apprehension that it may erode the creditability of the conference on Disarmament. A

large number of countries expressed dissatisfaction with the entry into force provisions as

being unprecedented and an unwelcome departure from customary international law”.70

Gujral also told the House that his government would refrain from signing the CTBT unless

discriminatory provisions were eliminated from the treaty.71 17

The CTBT remained an irritant in India-U.S. relations from the very beginning. The

Clinton administration was keen to have the CTBT accepted universally. India, on the other

hand, had consistenly opposed the treaty saying that it was discriminatory. In fact, the two

countries nurtured opposite views (as discussed in detail in chapter 2 of this dissertation) on

nuclear and security issues. India opposed multilateral treaties like the NPT and the CTBT on

the ground that these treaties were against the interests of the nuclear ‘have-nots’ like India.

The U. S. on the other hand, viewed these treaties as essential for the achievement of a non-

proliferation regime. At the CD in Geneva, India particularly objected to the ‘entry into force’

clause in Art. XIV of the Draft of the CTBT because she felt that it would put unwanted

obligations on India.72 In almost all the CTBT Plenary meetings in Geneva, India objected to

the draft resolution of the treaty.73 Though the CD negotiations started in 1994, when P.V.

Narasimha Rao was the Prime Minister of India, it was during the Deve Gowda period that

the CTBT became a major contentious issue in India-U.S. relations, because the draft treaty

was brought to the UNGA where India opposed it, and when it was opened for signature, she

refused to sign it. According to Prof. Sumit Ganguly of Indiana University, who is an expert

on India-U.S. relations, the CTBT damaged India’s relations with the U. S. and lowered

India’s standing in multilateral fora. He also argued that India’s efforts to block the CTBT at

69. See The Times of India, September 11, 1996, p.1. 70. The Lok Sabha Secretariat, Lok Sabha Debates, 10th Series, Vol. XXII, No. 16 (New Delhi, September, 11, 1996), p. 156. 71. Ibid 72. The Lok Sabha Secretariat, Lok Sabha Debates, 10th Series, Vol. XXI, No.5 (New Delhi, August 26, 1996), p. 121. 73. Indian representative at the CD, Ms. Arundhati Ghose raised objections to the draft resolutions in different plenary meetings. Ambassador Ghose told this researcher during an interview in New Delhi on February 10, 2007 that India decided to oppose the CTBT in every international forum.

118

the UNGA cost her a non-permanent seat in the Security Council for which she vigorously

campaigned in the Fall of 1996.74 For the U.S., the CTBT was a major foreign policy issue.

That the U.S. gave top priority to the CTBT was proved again when President Clinton signed

the treaty on September 24, 1996, - the first world leader to do so.75

The other issue on which India’s differences with the U.S. became apparent was

China, who conducted its 45th nuclear test on July29, 1996 when the CD was in progress in

Geneva. India condemned the test and said that it only strengthened the Indian position that a

partial disarmament effort like the CTBT would not lead to a complete elimination of the

weapons of mass destruction. India’s External Affairs Minister Gujral told the Indian

Parliament, “on one part, we are dismayed by the nuclear tests carried out by nuclear-

weapon-states, particularly as CTBT negotiations are in progress… These tests have

contributed to the nuclear arms race and shown that partial tests do not lead to nuclear

disarmament.”76 China’s nuclear test also had a bearing on South Asia and particularly India,

because according to American intelligence sources, China had sold M-11 missiles to

Pakistan, and possibly ring magnets, used for enriching uranium for nuclear weapons.77 This

had been revealed in June, 1996. Such revelations only created doubts about the success of a

non-proliferation regime in South Asia.18

The U.S. however, was not willing to accept India’s position on the CTBT. The U.S.

government suspected that India was opposing the non-proliferation regime because she

wanted to keep the nuclear weapons option open. Stephen J. Ledogar, the U. S. envoy to the

CD in Geneva, said that the ‘real reason’ for India’s opposition to the treaty was that the

government in New Delhi wanted to maintain the nuclear weapons options.78 Ambassador

Ledogar’s charge against India showed that the U.S. administration took serious exception to

India’s efforts at blocking the CTBT. Bilateral relations suffered as a consequence. Gujral

was very close to reality when he told the Indian Parliament that on CTBT India and the U.S.

“agreed to disagree”.79 These official statements revealed that India-U. S. bilateral relations

were put under strain during the Deve Gowda period due to differences of opinions of the

74. Sumit Ganguly, n.15, p. 132. 75. The CTBT, however, was not ratified by the U. S. Senate. The Senate rejected the treaty in October 1999. See in this connection, U. S. Information Service, Official Text (Calcutta, October 1999), pp. 1-7. 76. The Lok Sabha Secretariat, Lok Sabha Debates, 10th Series, Vol. XX, No. 9 (New Delhi, July 31, 1996), p. 252. Also see, The Hindu (New Delhi), August 1, 1996, p. 1. 77. See ‘China Supplied Nuclear Materials to Pakistan’ in The Hindu (New Delhi), June 17, 1996, p. 1. Also, Sumit Ganguly, n. 15, p. 132. 78. See U.S. Department of State, PDQ Document No. 39 (Arms Control - 1996), visit, http://www.usinfo.state.gor/reional/nea/sasia. Accessed on October 12, 2002. 79. See The Times of India (New Delhi), August 3, 1996, p. 1.

119

two countries over the CTBT.

Defence Co-operation

Despite differences over the CTBT, India and the U. S. continued their co-operation

in defence-related areas. As outlined in chapter 2, the defence co-operation between the two

countries started during the Narasimha Rao government when the two countries signed the

Agreed Minute on Defence Relations (AMDR). In May-June 1995, Indian and American

military personnel had conducted joint exercises on land and at sea. A Joint Technical Group

(JTG) which was one of the senior bilateral forums between the Indian Ministry of Defence

and the U.S. Department of Defence was formed in January 1995, in accordance with the

AMDR. The JTG worked under the guidance provided by the India-U.S. Defence Policy

Group (DPG), an apex body providing direction on defence cooperation between the two

countries. The DPG continued to function effectively during the Deve Gowda premiership.

The second annual meeting of the DPG was held in the last week of October, 1996 in

Washington, D.C.80 At this meeting, the Indian Side was led by the Defence Secretary T. K.

Banerji while the U.S. side was led by Franklin D. Kramer, Assistant Secretary of Defence

for International Security Affairs in the Clinton government. Detailed discussions on

security perceptions in the Asia-19Pacific region were held between the two delegations at

the DPG meeting.81 In the sphere of Technology cooperation between India and the U.S.,

three ‘Mission Areas’ were identified by the DPG. These are : (1) Aircraft technology, (2)

Third generation anti-tank systems, and (3) Instrumentation of test sites and manpower

training. An India-U.S. Technology Advisory Group (TAG) was formed to monitor the

technology transfer between the two countries.82

The JTG also met from September 22 to October 01, 1996 in Bangalore and New

Delhi.83 In these meetings, the JTG, under the guidance of the DPG, deliberated upon the

three ‘Mission Areas’ of technology cooperation. The JTG revealed that while there had been

limited cooperation in the second mission area, satisfactory progress had been made in the

first and third mission areas.84 The JTG also monitored progress made during the last one

year in areas of defence cooperation between India and the U.S. A major joint venture

80. See in this context, Embassy of India, Washington D.C, India- U. S. Defence Co-operation: A Policy Statement, visit , http://www.indianembassy.org/indodefense.asp. Accessed on October 14, 2002. 81. Ibid 82. Ibid 83. Ibid 84. Ibid

120

programme for the development of the Engineering Test Station (ETS) was started by

Lockheed Martin Control System of New York and the Aeronautical Development

Establishment, Bangalore in June 1996. The ETS was developed to test the Onboard Digital

Flight Computer for the light combat aircraft. These systems were delivered to Lockheed

Martin and would be jointly tested in the U. S.85 The JTG meetings in September-October

1996, also monitored the progress of work of the ETS.20

India-U.S. Defence co-operation also included Executive Steering Group (ESG)

meetings held annually between Indian army, navy, and air force officials and their

counterparts in the U.S. The ESG meetings of the army and navy were held in late 1976.86

These meetings took some important decisions with regard to defence co-operation between

India and the U.S. The ESG meetings decided in favour of : (1) progressive build-up in the

scope and content of joint naval exercises, and the enhancement of Co-operation in training

and other joint ventures; (2) Participation in joint exercises by the Indian army and the U. S.

army; and (3) extending invitations by the U.S. and Indian forces to their respective

counterparts to visit defence institutions in each other country to attend courses and training

programmes. The ESG meetings highlighted the idea that such defence cooperations would

enhance trust and confidence among the forces of the two countries.87

In the changed international political and strategic milieu after the cold war, defence

cooperation between India and the U.S. proved beneficial for both the countries. The U.S.

showed greater willingness, during 1995-97, in favour of releasing American equipment for

military sales (FMS).88 The FMS provided on opportunity for India to obtain leading edge

technologies in specific areas. The U.S. on the other hand, could gain vital geo-strategic

knowledge required for counter-terrorist activities through defence cooperation with India.

Also, the U.S. forces could gain access to important geo-strategic locations in South and

South-east Asia via joint military exercises. Both India and the U.S. possess a vast amount of

resources in their military and civilian sectors. These resources call for leveraging through

cost sharing and logistic support programmes. These could be achieved through defence

cooperation. Therefore, both India and the U.S. started to engage each other in defence after

the cold war. This cooperation continued during the Deve Gowda premiership as well.

85. Ibid 86. Ibid 87. Ibid 88. Ibid

121

India-U.S. Relation in the Deve Gowda Period : An Assessment21

H. D. Deve Gowda was Prime Minister of India for little less than a year. Therefore,

he did not have time to make any significant change in the course of India-U.S. bilateral

relations, which had in fact become a little tense over nuclear, security and human rights

issues since the Rao premiership. During the Deve Gowda period too, differences over

nuclear and security issues continued, although there was no renewed misunderstanding over

human rights issues. The Deve Gowda administration favoured continuity in the major trends

in Indo-U.S. relations that had set in after the cold war. Bilateral economic relations

continued to prosper, while security relations remained contentious. A leading Indian news

journal summarised the performance of the Deve Gowda government when it wrote that

“In its short life, the United Front government scored impressive victories on three fronts: the

economy, ties with neighbouring countries, and Kashmir.89 These three areas of

‘achievement’ had a rebound effect on India- U.S. relations. The satisfactory performance of

the domestic economy attracted foreign investments to India. External trade, among other

phenomena, also helped the economy to perform well. As a leading trade partner, the U.S.

contributed impressively to India’s external trade. India’s relations with her neighbours,

especially, Pakistan and China, were always of interest to the U.S., one reason being the

nuclear factor. Improvement of India’s relations with China, and de-escalation of tension with

Pakistan during the Deve Gowda regime were major achievements of the UF Government.

The peace process initiated by this government in Kashmir was also a laudable effort. As

mentioned earlier in this chapter, the U.S. welcomed these developments in South Asia.

According to some analysts, the U.S. viewed her relations with India from four

perspectives: (i) a nation on the very periphery of the national interest; (ii) a rogue nuclear

state; (iii) a source for expanded trade, and (iv) a potential partner for international

cooperative effort.90 The third and the fourth views noted above, emerged after the cold war.

It may be mentioned here that the Deve Gowda administration also helped to fulfill the third

and fourth perspectives of India-U.S. bilateral relations, as mentioned above. America’s

economic relations with India continued to expand, and the economic and defence

cooperation between the two countries suggested that the U. S. was more willing to treat

India as a partner in various cooperative efforts. The CTBT differences notwithstanding, the

89. See, India Today (New Delhi), April 30, 1997, p. 28. 90. See in this context, David J Louscher, Alethia H. Cook and Victoria D. Berto, ‘Military Relations Between the U. S. and India: Assesment and Prospects’, in Ashok Kapur, et al (eds.), n. 24, p. 303.

122

Clinton administration, in its second term (which coincided with the Deve Gowda period),

decided to cooperate further with India in the economic and defence sectors.91 All these

showed that to the Americans the CTBT was not a spoiler that could paralyze relations with

India. India also believed that despite differences, bilateral relations with the U.S. would

continue to grow. The Indian External Affairs Minister I.K. Gujral told the Indian Parliament,

“I met Secretary of State Warren Christopher. I must say that it was a pleasant and friendly

meeting. While discussing a broad range of issues, we also discussed the CTBT… The

Secretary of State and myself took a broad view of India-U.S. relations which are positive

and serve the interests of both the countries. In this positive spirit both of us agreed that

differences on a single issue should not impact on what is otherwise a fruitful and mutually

advantageous bilateral relationship”.92 This statement clearly revealed that both India and the

U.S. were viewing their relationship in a broader perspective during the second term of the

Clinton presidency. The changing attitude was more visible during 1996-97, when neither the

U.S. nor India was willing to magnify a single issue of difference (CTBT) and endanger the

whole relationship.

Domestic political calculations however, did not favour Deve Gowda and his

government. The Congress (I) on whose support the minority UF government survived,

warned that it would withdraw support if the UF did not change its Prime Minister. Under

compulsion, the UF accepted the Congress (I) demand. The UF chose I.K. Gujral to head a

new government. Gujral took charge as the Prime Minister of a second UF government in

New Delhi on April 21, 1997. The next chapter will analyse India-U.S. relations in its various

aspects under I.K.Gujral.22

91. Ibid 92. The Lok Sabha Secretariat, Lok Sabha Debates, 10th Series, Vol. XX, No.9 (New Delhi, August 2, 1996), p. 310.