US diplomat and author Dennis Kux famously described India and the United States as “estranged democracies” — a relationship that the 1990s would gradually begin to redefine.
By 1995, US companies had identified India as a huge market for expansion. As per one estimate, total US investments in India rose from $32.6 million in the mid-1980s to $700 million in 1994. By March 2004, less than 13 years after opening up the economy, the United States became the second-biggest source of Foreign Direct Investment, with over 16 per cent share.
It was P V Narasimha Rao era. His Govt took economic liberalism route and that had impact in foreign policy too. the global order was undergoing a seismic transformation. The collapse of the Soviet Union in December 1991 brought the Cold War to an end and left the United States as the world’s sole superpower.
For India, this marked the loss of its long-standing strategic partner and compelled New Delhi to recalibrate its foreign policy in an unfamiliar unipolar world. As author and commentator Sanjaya Baru has noted, India had to work hard to redefine its economic, political and strategic links following the end of the Cold War.
In 1992, the P. V. Narasimha Rao government made an unusual choice by appointing Siddhartha Shankar Ray as India’s ambassador to the United States. Ray was an eminent lawyer, veteran politician and former chief minister of West Bengal who had also served as governor of Punjab. Despite his distinguished political career, he had never held a diplomatic assignment.
The appointment was widely seen as a political decision aimed at resetting India-US ties at a time when New Delhi was redefining its foreign policy and opening its economy. Rather than relying on a career diplomat, the government entrusted Ray with rebuilding relations with Washington by leveraging his political experience and stature.
This has been emulated by the Modi govt. by its decision on Dhaka vis-a-vis Dinesh Trivedi.
On the economic front, India was staring at an unprecedented balance-of-payments crisis. Foreign exchange reserves had dwindled to barely two weeks’ worth of imports, forcing the government to pledge part of its gold reserves to overseas banks to avert a sovereign default. The Gulf War had already worsened external pressures, and the crisis ultimately triggered a structural reset of the economy. It paved the way for the LPG (liberalisation, privatisation and globalisation) reforms, which dismantled the licence-permit regime and opened India to global markets.
That is why 1991 ....1991. It was a year when multiple crises and global shifts converged, forcing India to rethink its economic and diplomatic trajectory almost simultaneously.
Ray’s four-year tenure is widely regarded as a success. He played a significant role in improving India’s image in Washington, engaging not only the US administration but also Corporate America at a time when India was presenting itself as an attractive investment destination.
By the next decade, the United States had emerged as one of the leading sources of foreign direct investment (FDI) into India.
His tenure also coincided with Rao’s landmark visit to the United States, during which the prime minister addressed a joint session of the US Congress, signalling a new phase in bilateral engagement.
Narasimha Rao was himself a former foreign minister and so his experience came handy in more ways than one.
Importantly, during this period, the Rao government also resisted sustained US pressure on key strategic issues, particularly Kashmir and India’s nuclear programme, reinforcing India’s autonomy in foreign policy even as it sought deeper engagement with Washington.
Economic liberalisation further strengthened the relationship. The reforms of the early 1990s provided a major boost to India’s information technology sector, laying the foundation for the deep economic interdependence that would emerge over the following decades.
India gradually became a global hub for software services and IT outsourcing, a sector that continues to form one of the pillars of India-US economic ties.
The relationship, however, was far from frictionless. The most contentious issue remained India’s nuclear programme. In 1995, the Rao government reportedly prepared to conduct a nuclear test, but the plan was shelved after the United States detected the preparations through satellite imagery and exerted diplomatic pressure.
Things were taken forward by the Vajpayee Govt.
Prime Minister Vajpayee and US President Clinton signed a Joint Statement in New Delhi on March 21, 2000, outlining a shared vision for a closer, qualitatively new India-US relationship in the 21st century and establishing a framework for regular, wide-ranging institutional dialogue between the two countries.
In May 1998, the government led by Atal Bihari Vajpayee successfully carried out the Pokhran-II nuclear tests. This time, US intelligence failed to detect the operation in advance, in what was widely regarded as a major intelligence failure. Washington responded by imposing economic sanctions on India under its non-proliferation laws, with several allies, including Japan and Australia, following suit. In the long run, however, the sanctions neither altered India’s strategic course nor caused lasting damage to its economy.
The following year, the Kargil War marked another turning point. Pakistan’s efforts to internationalise the conflict found little support in Washington. Instead, the United States pressed Islamabad to withdraw its forces across the Line of Control, a diplomatic outcome that was widely viewed as favouring India’s position.
[05/07, 10:47 am] Nirendra Dev: The momentum culminated in 2000 when Bill Clinton became the first US president in more than two decades to visit India. His visit symbolised the transformation in bilateral ties and capped a decade of diplomatic rapprochement. Addressing a joint session of the Indian Parliament on March 22, 2000, Clinton highlighted the growing economic partnership between the two countries, particularly India’s emergence as an IT powerhouse.
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"You embraced information technology, and now, when Americans and other big software companies call for consumer and customer support, they’re just as likely to find themselves talking to an expert in Bangalore as one in Seattle,” he said, underscoring the central role of IT in strengthening India-US ties.
It was during this period that Vajpayee famously described India and the United States as “natural allies”, a phrase that would come to define the strategic partnership that has continued to deepen in the decades since.
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