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Paying Dividends: The U.S.-India Nuclear Deal Four Years On

Four years after a historic nuclear deal was signed, many in American policy circles deride the agreement as a failure. They’re wrong.

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The 2008 Indo-U.S. Civilian Nuclear Agreement was supposed to mark a watershed moment for India – U.S. relations, ending the two democracies long-standing estrangement and ushering in a new era where New Delhi and Washington would be “indispensable partners.” But four years after the deal came into effect, much of the initial enthusiasm that it engendered has dissipated. Especially in American foreign policy circles, many feel that the nuclear agreement has failed to meet expectations.

From India’s perspective, nuclear cooperation was a sine qua non for any meaningful growth in India-U.S. ties in other areas. That being said, there was also a genuine expectation in the U.S. that assimilating India into the nuclear mainstream would reap enormous economic, political and strategic dividends for the country. However, many of the deal’s strongest proponents at the time of its signing now claim that these gains failed to materialize.

Economically, the U.S. was attracted to the vast potential India’s large and growing nuclear energy market had for domestic nuclear firms. This viewpoint failed to take into account India’s domestic nuclear liability law, which obliges nuclear suppliers to be liable for damages their equipment results in. Many U.S. companies have balked at this requirement, and the economic gains of the deal have failed to materialize accordingly.

For many in Washington, the nuclear deal similarly failed to tie India closer to the U.S.-led global non-proliferation and arms control architecture. India has defied American expectations by making no concerted effort to sign the Comprehensive Test Ban Treaty (CTBT), and has shown no interest in voluntarily halting its production of fissile materials (enriched uranium or plutonium). More troubling for many in Washington is India’s continued refusal to parrot the American line regarding Iran’s nuclear program.

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Lastly, the Indo-U.S. nuclear deal had an explicit strategic dimension. By the turn of the 21st century, balancing China’s growing power had become a strategic imperative for the U.S., which saw India as a viable alternative to China because of its sheer size, geography, military capabilities, and democratic political values. The nuclear deal was supposed to provide the edifice of a robust security relationship between the two states centered on balancing Chinese power.

Rather than actively balancing China, India has mostly pursued a hedging strategy, as most prominently demonstrated by the unofficial but influential Nonalignment 2.0 report from earlier this year.  As Ashley Tellis presciently remarks, “for the U.S., which has just recovered from India’s Nonalignment 1.0, Nonalignment 2.0 is a strategic nightmare.” Whether India is explicitly pursuing a nonalignment redux policy or not, there’s little doubt that it has tried to avoid creating an overwhelming dependence on American military hardware.

Based on the above evidence, many in Washington speak of the false promise of the nuclear deal in transforming India-U.S. relations. This general impression is compounded by the policy paralysis with which the Manmohan Singh government has suffered for most of its present term.

There are a number of problems with the above picture, however. First, it portrays the Indo-U.S. nuclear deal as a strategic fix to India-U.S. relations rather than a strategic bet. To be sure, the Bush administration fully understood that a single document would not realign India’s entire worldview to bring it in line with the America’s own outlook. That being said, it was a calculated gamble which, once it was decided that India mattered for the U.S. at the highest levels, was the most optimal strategy to transform the bilateral relationship.

Second, the critical view also discounts the complexities that domestic politics interject into the foreign policy decision-making of democracies like India. Third, four years is a very short time period for passing any judgment on the consequences of the Indo-U.S. nuclear deal and, in any case, strategic choices always take some time to produce their desired results.

But most importantly, the pessimist picture suffers from a selective marshaling of evidence. For example, the issue of liability notwithstanding, the interests of American nuclear firms are being advanced by the Indian government over other foreign suppliers. In fact, just before President Bush signed the Indo-U.S. civilian nuclear agreement into law, India promised to exclusively reserve approximately 10,000 MW of the nuclear reactor market for U.S. vendors. No such promises were made to other advanced nuclear technology powers. Similarly, by early 2009, two prominent locations in the industry friendly states of Gujarat and Andhra Pradesh had been reserved for the American companies Westinghouse and General Electric. As Saurav Jha rightly argues, India has only offered two dedicated locations for reactor development to American firms. Furthermore, earlier this year, U.S.-based Westinghouse and the Nuclear Power Corporation of India Limited signed an “Early Works Agreement” for setting up five nuclear reactors at Mithivadi in the state of Gujarat.

India’s nuclear liability law does indeed create an obstacle for U.S. firms. But it is more a result of India’s democratic processes and also, to a large extent, the changed perceptions of nuclear energy after the Fukushima crisis. In fact, when the law was initially proposed, the Indian government categorically rejected any liability claims against nuclear technology suppliers. However, the memories of the Bhopal Gas tragedy and the legitimacy crisis which unfolded after Fukushima would bind the hands of the Indian government. In any case, under Indian law the supplier’s liability is limited in both the dollar amount that can be incurred — U.S.$91 million — and the time frame companies can be held liable for. Moreover, given the sheer size of India’s nuclear energy market, any amount incurred from one plant is almost certainly to be made up for by the profits made on other plants. This is especially true given the stricter safety standards of modern generations of nuclear reactors. Indeed, it’s telling that as American companies balk at the nuclear liability law, other advanced nuclear exporters like France are eagerly entering India’s nuclear market.

Additionally, whatever economic benefits the U.S. hasn’t obtained from India’s nuclear industry pale in comparison to the enormous profits U.S. defense companies have reaped from sales to India.  Despite India’s reservations about becoming too dependent on American military hardware, over the last seven years U.S. defense corporations have received more than U.S. $8 billion worth of contracts from India, increasingly displacing Russia as India’s preferred military supplier. This is occurring despite the enormous stipulations Washington places on arms contracts and the difficulty recipient nations often have in securing spare parts for their purchases over the entire course of the contract.

Strategically India and the U.S. have become extremely close. More than fifty joint defense exercises have taken place in the last seven years. Since 2005, India has supported all IAEA sanctions against Iran including those which reported it to the UN Security Council. India’s dependence on Iranian oil has also been reduced drastically, a fact that Hillary Clinton herself attested to recently.

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With regards to China, India has offered strong support for the Obama administration’s rebalance strategy, including Washington’s increased focus on the Indian Ocean, a geographical area which New Delhi has historically guarded as its exclusive sphere of influence. New Delhi has also expanded its relationship with other U.S. allies like Japan, and has pledged to play a stronger role in protecting freedom of navigation in the South China Sea. Strategic convergence has also been greatly facilitated by the annual Indo-U.S. strategic dialogues that were initiated in 2010. Today the U.S. and India cooperate on a broader range of foreign policy issues than at any other time in the history of their bilateral relationship.

With President Obama’s reelection and Prime Minister Singh’s renewed focus on pursuing reforms and important policy decisions, a claim can be made that outstanding issues in the nuclear deal have a good chance to be resolved. But, while not denying the need for more engagement between the two nations in realizing the objectives of the nuclear deal, there is a strong case to be made that critics of the deal simply lack the patience that a historic strategic reorientation requires.

Yogesh Joshi is a doctoral student in international politics at the Center for International Politics, Organization and Disarmament, School of International Studies, Jawaharlal Nehru University, New Delhi, and a CSIS-Pacific Forum Young Leader. He recently joined the steering committee of the International Network of Emerging Nuclear Specialists and represented India at Global Zero World Summits in Paris (2010) and London (2011).