American Enterprise Institute

April 24, 2006

[Edited transcript from webcast]

12:15 p.m.	Registration
12:30	Lunch
1:00	Welcome and Introduction:	Christopher C. DeMuth, AEI
	Address:	David C. Mulford, U.S. ambassador to India
2:00	Adjournment

Proceedings:

Christopher DeMuth:  Ladies and gentlemen, my name is Chris DeMuth.  I am the president of the American Enterprise Institute, and I am delighted to welcome you all here today for this lunch and address by David C. Mulford, the American ambassador to India.  Relations between India and the United States have been warming tremendously in recent years, growing in friendship and into a true natural partnership that is no doubt in part because of some shared adversities that both nations have been facing, but it is also the result of an increasing awareness of our strong mutual interests of the growth of the Indian economy.  The growth of its democracy, improvements in policies in both nations, and the improvement in relations has, I believe, been greatly augmented in the past two years or so by President Bush’s appointment of Ambassador Mulford to be the American representative in India. 
David Mulford has a long and distinguished career in business, finance, and public affairs.  In the 1970s, he was in a series of increasingly prominent positions at the White House [??] during the second Reagan administration.  In the administration of the first President Bush, he was Assistant Secretary and then Undersecretary for International Affairs at the U.S. Department of Treasury.  Since then and until his confirmation as ambassador in January of 2004, he served in a series of senior executive positions at Credit Suisse First Boston in their London office. 
He is in town with particular interest in negotiations and meetings concerning the proposed civil nuclear agreement that the President has been speaking about himself increasingly in recent weeks.  But more than anyone, he is aware that the relationship between the United States and India is much broader and that in fact, this agreement is simply one manifestation of the growing depth of Indian-U.S. relations in economics, trade, security, culture, and many other matters.  So, he will be discussing the full range of progress that we are making in relations before between the two nations in his talk this afternoon. 
When he is through, he will be delighted to take questions and comments from the audience.  There are many men and women of the press here this afternoon, and I know that you will not be shy if you have questions, but I would ask you to hold back a little bit because we have many other members of the Institute and guests who get less of an opportunity to question Ambassador Mulford.  The members of the press do so.  I hope that you will let them have a first crack of asking him questions when he is completed.  Please give a warm welcome to Ambassador David Mulford.

David C. Mulford:  Good afternoon, ladies and gentlemen.  It is a great pleasure to be here today.  I would like to take a moment to recognize Peter Wallison, my old friend who is here today and encouraged me to come and do this.  Peter was general counsel of the Treasury when I first came to Washington back in the 80s from Saudi Arabia, and he scrubbed me up to make me acceptable for employment in the U.S. government at that time.  So, if it were not for you, Peter, I would not be here today.  Some of you know that I am an international investment banker turned diplomat.  This can be a risky transition.  The hard, competitive realities of international investment banking do not naturally lend themselves to the language of diplomacy.  But one principle of investment banking applies importantly in international relations, and that is the principle of “know your client” or your partner.  This means, master his current situation, know his past and above all, understand his future.  Follow this principle, and you will both maximize prospects for success and reduce risk. 
President Bush has taken an historic initiative with India, which has led to ground-breaking agreement to normalize civil nuclear relations between our two countries.  The agreement is now before the United States Congress to seek the necessary change in law to bring the agreement into force.  Analyzing and evaluating the agreement itself obviously is important and currently is the first order of business.  But making the final judgment to support this agreement is a much broader question, and India 101 is not the course it used to be. 
How well do we understand India today, and more to the point, how well do we understand India’s future and what this means for the United States in the long term and for our U.S. national interests?  This involves some advanced course work.  India began its transition in the early 1990s following the Cold War and was a near-financial calamity at that time.  That was when economic reforms were first introduced as it happens by the man who is presently prime minister of India, Mr. Manmohan Singh.  And it was also at that time and thereafter in the 1990s that India began to move away from its traditional, non-alignment stance in foreign affairs. 
These changes went largely unnoticed in the United States during that period, in part understandably because in 1998, India conducted nuclear tests which brought about sanctions and isolation, and that was followed shortly thereafter in 2002 by the India-Pakistan tensions of that year which were a distracting influence to say the least and undermined confidence in the region at the time.  But India’s transformation has been moving forward for nearly 15 years and is now accelerating, and the U.S.-India new relationship has emerged in the past three years. 
We are discovering that the many-shared values of past decades are now buttressed by common interests and often common objectives.  Our growing partnership touches almost every field of human endeavor and is supported by a vast and active people-to-people relationship.  So now, let’s take a look at some old facts but in a new light. 
India is no longer a closed economy.  It is engaging the world quickly, comprehensively, and in both inward and outward directions.  India is growing today in the range of seven to eight percent per annum, and has grown in the range of five to six percent for most of the period that I mentioned.  Its three main constraints to maintaining or increasing that level of growth, which is the key to India recognizing its vision of emerging as a world power, are three in number basically.  One is energy, the second is infrastructure, and the third is agricultural reform. 
India and Indians are discovering that they can be world-class players in a number of key business and knowledge sectors and in international relations.  So now consider once again India’s population of 1.1 billion people, which is a figure so widely known.  Fifty percent of that population today is under the age of 25 years old.  It is a population that will grow even with China in the next 15 to 20 years.  It is unique in the sense in this competitive world that a young working population will be characteristic of India for many decades to come.  We hear that there are 300 million people in India who live on less than $1 a day, and 600 million people in India who live on less than $2 a day.  But there is also a middle class, which is numbering today by our estimate in the area of 300 million and furthermore is growing—if you assume a seven percent to eight percent growth rate in the economy—by something like 30 to 40 million people per year.  So, demographics and economic growth will continue to drive India’s politics throughout the medium term as we look ahead. 
India’s young and its families prize education above all else and act on this value.  Education is the way forward in India today.  India graduates more engineers in one southern state than United States does as a country each year.  These people have shown already that they can compete not only in India but they can compete worldwide. 
Six hundred and fifty million people in India live on the land, and they are employed in the agricultural or agricultural-related industries.  Small farms, the average farm in India I am told is in the neighborhood of four acres, lots of subsistence agriculture, lots of poverty in the rural areas but politically, these people are influential, and they vote as the present government found out when it surprisingly found itself elected in May of 2004 and obviously now has a major incentive to address these people and these issues.  The agricultural sector in India accounts for 22 percent of GDP.  It has a growth rate of one to two percent on average over many, many years, and reform has not been a high objective of Indian governments in the past 10 or 15 years.  You can see by that simple figure that if the economy is growing at eight percent, there must be sectors that are growing well above the average of eight percent, and agriculture is a bit of a drag, and obviously that is not lost on the present government.  So that is major focus for reform with the aim to improve conditions and to raise the growth of figure in the agricultural sector. 
India has a large and developed financial sector.  It is well-supervised, it is well-regulated.  It needs liberalization to support economic development.  There is a substantial foreign presence in the Indian system and, in fact, lower risks in India’s financial sector and is generally the case in many similar countries.  India has a savings rate of 29 percent of GDP and it is rising.  And surprisingly, the heaviest savers are in the 18- to 35-year age group.  That is a good problem to have, if you are in the retail banking business. 
Exchange rates in the past two years since I have been there have moved plus and minus 10 percent over that period.  But I have not noticed that either the Congress or the United States Treasury has given India any credit, perhaps some degree of exchange rate flexibility. 
Institutional investment flows, another measure of confidence are running at around $10 billion a year.  In recent months, they have been in excess of $1 billion a month.  And foreign direct investment which has lagged a bit is beginning now to rise.  There is talk about foreign account liberalization in India and capital account liberalization, and even discussions today about the possibility of a vision by which Mumbai would become a major regional capital market. 
On trade issues, very simply, US exports to India in the first six months of the year are up a little over 30 percent.  India passed the IPR legislation to meet the TRIPPS and WTO requirements in the past year, and our trade gap with India, in my opinion, will now narrow substantially in the next year or two, with rising big ticket sales that we are starting to see in such things as Boeing aircraft where about $15 billion of orders were placed with Boeing in the past 12 to 14 months.  The other item about trade that is interesting as we see these figures rise, is that it is all businesses and sectors that are enjoying an increase in the export figures to India, so it is a well-balanced picture. 
Next, India firmly follows the rule of law.  English is widely and well spoken.  Some say it is better spoken in this country, and they are comfortable with modern technology — very, very comfortable. 
And finally, to end the list of old facts to be viewed in a new light, probably the most important fact is that India is a true and functioning democracy.  Democracy is how India forged the nation from extraordinary diversity.  Democracy provides for the fundamental basis for India’s governance today and explains much of how India approaches the world.  Democracy is an important bedrock of our relationship.  Democracy makes India dependable.  As Secretary Rice said, “The U.S. can trust India.”  As such, the implications of India’s democracy for India’s continued growth and transformation, the assurance of continuity through the achievement of broad consensus in major fields of policy are highly positive for the future of our relationship. 
It is now clear beyond all doubt that our countries are linked by a deep commitment to freedom and democracy.  We recognize, indeed we both celebrate national diversity, human creativity, and innovation; a quest to expand prosperity and economic opportunity worldwide, and a desire to increase mutual security against the common threats posed by intolerance, terrorism, and the spread of weapons of mass destruction.  These are matters that must weigh heavily and positively in our assessment of the civil nuclear agreement. 
And these important linkages are clearly supported by recent public opinion surveys that show very, very high approval in India of the United States — some 71 percent positive — and is probably higher now after the President’s visit.  But note about this approval, it is not necessarily for specific U.S. policies, but rather for America’s ethos — our values, commitment to freedom, meritocracy, hard work, getting ahead, respect for knowledge and respect for the rule of law.  President Bush also enjoys strong support as Indians see him as standing for many of these central values and also believing in India. 
The other point, which I think is very, very significant because of India’s great diversity, is that there are 150 million Muslims, both Sunni and Shiite, non-radicalized, fully engaged in India’s democracy.  This to me is a highly impressive credential in today’s troubled world.  So this I hope gives new insight to the transforming India that is today’s reality and tomorrow’s promise.  President Bush has early and wisely identified this new reality and put his personal leadership to work to bring into focus a whole new vision for the U.S.-India relationship in the 21st century.  In India, this is regarded as the most important diplomatic initiative of the past half century. 
Although our relationship is growing in unprecedented ways, we should not misjudge the vital importance of the normalization of India’s civil nuclear relation with us and with the world.  The civil nuclear agreement as it stands agreed between the United States and India is the cornerstone.  It would be hard to imagine a more “win-win” proposition for our two countries.  When I am asked from time to time the rather surprising question, “Yes, but what is in it for us,” my answer is a broad-based, multifaceted relationship with another great democratic power, emerging into our knowledge-based world of virtually unlimited possibilities and sobering dangers whose national interests will often and, more importantly, converge with ours, whose economy is likely to move into the world’s top five in the next 10 to 15 years.  This relationship in the coming years will matter to us like a few others. 
Going forward, do we really want India outside the world’s nuclear non-proliferation system, its gifted scientific community and political leadership confined to continued isolation?  I think not.  It is time to accept India’s reality and move on to the opportunities of the future.  In the time I have left here today, let me just touch on several of these opportunities that illustrate the breadth and diversity of our relationship. 
First, in the past year, we have taken steps that are opening many new opportunities for both of us.  We have resolved the long-standing and festering Dabhol project and sorted out several troubled independent power projects in Tamil Nadu.  These both remove lingering concerns many U.S. companies have had about foreign direct investment in India.  We negotiated a few short months ago, and then in a relatively brief period of time a comprehensive open skies agreement — I am told that it is the most liberal and open agreement in the world — that has jump-started the aviation sector.  Since then Boeing has sold, as I said before, almost 15 billion in new Boeing aircraft to India, two U.S. airlines have open direct route service to India.  Airport privatization is underway, and the air transport market in India has grown by close to 40 percent in the last 12 months. 
India amended its Patent Act to recognize product patents and to bring in an IPR regime that would be in conformity with TRIPPS, and we are working to build new IPR programs and to ensure enforcement of standards.  The point here to me is not just that this was done but it was done with the support of Indian business people who have begun to realize that if we are going to move up the sophistication chain, they need protection and they supported that legislation and will support, in my view, a continuing improvement in this field in the future. 
The U.S. Trade and Development Agency has signed a new umbrella agreement with India that is now supporting India’s emerging natural gas, air transport, infrastructure, and pharmaceutical markets.  The Indian government lifted its cap on foreign direct investment in the telecommunications sector and partially has opened the retail sector, and other changes of this type, I believe, are likely to come. 
The renewed commitment on both sides to building the economic relationship has been widely noticed in the U.S. business community.  Our engagement has strengthened the business confidence.  We are welcoming more U.S. business delegations in India than ever before, including many sponsored by individual U.S. states. 
As we have moved forward in resolving past differences, we have also constructed a new economic architecture to transform our strategic partnership into the comprehensive relationship, which I mentioned previously.  This new architecture includes a U.S.-India Energy Dialogue, an Information Communications Technology Working Group, a Trade Policy Forum, a Standards Dialogue, and a restructured U.S.-India Economic Dialogue/High Technology Working Group. 
Another key driver of action has been a very innovative CEO Forum which has brought to the table 20 top Indian and U.S. CEOs representing over $1 trillion of capital in a manner that has clearly enunciated for the President and for the Prime Minister the policy and reform actions necessary to dramatically increase our bilateral trade and investment flows. 
In the agricultural sector, the President and Prime Minister launched the Knowledge Initiative on Agriculture with a three-year financial commitment to link our universities, technical institutions, and businesses to support agricultural innovation.  This will revive and transform our long history of cooperation in agriculture with India for the 21st century and it will help create the environment conducive to agricultural growth, development of efficient markets, and trade and investment.  It will re-invigorate university linkages, work to get technology more quickly into the hands of farmers, prepare agricultural students for the challenges of the future, and create rural employment opportunities, particularly in the food processing and distribution sectors, which in India are sorely in need of attention and investment.  U.S. private sector companies are on the “Knowledge Initiative’s” newly formed board of directors and see opportunities in India’s priority commitment to agricultural reform. 
In the areas of innovation and the knowledge economy, our two countries have embraced the key role of technology in propelling growth by establishing a bi-national Science and Technology Commission at the time of the President’s visit that we will co-fund to assure fast-track diffusion of commercial technologies.  Important focus areas will be civil space, including placing U.S. satellites on Indian launch vehicles, space exploration, satellite navigation, and earth sciences. 
Our new Information and Communications Technology working group has established an institutional channel to resolve market access and regulatory issues, including a large reduction of surcharges on incoming international long distance telephony.  The U.S. and India have embraced protection of the free flow of commerce and the safety of navigation, working to prevent the proliferation of weapons of mass destruction, and by concluding a Maritime Cooperation Framework.  India has committed to join the Container Security Initiative and has designated a representative to the Government Advisory Board of the International Center for Democratic Transition. 
We are working jointly in the areas of disaster relief (note: the tsunami and the giant earthquake upon the border with Pakistan as two recent examples), cyber security, combating HIV/AIDS, and avian flu, just to name a few others. 
And under the High Technology Cooperation Group, India has put in place new export control legislation and we completed the next steps in the strategic partnership to streamline our high technology and defense linkages.  Less than one percent of U.S. exports to India today now require an export license.  As India fully harmonizes its export control list, the U.S. has pledged to further streamline export controls.  The Department of Commerce has now shifted the high-tech commercial group that it formed from strategic trade-to-trade facilitation. 
Finally, under the new framework for the U.S.-India Defense Relationship, which was signed in June of 2005, we have built a compelling case for defense co-production and industrial participation and projects in India, and have established a new defense procurement and production group under the cabinet-level defense policy group.  Thanks to this more activist approach, the U.S. is now a contender for an $8 billion combat aircraft tender and other military platforms that are under review. 
I would like to thank you for your patience today while I have run through this list of opportunities that illustrate the kind of engagement we have today with India.  These are real, on the ground, and progress takes this kind of focus.  We are not talking here about paper declarations.  Come to India and see for yourself.  Talk to U.S. business leaders about their visions and plans for India, and look around at the role Americans of Indian descent play in our country today. 
This brings us back to the decision we face regarding the US-India Civil Nuclear Agreement.  The negotiations leading to the agreement were long and complex, but at all times, civil and constructive.  The final result represents a fine balance of our respective national interests and political realities.  India has already put in place new anti-proliferation legislation and is working with the IAEA and the Nuclear Suppliers Group of Countries.  The public debate in the United States will move further forward this week and well into May.  There will be close scrutiny, and appropriately so, of the terms and implications for the United States and the world of this important agreement.  Legitimate concerns and questions will be addressed by the administration.  I believe we are well advanced in this effort, ably led by Secretary Rice. 
In the end, as I have said earlier, we will need to make a fundamental judgment based on this agreement and the long term interests of the United States.  I believe this agreement will strongly serve U.S. national and global interests.  Strengthen the world’s non-proliferation regime, help to address India’s real and growing energy needs, and recognize the new reality of India, which I have described to you here today.  Thank you very much.  Looks like I left too much time for questions.  Yes, madam.
Erika Simpson:  Hi, my name is Erika Simpson, and I’m an Associate Professor of International Relations at the University of Western Ontario, which is in Canada.  Okay, so I just wanted to briefly comment on the Canadian experience with India, which was very disappointing, as you know.  In the 1970s, we gave them nuclear technology and they secretly built a nuclear bomb.  And so our prime minister, he was so upset about it that he actually helped to negotiate the London Suppliers Group.  So in Canada, we tend to figure that multilateral solutions are more longer-lasting and more effective, and they are also more legitimate. 
And in Canada, we think that unilateral solutions like this deal are more about short-term gains and you will endure longer-term pain.  We are particularly concerned about the threat that this poses for the non-proliferation treaty, and we are hoping that Congress will kill it before this kills the NPT.  Could you comment?
David C. Mulford:  At least I know where you stand.  I was going to say that you supplied the breeder reactor long before other people did, so you were very forward-looking at that point.  I think you have touched on a very important issue, and it is one of the reasons I made the kind of comments that I made today.  I think it is fair to say, speaking from the United States standpoint, that despite many common and shared values between the United States and India for many, many years, the relationship was a very much up and down relationship and frankly, often disappointing to both sides from time to time, and I think you refer to the 70s and so on.  I am talking about what has happened more recently and I have tried to identify what I believe in the 90s were the beginnings of fundamental changes in India. 
First of all, genuine economic reform aimed at opening to the world, integrating its economy more into the world.  This is happening, and also transforming its policy of non-alignment and in that process, deciding they need a closer relationship with the United States.  These are very, very big, and in my opinion will be lasting changes.  So, my point is we need to look at India in a new light. 
And this agreement, which incidentally is not a unilateral agreement although it is unilateral in the sense that there is a law in the United States which forms the basis for the restrictions on India, which were then shared by the non-proliferation group and therefore from that standpoint, it is something that begins with the United States, but there has never been an intent that this would be simply a unilateral exercise.  As soon as this agreement was announced, it was supported by the leaders of France, Britain, and Russia.  The IAEA chairman immediately came out supportive and we all understand that this is a complex process first with the Congress because it is important not to presume on their prerogatives.  They must examine this agreement.  They must determine what their approach is to legislation. 
That is going to be followed and in some cases, simultaneously, the effort will be going forward with the phase of working with the Nuclear Suppliers Group of Nations, which operates on a consensus basis that is its tradition.  The United States recognizes that and is working to begin that process. 
India is working on it as well.  We very much hope we achieve that full consensus.  And finally, there is the IAEA which has to conduct the inspections connected with the safeguards necessary to - and I remind you, this is a civil nuclear agreement, so that it is aimed at putting as much as possible of India’s capability on the civil side of the ledger, where it will be subject to safeguards and utilized for their purpose in the energy field.  Nuclear energy produces 2.8 percent of India’s power today.  They import 70 percent of their energy so they are a bit like the United States.  They have a real problem and they got to solve this problem, and one of the solutions lies with the civil nuclear energy.  So that is the aim, and I think your characterization is a little off the mark there but if you go back and look at it, I think you will find a lot of what I have said is in fact correct.  Yes, sir.
Male Voice:  [Indiscernible].  Mr. Ambassador in the past, your comments were misunderstood in India.  I hope today’s speech will overshadow that.  As far as this agreement is concerned, a lot of hearings have taken place and this week and next week, more hearings are coming on the Hill and also among think tanks.  As far as your comments are concerned, and Dr. Rice and President Bush and this administration and Indian government, they are lobbying for this agreement, but on the Hill, neighboring countries, China and Pakistan, they are lobbying and spending millions of dollars against this agreement.  So how do you see them, China and Pakistan and other major powers as far as this agreement is concerned?
David C. Mulford:  I do not think I can comment on what other powers are doing.  On the Hill, I do not happen to know the answer to that.  China is a member of the Nuclear Suppliers Group.  They have not come out with a definitive point of view on this business yet, and I do not think there is any reason to try to preempt that, but simply to conduct the dialogue and hope that they will support.  There are many reasons why they should.  In the case of Pakistan, they are not a member of the Nuclear Suppliers Group and I just cannot comment on what they may or may not be doing.  Yes, sir.
Roger Leeds:  Roger Leeds from Johns Hopkins University, which by the way, is in the United States, so.
David C. Mulford:  I think remember that.
Roger Leeds:  Mr. Ambassador, you have made a passing reference to the infrastructure issues in…
David C. Mulford:  Yes.
Roger Leeds:  By some accounts, the quality of infrastructure is costing India these days somewhere between three to four percent of GDP.  Quite serious in that over the next few years, some estimates say that they are going to have to invest a $100 billion or in excess of $100 billion in infrastructure, and that the government is not going to be able to cover this tab by any stretch of the imagination.  So, could you comment a little bit on where and how this investment is going to be made in terms of the balance between public investment and private investment?
David C. Mulford:  Well, you have raised an extremely complex issue, and then when I talk about the constraints - infrastructure, energy, and agriculture - each of those is an extremely complex, multifaceted issue that has to be looked at on both a micro and a macro basis and within the full context of the economy and so on. 
Infrastructure, you have summarized that I think accurately.  The lack of a world class infrastructure is a major potential barrier to sustaining the kind of growth that India has been enjoying and getting it a little bit moved up.  The prime minister himself, I think, has used the figure of $150 billion required for infrastructure.  You talk to companies that are investing in India, they are all concerned about weakness in infrastructure, the cost of doing business that are generated by this infrastructure problem. 
After that, the fact that in India as in the United States, there is a federal system, and the responsibilities for infrastructure, generally speaking, lie on the state - its electric power roads, water, et cetera - and these states are at widely different economic condition and have widely different abilities to address these problems. 
And finally, there is the linkage with the capital.  It is extraordinary to me that India should have a 29 percent savings rate but not have a long-term capital market of the type we have in the United States, and this is something that is part of the liberalization requirement in the financial sector because today, India has a GDP to fiscal deficit ratio of 10 percent when you take federal and state together.  There are no resources then for massive infrastructure development. These are going to have to come from private capital. 
Private capital at the moment is constrained because it is all rather short in a very sophisticated market.  But there is not a long-term market yet developed out there.  That will come as the insurance business grows, pension business grows, and banks are transformed into longer-term players and the bond market develops, and so on.  And other steps are taken that are aimed at creating the kind of what I would call the project financing culture that one finds in the United States and elsewhere, which undertakes the complicated problem of financing large scale infrastructure projects. 
I believe these will happen but it has not happened yet, and it is a top priority of the government, and they are doing a lot of the right things to try to make this begin to happen and progress is being made.  It is a field worth study.
Male Voice:  There is a question over there.
David C. Mulford:  Let’s take this one first just if you do not mind.  Go ahead, sir.  He has been waiting.
Henry Sokolski:  Henry Sokolski, Nonproliferation Policy Education Center.  Mr. Ambassador, I did not know who you were until I read about your comments about Iran on the newspaper.
David C. Mulford:  About what?
Henry Sokolski:  Your comments about Iran in the newspaper.  I have to say that I thought they were actually perhaps more candid than we get from many diplomats but not entirely wrong, actually, somewhat sound.
David C. Mulford:  Is that a compliment?
Henry Sokolski:  Yes.  Now, I understand that the Hill still is interested in the relations between India and Iran, and they are watching very carefully a pipeline deal that will involve Pakistan.  By the way, it is news to me that Pakistanis are spending much money, but if you are spending a million dollars, I want some.
Male Voice:  [Inaudible].
Henry Sokolski:  Yes.  I do not think they are spending any money.  Could you comment on the impact the pipeline effort might have on some other legislation than the nuclear deal?  In June and July, I understand the United States Congress has to renew what is called the Iran-Libya Sanctions Act.  How do you see the level of sensitivity to this problem in India, and what are we doing to make India more sensitive to this concern that they not do investment of a certain sort in the oil and gas industry in Iran?  And what are the prospects for making headway there, or is this unrealistic on the part of the Congress?
David C. Mulford:  Well, first of all, India has a severe energy problem and certainly it’s correct to look at all possible sources that it can.  When this issue first surfaced, I had a conversation with the Ministry of Petroleum, and the purpose of that was to simply remind him and explain to him that this piece of legislation which has never been employed, you may know since it was passed on 95 or 96, existed on our books and it was something that they needed to be aware of; that was the limit of our conversation.  But at the time of the Civil Nuclear Initiative, there was a tendency to sort of somehow link the Civil Nuclear Initiative with the pipeline thing, which was completely off-based; there was no relationship whatsoever. 
The civil nuclear was based on the concept that I have described today of the future of India, its energy needs, and so on.  The pipeline is a much longer range and, in my opinion as a banker, a very difficult project wherever you try to do it to really bring to ground, get it financed, overcome the risks of transmission and so on, that would be involved in this in the cost of financing and so on.  So, I think beyond just letting them know that we have this concern, we have simply been watching the situation, and there is not really anything more that we need to do.  The Indians have made a change recently in their Ministry of Petroleum, which is read in India at least as a move of the person who was very much keen on that project out of that department and a new person in there who has a much more broader and balanced view of their energy problems and so on. 
So I think - I do not see why that really should be a problem in this scenario.  Yes, thank you.  Yes, sir.
Male Voice:  [Indiscernible].  Ambassador, a fly in the ointment seems to have come up with the league in New Delhi last week about the bilateral agreement, the Civil Cooperation Agreement.  There is a provision that the U.S. wants India to, in a sense, sign the CTBT that if there is any explosion of a nuclear device, the agreement would be suspended. True, it is given that it is in the draft legislation of the Congress, but India has said that this is not something that they are agreeable to.  A lot of members of Congress would like to see this bilateral agreement before they sign on it.  How are you guys going to resolve it because earlier in interviews with us and in statements, Nick Burns had said, that this was just a formality, this was just a technical agreement, and now there are seems to be this fly in the ointment?
David C. Mulford:  Well, I think, first of all, you must appreciate that I’m not involved deeply in the legislative process here at this time, but I can address your question.  It is a question that has come up as you described, but bear on mind several things. 
First of all, in the July agreement, the Civil Nuclear Agreement, which I remind you is a Civil Nuclear Agreement, India made its own unilateral declaration confirming its policy that it was not going to do anymore testing.  That is there, that is what was agreed.  There is no change in the goal posts, which unfortunately has somehow gotten into the media and become an issue, but it should not be an issue because the goal posts have not been moved; that is the reality.  The U.S. legislation, whatever it says on this issue, will be a matter for the U.S. legislators and U.S. law. 
The agreement between the United States and India, which is not the legislation but the agreement, that is being worked on.  And there will have to be some sort of wording arrangements there which have not been agreed; it is a matter to be discussed.  But I think what you have characterized really is not the expectation, and therefore, I think the fly will move out of the ointment.  This is the question of time and dedicated effort by the skilled people who are involved on both sides and as Congress comes to judge this situation, I think they will see that this is really not an issue.  Yes, sir.
Ernie Preeg:  Ernie Preeg, Manufacturers Alliance.  My question is about your comment about the defense procurement group as it relates to China in effect, and the rapid increase in defense spending in China.  And in particular, in the area of maritime there at the Chinese Navy, it seems to be one area as being developed most quickly both in qualitative and quantitative ways with their shipyards and everything, and the response for the U.S. has been concern of shifting some of our naval resources, more to the Pacific, to Guam, et cetera.  So my question is where is the Indian Navy at this stage in responding to the rapid buildup of the Chinese maritime capability and is there anything cooperative between our two navies at this stage?
David C. Mulford:  Well, first of all, I would say on the cooperative issue and I did not mention this in my talk, but it is part of the defense issue as I described it.  You may remember that I mentioned the Defense Framework Agreement signed in June of last year.  We have seen an enormous rise in the exchange of personnel, visits back and forth by military personnel in all services.  We have seen a rise in both the number and the complexity of joint exercises - naval, air force, army - and this has been part of the process that has generated this greater commitment to inter-operability, objectives, framework agreement, and the opening of the defense market, which I can describe and which I very much hope we see and which I think we can bring an enormous amount to. 
So, that is my focus.  The Indian Navy clearly has been building itself up that it bought recently submarines from Russia and other things so that they are building up, but I cannot say to be an expert on their naval posture vis-a-vis China, but I simply cannot comment on that.  Yes, sir, on the corner.
Edward Allen:  I’m Edward Allen with the Financial Times.  I want to ask you about timing.  There have been some noises in Congress that a final vote on this might be delayed until after the November election.  How critical is it that this be done quickly, or is it more important that it be done the right way?
David C. Mulford:  Well, there I think my answer would be that most of the members of Congress that I have seen, many of them visiting India often for the first time, all seem to feel this is something that we should move as quickly as we can, but realistically, nobody is quite sure what that means and I think therefore that is in the hands of the Congress and their calendar and agenda.  The hope, I would say, is to move it sooner rather than later.  I think that means to most people before September, but I think there are other people who will say, “Well, it may be something that is not possible and may have to be addressed later,” but every effort is being made to move it quickly. 
There still are negotiations going on as I remarked on this other question that came up.  And of course, there is testimony being given and people will need time to digest that and look into the questions that come up, so it will be a time-consuming exercise. 
There is also the dialogue with the Nuclear Suppliers Group, which is some 35 or 40 countries and the IAEA.  So it is a many moving parts situation and some of the parts will be looking at the other parts to see how they are getting along as it develops.  So I think it is very hard to give a very clear answer to that except to say the intent of the two governments and many of the members of Congress is that this is something we should address and move ahead.  Yes, madam.
Nancy:  Nancy [indiscernible] of Bloomberg News, and I wonder, sir, if you could just give us sort of a thumbnail sketch on domestic politics in India, and I’m unclear on whether the Indian legislature or government has to do anything additional, or if it is a done deal on that end.
David C. Mulford:  The Indian political system is, first of all, highly admirable.  I have said it is a democracy, but it is a democracy in the very real sense that when they have a general election, something like 450 million people vote.  They all vote electronically, no hanging chads in India.  And those results are kept in the system and they are tabulated in a single day electronically at the end of the period, voting being spread over four or five weeks, and that works.  And there is about 62 plus participation rate. 
The system has a large number of parties.  I do not know the exact number but I would say an excess of 40.  The current government has a 17 or 18 party coalition.  It includes the Communists who have 63 seats and who were needed to form the government.  So they supported the formation of the government but did not join it as ministers and therefore, do not have day-to-day responsibility but are in a position to bring a government down and therefore, have a considerable influence on what is going on. 
As regards to the civil nuclear deal, because India is an open and transparent society with a free press and an active press, it was a process that was closely scrutinized as it was going on.  So when I made a statement in here that the agreement had been struck on the basis of our respective interests and realities; that is a very real statement; it is a very finely-balanced agreement.  It was presented to parliament by the Prime Minister and so it has been vetted through their parliament.  They do not need to change their law but they regard the agreement as having passed muster in India.  They also regard it as an agreement that cannot be changed and renegotiated and so on without it coming apart.  But they do not have to vote on it.  But the government, had it gone further, would have subjected itself to significant divisions within the coalition.  So, this is a very delicate exercise.  Yes, sir.  I guess it is the last question.
Dan Horner:  Thanks.  Dan Horner from McGraw Hill, Nuclear Publications.  Two questions: one, the Indian government has suggested that once the civil and military facilities were separated, they might consider putting the civilian facilities into private hands, to privatizing.  I’m wondering if the U.S. government has a view on that approach.  And secondly, you mentioned the export control changes.  There have been some questions raised as to what, not withstanding the changes of legislation whether India has adequate supply of personnel and fully-trained personnel to implement those legislations.  If you can address that point as well, please, thank you.
David C. Mulford:  Well, in that last point I think the answer is yes.  I think they do.  I can only say that the nuclear regulatory people who have come out from Washington in recent times and who have visited their facilities and met their scientific community have been deeply impressed by the level of scientific sophistication and accomplishment and also the management and regulatory sides.  And that was, I would say, a very revealing part of the exercise and it came out very, very positive.  So I can say, I think confidently that that problem is not really significant. 
The other issue you have raised, the U.S. government has not taken a position on the question of should there be or will there be a private participation in the civil nuclear industry as it develops.  Certainly, there will be.  If the agreement comes into play, it will open and normalize civil nuclear relations between India and the whole world, not just the United States.  And we already have the French and Russians busy there, working away on opportunities.  The possibilities for supply of technology, plant equipment, et cetera are very significant for U.S. business. 
It is my personal opinion that India, because of its other restrictions that I mentioned in terms of the government’s ability to put large amounts of capital into whether it is infrastructural or in this case, civil nuclear, it is I think something they should, and I think they are looking at, whether or not they can find a way to encourage private participation.  I do not think that is an issue that is resolved yet and my own guess is that as they look at that issue, they will examine it very carefully.  They will recognize that there are some advantages enough both in the sense of capital and transparency in governance making the whole thing more transparent.  But I think it is too early to come to a conclusion about how they will go about that.  I would only say that it is very much their business to determine that, and I’m sure they will take an intelligent approach.
Christopher DeMuth:  Ambassador Mulford, I would like to thank you for coming to AEI and for your fascinating and most impressive presentation.

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