It’s economics, stupid

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: critics of the deal in India.  Since the liberalisation of Indian economy began in 1991, Indo-US economic relations have tended to grow quite fast. American FDI in India, for instance, grew from $11.3 million (7.87% of total FDI in India) in 1991 to as high as $736 million (16.09%) in 1997. This trend was disrupted by the nuclear tests at Pokhran in May 1998, which automatically invited US sanctions under the 1994 Nuclear Proliferation Prevention Act. As a result, US FDI almost halved to hover in the $360-390 million region, falling as low as $282.8 million in 2002. 

After some of the original sanctions were repealed by the Bush administration in 2001, this trend has somewhat reversed and strengthened after 2004, when President Bush and PM Vajpayee established Indo-US Strategic Partnership. In 2006, American FDI in India climbed back to $737 million, with cumulative US investment standing at $6.29 billion. The same year, the US-India Peaceful Atomic Cooperation Act (the Hyde Act), was passed by US Congress to allow direct civilian nuclear commerce with India for the first time in 30 years. It is not altogether unreasonable to argue that US investments in India increased, and economic ties improved, till the Pokhran tests. Thereupon, there was a thaw because of legal impediments for US business with India.  The efforts of Bush administration have reduced such impediments considerably, but some concerns about India’s nuclear establishment remain alive in the non-proliferation lobby in the US establishment.  The conclusion of the nuclear deal that the Bush administration proposed would allay most of such concerns, without compelling India to formally join the global non-proliferation regime. Thus, if the deal were to go through, India’s economic ties with the US could only improve further.

This is not to argue that if this deal falls through now, the next US administration might walk the other way. If there is a bipartisan position in the US establishment favouring better ties with India, a similar deal might be in the offing in the future as well. The terms of such a deal, however, are unlikely to be as generous as the 123 Agreement has offered. One can only hope that India would develop a consensus on better ties by then.