35111 6/21/2005 12:09 05 NEWDELHI 4721 Embassy New Delhi SECRET "This record is a partial extract of the original cable. The full text of the original cable is not available." "S E C R E T SECTION 01 OF 08 NEW DELHI 004721

SIPDIS

FOR THE SECRETARY

E.O. 12958: DECL: 06/21/2030 TAGS: PREL, ETTC, ETRD, KNNP, MASS, PTER, IN, NP, PK, IZ, IR, External Political Relations

SUBJECT: SCENESETTER FOR INDIAN DEFENSE MINISTER MUKHERJEE,S 25 JUNE - 2 JULY VISIT TO THE USA

Classified By: Ambassador David Mulford for Reasons 1.4 (B, D)

1. (C) Summary: Secretary Rumsfeld, we appreciate your willingness to host the upcoming visit of Indian Defense Minister Pranab Mukherjee, and see many opportunities to accelerate our burgeoning defense cooperation with a nation we believe to be the key to a prosperous and peaceful future for South Asia. As the Defense Minister overseeing one of the largest militaries in the world, Mukherjee obviously has considerable clout by any standard. However, as a respected economist and keen political strategist with close personal ties to the Congress Party's kingmaker Sonia Gandhi, Mukherjee's political influence extends far beyond the halls of the MOD. Mukherjee chairs as many as 18 ministerial working groups -- far more than any other minister -- and participates in several others. These influential groups deliberate on and facilitate government approval of national policies such as the Patents Act and the recently enacted WMD Bill. His influence over both GOI policy and public opinion is rivaled only by tha t of the Prime Minister himself. He is, in effect, the Deputy Prime Minister, and we believe he aspires to the top job. By demonstrating our understanding of his influence beyond the military realm, it may be easier to advance our defense-related objectives. (More on Mukherjee's bio in para 18.)

2. (C) Mukherjee's trip to the US comes soon after Secretary of State Rice's highly successful March 16-17 visit to India and just before Prime Minister Manmohan Singh's state visit to the US on July 18. In addition to promoting greater cooperation between the two militaries, he will want to engage on issues outlined in the larger March 25th strategic partnership, e.g., energy and economic issues. While Mukherjee will seek to pave the way for deliverables for the PM's upcoming visit, he will also want to return with some tangible agreements of his own. Signing the ""Framework for US-India Strategic Defense Relationship"" may be one such deliverable.

3. (C) In light of Mukherjee's position as de facto Deputy Prime Minister, we see five objectives we can advance during his visit:

-- Strategic: Underscore the significance of a broad US-India relationship toward achieving shared strategic, global, regional, and economic objectives. In particular, we feel it is time to involve India as a full member (including in the Core Group if this is to continue to exist) in the Proliferation Security Initiative (PSI).

-- Defense: Emphasize the importance of a deeper defense relationship in the context of our broader strategic relationship with India, highlighting the opportunities presented by a larger FMS relationship while addressing concerns about US reliability as an arms supplier, pressing for negotiation of an Acquisition and Cross Servicing Agreement (ACSA), and initialing of a Research and Development, Test and Evaluation (RDT&E) Agreement.

-- Regional: Laud unprecedented progress in the Indo-Pak relationship and reaffirm the effective US-India regional partnership in meeting shared objectives in Nepal and Bangladesh. You might also acknowledge India's leading role in the regional tsunami recovery and note that we see our cooperation in this effort as a good template for future humanitarian operations.

-- Economic: Highlight our strong desire to use the US-India Economic Dialogue to remove blockages to bilateral trade and direct investment, increase private and government technical and regulatory exchanges, and resolve commercial disputes.

-- Iraq: As a strategic partner with interests beyond its immediate region, seek GOI commitment to immediate and long-term engagement in reconstruction and democratization in Iraq.

4. (SBU) In sum, the Defense Minister's visit comes at a time when the goal of establishing a key strategic relationship is becoming reality. New initiatives, combined with careful management of possible irritants, will move us forward in building, with one of Asia's rising giants, a collaborative relationship. End Summary.

NSSP and Strategic Partnership

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5. (C) Until Secretary Rice's March visit, the keystone for our new relationship with India was the NSSP, which set the objective of extending our cooperation into civil space, civil nuclear, high-tech trade and establishing a dialogue on Missile Defense. In order to conclude Phase II and III of NSSP, the GOI expended extraordinary effort to pass a comprehensive ""WMD Act,"" which explicitly gives the GOI authority to stop and punish those who are involved in transfer of items or technology related to the creation or transfer of WMD.

6. (S) However, they reacted strongly to parts of A/S Rademaker's recent presentation on the steps India must still take to conclude the NSSP. Foreign Secretary Saran made it clear that they will manage the implementation of their new legislation and supporting regulations in their own way. Mukerjee may raise the GOI view that the US keeps moving the goalposts on NSSP. The GOI understanding of their original NSSP obligations was that India must ""agree to adhere"" to the NSG and MTCR in Phase II and then harmonize national control lists with the NSG and MTCR and enact export control legislation in Phase III. They have objected that we are suddenly saying a) the GOI must also complete and show us their implementing regulations; and b) they must make a public announcement that they have adhered. (They also objected that harmonization to the Australia Group and Wassenaar Arrangement lists are not conditions for completion of NSSP. We told them we agree but pointed out that harmonization with these two regim es will facilitate post-NSSP strategic cooperation in areas such as space.) Otherwise, India has gone to great lengths to demonstrate that it is a responsible member of the nuclear club, upholding a ""no first use"" policy coupled with an undefined ""minimum credible deterrent"" and a strong policy against onward proliferation of nuclear and missile technology. Our recent Missile Defense engagement reflects the broad convergence of our strategic outlooks.

Defense Equipment Sales--Underexploited

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7. (C) Closely related to this NSSP agenda is our ongoing effort to address Indian concerns about US reliability as a supplier for major weapons systems and to lay the foundation for a breakthrough arms sale. We see this as key to deepening our mil-mil relationship and to developing the military interoperability that will help our strategic partnership realize its potential. Despite the US lifting of sanctions in 2001, we have not yet achieved a breakthrough sale of a major platform that would clearly establish our intent to be a major player in this market, our technical and price competitiveness, and our reliability as a supplier. The pending obsolescence of much of India's Soviet-origin equipment will create once-in-a-decade opportunities for foreign suppliers. Our decision to respond to the Request for Information (RFI) for 126 multi-role fighters to replace India's aging MIG fleet has been a critically important signal of our intention to compete in this USD 14 billion defense market. While eager to diversify its sources of supply, purchase what it believes is superior US technology, and develop an indigenous private defense industry, the GOI continues to raise questions about the dependability of the US Government as an arms provider, and seeks licensed production and technology transfer to the maximum extent possible both as a way to expand the capability of Indian industry and as insurance against future sanctions. Following our strong presence at the recent Aero-India trade show, the GOI has been making more positive noises about our arms sales relationship. However, Defense Minister Mukherjee continues to raise public questions about US reliability that your meetings and a US decision to compete on a large scale, including co-production and technology transfer, could help to address.

8. (C) We currently see serious potential for the sale or lease of P-3C Orion maritime patrol aircraft, and a chance to compete for multi-role combat aircraft. During Indian Chief of Naval Staff Admiral Prakash's recent visit to the US he indicated a strong desire to move quickly on acquisition of P-3Cs, even requesting leasing two P-3's as an interim solution. The Navy is investigating options including refurbishment of strategic reserve aircraft, transfer from other nations, and provision of other US owned aircraft in an attempt to meet Indian needs. India has also indicated interest in acquisition of one Amphibious Transport Dock (LPD) and four Minehunters (MHCs) to be retired from the Navy over the next two years. In 2004 the Indian Navy signed a LOA for Deep Submergence Rescue Vehicle services worth $700,000 and they have indicated a desire to test this capability as soon as possible. Up to this point the major arms sales have remained 200 million USD for 12 An-TPQ-37 Firefinder Radars, and 14 USD million worth of Special Forces Equipment. Unfortunately, the Firefinder Radar has been plagued with problems, further reinforcing the need for a breakthrough sale such as the MRCA. We have suggested to MOD that assigning an Indian expert on defense procurement to the Indian Embassy in Washington could assist in coordination of defense sales.

Acquisition and Cross Servicing Agreement (ACSA)

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9. (C) One key administrative goal to further advance our defense cooperation programs is the completion of an ACSA. Our Embassy has initiated and subsequently reinvigorated this issue with the Indian MOD several times. USD(P) Feith mentioned it in June during the Defense Policy Group. Mr. Feith also mentioned it with Foreign Secretary Saran in September. In a recent meeting with DCM Blake, Indian Defense Secretary Vikram Singh, stated he had not been aware the ACSA was subject to negotiation and could take into account Indian concerns about being drawn into a future US military action. Now understanding the US flexibility regarding the text the GOI is considering inviting a USPACOM negotiation team to India to discuss wording acceptable to India. We recommend you stress with Mukherjee and other officials the importance of moving this long stalled agreement forward.

Research Development Test and Evaluation (RDT&E) Agreement

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10. (C) The GOI views R&D collaboration as an important part of the defense supply relationship. Furthermore, the quality of the Indian S&T community is source of national pride. A robust Defense Cooperation in Armaments (DCA) program conveys that our relationship is a partnership among equals, and not one based solely on a ""buyer-seller"" relationship. The Master Information Exchange Agreement (MIEA) was signed in February 2004 and the Research Development Test and Evaluation (RDT&E) agreement may be initialed during this visit and signed once congressional notification is complete. Additionally, the first of two Information Exchange Annexes (IEAs) related to human performance enhancement was signed in April 2005 and the second is currently pending signature. Senior US defense R&D leaders have also exhibited an unprecedented interest in engaging the Indian R&D community. Our primary task now is to maintain the momentum and explore additional areas of collaboration that could lead to a near term project agreement.

Rapidly Expanding Mil-Mil Engagement

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11. (C) India and the US now routinely engage in military exercises of growing scope and sophistication. The Malabar 2004 naval exercise tested newly developed USN-IN Standard Operating Procedures (a key step toward interoperability) and included the first visit of a US nuclear powered warship to an Indian port. Malabar 2005 will include aircraft carrier operations, and use of a common operating picture and encrypted communications. The Air Force exercise Cope India is rapidly becoming the premier Air-to-Air Combat exercise in the Pacific. In November of this year, 12 F-16 Block 50s from Misawa, Japan and 1 x E-3B AWACS aircraft from Kadena, Japan will deploy to Kalaikunda Air Force Station in India for Dissimilar Air Combat Training against Indian Air Force SU-30MKIs, Mirage 2000-5, and the upgraded Mig 21(bis) fighter aircraft. This year brings added interest as the GOI is seriously considering purchasing the F-16 for the 126 Multi-role Combat Aircraft (MRCA) acquisition. US Army and Special Forces un its have participated in exercises in the Himalayas and the jungles of eastern India while Indian Army units participate in exercises in Alaska, Hawaii, and California. These exercises and many others were well covered in the Indian press and are viewed here as opportunities for the Indian military to display their professional prowess and to signal India's credibility as a regional power.

Nonproliferation, Missile Defense, and PSI

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12. (C) India has endeavored to prove itself a responsible member of the nuclear club, upholding a ""no first use"" policy coupled with an undefined ""minimum credible deterrent"" and a strong policy against onward proliferation of nuclear and missile technology. Our recent Missile Defense engagements reflect the broad convergence of our strategic outlooks; India would like now to pursue a missile defense technical cooperation agreement of the sort we have with other close allies and friends. Further, the GOI also remains interested in the Proliferation Security Initiative (PSI). The government, however, contends that it would be politically unacceptable for India to be a junior partner in PSI so they want PSI partners either to disband the Core Group or admit India as a full member. Indian involvement in PSI would bring India's significant naval and intelligence assets to the PSI mission and would represent a strategically significant realignment of the GOI's historical rejection of multilateral non-prolife ration regimes. Mukherjee hopes SecDef will be able to report progress and that the President will be able to tell the PM that the US has made a decision either to discuss with its PSI partners the disbanding of the Core Group or the inclusion of India in it. The UK is scheduled to host a PSI exercise in the Indian Ocean in September, and we would like to see formal GOI involvement at that time.

Economic Reform

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13. (SBU) The GOI recognizes the need for structural and regulatory changes to build market institutions, reduce the role of government in the economy, increase competition, and boost direct foreign investment. It is attempting to package reforms in a way that links reform to the delivery of tangible social benefits to key constituents, especially the rural poor. A sustained growth rate of 7-8 percent will require India to achieve strong and sustained inflows of foreign capital, technology; goods and services (including training). This makes the US an essential partner in India's economic transformation. You should use this visit to congratulate Minister Mukherjee on the GOI's reform accomplishments to date and highlight our strong desire to use the U.S.-India Economic Dialogue to: resolve commercial disputes, identify and remove blockages to bilateral trade and investment, increase private and government technical and regulatory exchanges, and strengthen appreciation in the Indian bureaucracy of the econ omic benefits derived from a strategic partnership with the U.S. (very important for a government led by economists!).

Indo-Pak Upswing

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14. (C) Indo-Pak relations continue to improve, to the point where it is now difficult to imagine a return to the high tension and crisis diplomacy of 2002/3. The Indians say that terrorist infiltration from Pakistan was down significantly during 2004, which the GOI attributes mostly to its own policies (a fence along the LOC, extensive deployment of sensors and other technology, and better anti-insurgency strategy), but also to Pakistani restraint. These trends have smoothed the way for a year of bilateral talks on over a dozen topics, including energy cooperation, trade, and territorial issues. The bus service between Srinagar and Muzaffarabad that began in April is the most visible example of the improving Indo-Pak relationship, which is largely fueled by people-to-people exchanges and a motivated PM Singh who champions unconventional thinking within limited constraints - notably, that India will not accept territorial solutions that divide people based on religion. Despite these positive trends, a spe ctacular terrorist attack against India, especially if it were to take place outside J&K, would quickly dispel the climate for diplomacy. The GOI has absorbed several high-profile suicide attacks in Srinagar in recent months, in large part because the PM and his team place a very high priority on the peace process. The perception of US engagement on the problem of terrorist infiltration from Pakistan is key to our influence over Indian behavior.

Domestic Politics

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15. (C) In the year the United Progressive Alliance (UPA) coalition has been in power, it has faced generally smooth sailing, with an eviscerated opposition and largely favorable domestic, foreign policy and economic trends. While the Indian public is generally enthusiastic about closer relations with the US, the UPA government is frustratingly cautious because of its reliance on Left parties which are often opposed to growing ties with the US.

Regional Dialogue

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16. (C) One of the Bush Administration's signature accomplishments in US-India relations has been our intensified dialogue in dealing with challenges elsewhere in South Asia. The substantial military resources that India deployed in response to the tsunami, the GOI's effective participation in the Core Group, and the Army's deployment of liaison officers to USPACOM and the JTF in Thailand illustrate India's status as a dominant regional player that is increasingly capable of projecting power over long distances. On Nepal, the Indian government has welcomed the opportunity to coordinate closely with us in responding to the King's power grab, and has sought to minimize any divergence in our approach. Afghanistan is another success story, with the GOI reinforcing our support for Karzai, committing substantial development resources (USD 500 million so far), and pursuing an agenda that parallels our own quest for a democratic, multi-ethnic Afghanistan. We expect the Indians will want to raise with you their vi ews regarding Bangladesh and Nepal. The Indians will also be keenly attuned to what you have to say on Iran. For the GOI, Iran is part of the immediate neighborhood, and serves as a crucial gateway to Central Asia, a supplier of energy, a means of complicating Pakistan's war-time calculus, and a potential source of influence for good or ill on India's large Shia minority. Driven in part by surging domestic energy demand, India has significantly softened its position on participating in trans-Pakistan gas pipelines to take advantage of energy supplies in Iran and Turkmenistan. Secretary Rice took just the right approach in a recent

SIPDIS interview in stressing our desire to engage constructively with India on the Iran-Pakistan-India gas pipeline.

Iraq

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17. (C) Mukherjee's visit will also be an opportunity to press for greater GOI engagement in Iraq. India pledged $10 million for Iraq at the Madrid conference and will participate in the US-EU conference in Brussels, but lacks the will to engage except from a distance. GOI officials say they would like to do more in Iraq, but cannot muster the political courage to lift the travel ban that was imposed following the kidnapping and release of three Indian truck drivers in the summer of 2003. Iraq Coordinator Ambassador Jones visited New Delhi recently and encouraged the GOI to make use of its past experience in Iraq's electricity sector to refurbish local electrical grids in some of the ""safe"" provinces, and provide training to Iraqi police and military forces either in India, Amman or Abu Dhabi.

Biography

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18. (U) Pranab Kumar MUKHERJEE (pronounced: ""moo-KER-jee"")

Addressed as: Mr. Minister

Minister for Defense (since May 2004)

19. (SBU) Pranab Kumar Mukherjee (68) is one of most senior Congress Party stalwarts and strategists, as well as a close advisor to Sonia Gandhi. Originally slated to become the Home Minister, he was given the Defense portfolio to prevent him from challenging PM Singh's leadership. Observers of the Indian political scene believe he is positioning himself for higher political aspirations, i.e.,Prime Minister. He was elected to the Lok Sabha (lower house of the Parliament) from West Bengal in the 2004 national elections with support from regional Left leaders, with whom he maintains close ties. A Congress Working Committee member and the Leader of the Congress party in the Lok Sabha, he has favored stronger ties with the US, including more economic and trade cooperation.

20. (C) Lacking military experience, he relies heavily on advisors for counsel on strategic and operational issues confronting the country's armed forces, and seems to be more involved in his other political duties (see below). He appears to be very supportive of the growing number of joint US-India military exercises, exchanges, conferences, and training. In his December 9 meeting with Secretary Rumsfeld, Mukherjee stated his desire to diversify India's arms supply (the lion's share of which comes from Russia), but raised the specific concern about the slowness of the US arms procurement process.

21. (U) Mukherjee's political clout is reinforced by his membership in several influential committees. He is a senior member of the Cabinet Committee on Political Affairs, the Cabinet Committee on Economic Affairs and the Cabinet Committee on Security. He chairs the Group of Ministers on Patent Laws -- charged with bringing India's product patent coverage up to international standards. He is a member of the Cabinet Committee on the World Trade Organization, and heads the Group of Ministers Committee on the Dabhol dispute, charged with bringing the closed power plant back on line. He also heads the Group of Ministers investigating the alleged corruption of the previous NDA (National Democratic Alliance) government.

22. (U) Before taking the Defense Minister post, Mukherjee's experience in government was primarily in the economic area. In 2000-2001, he chaired the Congress party Economic Affairs Department and was President of its West Bengal unit. He served as Union Minister for Finance and Commerce (1993-95) in the Narasimha Rao government and Deputy Chairman of the Planning Commission (1991-93). Working closely with the late PM Indira Gandhi, he presented three consecutive union budgets (1982, 1983 and 1984) as Finance Minister, which prompted New York-based EuroMoney magazine at that time to rate him ""one of the most innovative finance ministers of the world.""

23. (U) After the assassination of Indira Gandhi in 1984, Mukherjee failed to maintain good relations with Rajiv Gandhi, who expelled him from Congress in 1986, reportedly for showing too much ambition. In response, the frustrated Mukherjee launched the Rashtriya Samajwadi Congress party in 1987, but it did not win a single seat in the West Bengal Assembly elections of 1987, and Rajiv Gandhi took him back into the party in 1988, considering his exit a brief aberration from a long career dedicated to the Congress party.

24. (U) Born into a middle-class freedom fighter's family on December 11, 1935 in West Bengal, Mukherjee has a Law degree and Masters degrees in History and Political Science. After a brief career as a lecturer and a journalist, Mukherjee entered politics by joining the Bangla Congress in 1966, and soon switched to the Congress party. Elected to the Rajya Sabha in 1969 and in 1975, he was re-elected to the Rajya Sabha from Gujarat in 1980 and joined Indira Gandhi's cabinet as an independent charge Minister for Commerce (1980-82). Mukherjee became Union Minister for Finance with additional charge of Commerce and Supply in 1982. The author of a book, ""Emerging Dimensions of Indian Economy"" (1984), he regularly contributes articles on Indian economy and politics.

25. (U) A devout upper caste Hindu Brahmin, Mukherjee is married to Subhra. They have two sons and one daughter. His daughter, Sharmishtha Mukherjee, is a well-known Indian classical dancer. His native tongue is Bengali, but he is equally fluent in Hindi and English. Though articulate, he is soft-spoken and speaks with a heavy Bengali accent which can sometimes be difficult for Americans to understand.

26. (U) Again, we thank you for hosting this visit of India's Defense Minister and look forward to a highly successful visit.

MULFORD