According to American officials, Khobragade was arrested on the grounds of visa fraud and submitting false information in an application for her housekeeper to live and work in the United States, and underpaying her. She has since been allowed to leave the United States, though not after bitter exchanges between both governments, with the Indian government having taken an extremely tough stand against its strategic ally over the incident.
The escalating row has turned the spotlight on the stability of Indo-US ties. While ties between the two nations will not come to an end with this incident, it has had an effect on the already languishing relationship. While the bilateral military relationship has strengthened considerably in recent years, the anticipated cooperation in the nuclear, economic and geopolitical domains have failed to materialise.
Growing US-India defence trade remains the relationship’s highpoint, with total trade having reached US$10 billion. The defence relationship between the two countries, which gained momentum with the signing of the 2005 New Framework Agreement, appears set to go beyond the mere sale of helicopters and F-16s to encompass bilateral technology transfer and collaboration. The Joint Declaration on Defence Cooperation made on 27 September 2013 at the end of Prime Minister Manmohan Singh’s meeting with President Obama is important not just for what it offers — defence technology transfer, joint research, co-development and co-production — but also for the fact that both nations elevated each other to their ‘closest partners’ category.
With this declaration, the US defence industry also stands to potentially secure a significant portion of the multi-million dollar modernisation programme that India has planned for its defence arsenal — a market that so far been dominated by Russia. Having already engaged in several military training exercises with the United States, India has also accepted an invitation to participate in the 2014 Rim of the Pacific Exercise at Hawaii.
In contrast, progress on nuclear cooperation has continued to languish due to the regulation on liability. According to an Indian law passed in 2010, foreign suppliers can be held responsible for majority of the liability for any nuclear accidents that may occur in the future. This is not acceptable for American companies who consider such a ruling contrary to established international norms but also commercially unviable.
A preliminary contract was signed at the latest summit between Nuclear Power Corp of India Limited and Westinghouse Electric Company to build reactors in India’s northwestern Gujarat state. However, there is no timeline for the actual production of nuclear power for civilian use in India.
Economic relations between the two countries have also been underwhelming. Since 2000, bilateral trade has increased nearly five-fold to approximately US$100 billion. Foreign Direct Investment (FDI) by Indian businesses in America increased from US$227 million in 2002 to US$5.2 billion while US investments in India reached more than US$28 billion in 2012. However, India remains the United States’ 13th-largest trading partner while the volume of US-China trade continues to dwarf Indo-US trade.
American businesses are finding it difficult to capitalise on the booming Indian middle-class market due to New Delhi’s stance on patent protection and FDI restrictions across different sectors. American companies are also unhappy with the regulation that requires 30 per cent of the products to be sourced from within India. Lack of clarity on the changing regulations and political uncertainty over India’s upcoming 2014 general elections have made US business extremely cautious about investing in India.
The Indo-US ‘strategic partnership’ is also weakened by conflicting geopolitical goals. While Washington hopes that strengthening ties with India will help it balance China’s rise, New Delhi is circumspect about being seen by Beijing in that role. Meanwhile, New Delhi would like Washington to take a stronger stance against Pakistan for its failure to curb cross-border terrorism.
More broadly, the Indian administration is also apprehensive about the region’s security and stability after the scheduled withdrawal of US troops from Afghanistan. It fears that Afghanistan could once again turn into a safe haven for non-state actors, which may result in the rise in insurgencies in Kashmir. Reports of the National Security Agency conducting surveillance of communication by Indian government agencies, including several Indian diplomatic posts in the United States, have also contributed to the lack of trust between the two governments.
It is clear that both India and the United States need to take decisive action to restore the momentum in their flagging partnership. Both nations stand to gain politically and economically from deeper engagement. Doing so will not only help Washington achieve the strategic aims of its pivot to Asia but also enable New Delhi further its larger strategic and economic objectives in East Asia. It would thus be detrimental for both nations to allow the diplomatic row over the treatment of an Indian consular official in New York to escalate any further.
Harshita Kohli is an Associate Research Fellow with the US Studies Programme at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University.
This article was first published here as RSIS Commentary no. 237/2013.