INDIA'S EXPANDING ECONOMIC TIES TO JAPAN AND WESTERN EUROPE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89S01450R000300340001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 20
• Document Creation Date: December 27, 2016
• Document Release Date: July 30, 2012
• Sequence Number: 1
• Publication Date: June 1, 1988
• Content Type: REPORT

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Intelligence 25X1
to Japan and Western Europe
India's Expanding Economic Ties
An Intelligence Assessment
p r- F mot/
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PACE NUMBERS
TOTAL NUMBER OF COPIES
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EXTRA COPIES 5 -4L
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NESA 88-10037
June 1988
Copy .434
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to Japan and Western Europe
India's Expanding Economic Ties
This paper was prepared by ~Office of
Near Eastern and South Asian Analysis. Comments
and queries are welcome and may be directed to
the Chief, South Asia Division, NES
Secret
NESA 88-10037
June 1988
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India's Expanding Economic Ties
to Japan and Western Europe
Key Judgments The value of trade between India and Japan and Western Europe has
Information available grown by more than one-third since Prime Minister Rajiv Gandhi intro-
as of 21 June 1988 duced his economic liberalization program in 1984. The program has
was used in this report.
reduced import restrictions on some foreign goods and improved India's
attractiveness to the developed countries as a trading partner. India is
encouraging the expansion in trade despite a growing trade deficit because
New Delhi believes that only by importing the capital goods and sophisti-
cated technology items that Western nations offer can it modernize its own
industrial base and boost exports.
India is likely to look increasingly to Japan and Western Europe instead of
the United States for the high-technology goods it seeks because it believes
these countries are willing to sell the items unencumbered by the regula-
tions and licensing restrictions that delay delivery of US technology. We
believe Prime Minister Gandhi's preference for US equipment-particu-
larly computer and military items-will help the United States remain an
important trading partner for India over the next few years, but Washing-
ton faces stiff competition from other Western nations. Japan replaced the
Soviet Union in 1986 as India's second-largest trading partner, excluding
military goods, and is in a good position to surpass the United States in a
few years.
New Delhi has encouraged trade relations with Japan and Western Europe
by being more open to foreign investment and joint ventures. India has
traditionally emphasized self-reliance and discouraged imports, but it
recognizes that it can achieve its economic development plans only by
looking to others for help. India sees foreign investment as a source of
industrial development, and collaborative projects as a means of acquiring
technology.
India sees drawbacks to opening its markets to exports from Japan and
Western Europe just as it does with the United States. India is wary of be-
coming a dumping ground for foreign goods, particularly Japanese, and
resents Japanese and West European reluctance to open their markets to
more Indian goods such as textiles and agricultural products. New Delhi is
concerned that Western businesses are unwilling to relinquish their control
and give India a more equitable role in joint ventures. Indian leaders also
are facing new political questions about opening their markets to the West.
Opposition leaders argue increasingly that such moves forsake India's
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NESA 88-10037
June 1988
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traditional emphasis on self-sufficiency, are leading to domestic business
failures and higher inflation, and are increasing the prospects of unemploy-
ment.
New Delhi's enhanced economic relationship with Japan and Western
Europe is not likely to replace India's ties to the Soviet Union in the near
term. Most of India's commercial imports from the Soviet Union-oil and
raw materials-are not goods that Japan and Western Europe can readily
supply. Furthermore, India is not likely to abandon the Soviet Union as a
trading partner in goods that can be supplied by Japan and Western
Europe-such as semifinished products, machinery, and equipment-as
long as Indo-Soviet trade is conducted in rupees and allows India to
preserve its hard currency.
The pace of India's growth and capacity to purchase Western goods and
technology depends, in large part, on its foreign payments position. We
believe any significant deterioration in the trade deficit will lead to
immediate restraints on all but essential imports. New Delhi probably will
try to ease the deficit by tying future imports to increasing exports and
may open the economy to greater foreign investment.
Should India be forced to restrict foreign imports, we believe Western
Europe would be affected first. The West Europeans have made their
greatest market inroads in sectors where a less technologically advanced
Indian production capability exists. Japan also may be affected by the high
value of the yen, but bilateral aid-if continued at current levels-would
help Tokyo maintain exports to India. India's sizable trade surplus with the
United States probably would protect bilateral trade between the two
countries.
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Drawbacks to Expanding Trade
7
Outlook and Implications for the United States
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Scope Note India has increasingly looked to the developed countries to help it acquire
the modern machinery and high technology necessary to achieve its goals
of modernizing its industrial sector and increasing and diversifying Indian
exports. This paper discusses prospects for continuing the growth in trade
with Japan and Western Europe and assesses the effect of that growth on
India's trade relations with the United States and the Soviet Union.
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Figure 1
India: Share of Trade, 1980 and 1987
Exports to India, 1980
Total=US $13.8 billion
Exports to India, 1987
Total=US $16.5 billion
European Community
19.2
ILnports from India, 1980
Total=US S7.5 billion
Imports from India, 1987
Total=US $12.0 billion
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India's Expanding Economic Ties
to Japan and Western Europe
Introduction
Since Prime Minister Rajiv Gandhi's election in 1984,
India has accelerated its program to secure modern
capital goods and technology from abroad to help
meet ambitious economic development plans. Gandhi
believes that increased access to modern equipment
and skills will spur industrial modernization and
result in more efficient and competitive domestic
production. India hopes to boost its exports and
counter its rapidly growing trade imbalances. New
Delhi has increasingly looked to Japan and Western
Europe as well as the United States for the technology
and financial assistance necessary to meet its goals.
1986.
Trade Balance
Indian trade statistics indicate that Japan and West-
ern Europe are becoming increasingly important to
India as a source of goods and equipment. The value
of India's two-way trade with Japan has increased by
almost 85 percent since 1980, reaching about $3.5
billion in 1987, and India's imports from Japan have
more than doubled in value since 1980, accounting for
$2 billion in 1987. Japan is the second-largest overall
trading partner behind the United States, excluding
military equipment, and is the largest exporter to
India. Tokyo replaced Moscow as second place in
al machinery.
India's total trade with Western Europe has increased
40 percent since 1980, reaching $8 billion in 1987.
India's largest West European trading partners are
West Germany, France, and the United Kingdom.
These nations supplied 70 percent of India's West
European imports in 1987, accounting for $5 billion,
and received more than 65 percent of India's West
European exports. Much of the growth in Indian
imports from Western Europe has been in the capital-
goods sector, primarily office equipment and industri-
India's export growth has not kept pace with the
country's rising imports. Exports to Japan reflect only
a moderate increase when compared with India's
rapidly increasing imports, and Indian exports to
Western Europe have declined since 1982. Sales to
Japan grew from about $1 billion in 1980 to $1.5
billion in 1987. Exports to Western Europe have been
erratic over the last eight years. After peaking at $2.6
billion in 1982, they fell to $2.4 billion in 1987.
India's main exports to these countries are raw mate-
rials, such as iron ore, textiles, handicrafts, and
agricultural products.
New Delhi is attempting to boost its sales to Japan
and Western Europe by diversifying its exports to
include more electronics, consumer goods, machinery,
and other types of manufactured equipment. All of
these sectors face highly competitive markets, howev-
er, in which the high price and poor quality of Indian
goods make it difficult for New Delhi to compete. US
Embassy reporting indicates that New Delhi's key
target industries-electronics, machinery, and other
types of manufactured equipment-showed virtually
no growth in 1987.
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Facilitating Ties
Foreign Assistance. The Japanese and the West Euro-
peans believe financial assistance is a strong incentive 25X1
for India to keep open its large capital-goods market,
and, therefore, they are increasing their commitment
of concessional and commercial aid, according to the
US Embassy. Most of the financial aid provided by
Japan and Western Europe is heavily weighted to-
ward large-scale projects in energy, communications,
infrastructure, and manufacturing-key areas for In-
dia's development efforts. Project assistance from
these countries usually includes funds to cover some of
the foreign exchange costs of importing equipment
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Figure 2
India's Trade with the United States, Japan, European Community,
and the Soviet Union, 1980-87
0
European
Community
Soviet Union
United States
0
n
European
Community
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Figure 3
India: Trade Balance, 1980, 1983, and 1987
United States 0 European Community
3.0
2.5
2.0
1.5
1.0
0.5
~
~f
0
and machinery. For example, press reports indicate
that 60 percent of West German assistance to India in
1988 was used for project funding.
Japan is India's largest Western bilateral aid donor.
In the last year Japan has pledged almost $700
million in assistance, including more than $200 mil-
lion in drought relief. Prime Minister Gandhi in April
used the opening of the six-month Festival of India in
Japan to solicit additional Japanese financial assis-
tance for India's economic development. Gandhi re-
ceived a warm reception and was promised an $80
million loan to upgrade a steel plant. India probably
will receive additional funds as Japan moves to loan a
larger share of its trade surplus to developing coun-
Aid from Western Europe is provided through multi-
lateral organizations as well as bilaterally. India is the
largest single beneficiary of multilateral aid from the 25X1
European Community (EC) to developing "nonasso-
ciated" countries in Asia.' The Community's aid
programs are varied and provide funds to pay for
West European imports as well as promote technical
cooperation-such as a joint research project to devel-
op alternative energy sources for India. The programs
also provide funds for emergency drought and flood
relief. In 1986 total EC aid amounted to about $100
million with funds split almost evenly between food
aid and technical assistance. 25X1
'Associated countries are members of the Lome Convention, which
mainly consists of African, Caribbean, and some East Asian states.
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Growing Trade With Selected European Countries
West Germany. West Germany became India's largest
West European trading partner in 1986. The two
countries have more than doubled the volume of
bilateral trade over the last decade. West Germany is
India's only major West European trading partner to
increase its volume of Indian imports. At the same
time, West German trade statistics indicate exports
to India have more than tripled since 1977, with 60
percent of the growth occurring since Prime Minister
Gandhi assumed office in 1984. Major West German
exports to India include organic chemicals, machin-
ery, and sheet steel. Industrial machinery and compo-
nents account for more than half of these exports.
had with the West Germans. The two sides continue
to discuss new trade agreements, especially in mili-
tary and high-technology sectors like computers and
telecommunications. Arrangements to help the Indian
telephone industry develop the ability to manufacture
sophisticated telecommunications equipment are near
conclusion.
India selected the French aviation firm Dassault in
late 1987 as primary consultant in designing India's
Light Combat Aircraft (LCA). Although the state-
owned corporation, Hindustan Aeronautic, Ltd., will
maintain control over the program and oversee the
LCA airframe construction, Dassault's involvement
guarantees that Western technology and subsystems
Much of the growth in trade between India and West
Germany can be attributed to significant increases in
technical collaboration and West German investment
in the Indian economy. Bonn also has increased
concessional aid. The aid will be used for a variety of
projects, including energy, transportation, high tech-
nology, ecological, and poverty alleviation projects.
The aid benefits West German business because, as
the US Embassy in New Delhi notes, it is tied to
purchases of West German goods.
France. France, like West Germany, has seen its
trade with India expand rapidly over the last decade.
Although Indian exports to France have fluctuated
since 1977, Indian imports of French goods have
increased almost six times, with 73 percent of that
growth occurring since 1984. This growth rate is
somewhat inflated by major purchases of military
goods in 1985, including Mirage 2000 jet fighters and
Dauphin helicopters, according to the US Embassy.
Even without these military purchases, there has
been a steady upward trend in Indian imports of
French goods.
India is eager to expand its exports to France and
eliminate the imbalance in bilateral trade. According
to press reports, New Delhi is encouraging an increase
in collaboration in an effort to repeat the success it
will be incorporated in the aircraft'sfinal design.
United Kingdom. The United Kingdom has tradition-
ally been India's primary trading partner in Western
Europe, but trade between the two countries since the
early 1980s has grown at only half the rates of West
Germany and France. In fact, the volume of Indian
exports to Britain has declined since 1977. The US
Consulate in Calcutta reports that Britain's loss of its
dominant market position is a result of several
factors, including less attractive financing and the
inability of small British firms to compete with other
Westerners who can offer higher quality technology
at a cheaper price.
As with other West European trading partners, Brit-
ain is trying to increase exports to India through joint
ventures and investment. According to US Embassy
reporting, Britain had the third-largest number of
new collaboration projects approved and was the
third-largest foreign investor in the Indian economy
in 1986. London hopes to boost its economic ties to
India by negotiating a Memorandum of Understand-
ing (MOU), according to press reports. The MOU
would help facilitate the sale of British high-technol-
ogy items by removing steps required to get exports
approved.
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Figure 4
Sources of Disbursed External Assistance,
1980 and 1987
United 1980
Kingdom 1987
West Germany
Japan
France
United States
Soviet Union
United Kingdom and IDA. In addition, OECF is
providing funds for the purchase of pipeline materials
in cooperation with West Germany and Italy as well
as funds to cover the actual construction costs with
France and the United Kingdom.
Foreign Company Involvement. The Japanese and the
West Europeans view joint ventures as a means of
boosting trade and have found New Delhi increasing-
ly receptive. Business ventures with companies from
Japan and Western Europe cover the spectrum from
simple licensing agreements to equity participation.
New Delhi looks to joint ventures with foreign compa-
nies as a means of acquiring operational know-how
and access to foreign technology. Gandhi has recently
indicated that more direct foreign investment might
be approved to permit greater industrial moderniza-
tion without putting additional strains on India's
foreign payments position. A major increase in foreign
investment is likely to be opposed by conservatives in
the government who have long been concerned that a
large foreign presence would threaten India's locally
owned industries and would undermine its tradition of
self-reliance.
Bilateral assistance from Western Europe is substan-
tial. West German aid to India in 1987, slightly more
than $380 million, was at the highest level ever,
according to US Embassy reporting. In addition,
India and France signed a $583 million credit pack-
age in 1986 to help New Delhi finance several
projects, including construction of a gas pipeline,
purchase of helicopters, and building a hydroelectric
power plant.
Because Japan and Western Europe focus their tech-
nical and financial assistance in the same areas, they
also pool financial resources on occasion. According to
US Embassy reporting, Tokyo's chief agency for
providing concessional loans for economic develop-
ment, the Overseas Economic Cooperation Fund
(OECF), provides assistance to several major projects
that are jointly financed with West European nations.
For example, the Japanese are funding two fertilizer
plant projects: one with Denmark and the Internation-
al Development Agency (IDA); the other with the
West European joint ventures with India are growing,
but continue to trail far behind US efforts. For the
last seven years US firms have had the largest
number of joint ventures approved by New Delhi. In
1987 New Delhi approved 212 US, 149 West Ger-
man, and 122 British joint-venture proposals. On the
other hand, Indo-Japanese business joint ventures fell
to 71 in 1987, as compared with 111 in 1986. Tokyo
blames the drop in part on bureaucratic redtape,
according to the US Embassy, but New Delhi has
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expressed its disappointment that Japanese invest- 25X1
ment focuses more on increasing sales to India and
less on manufacturing in India. During his visit to
Tokyo in April, Gandhi promised, according to US
Embassy reporting, that India would improve its
investment climate, and the Japanese said they would
send an economic delegation to India later this year to
explore new areas of bilateral cooperation.
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Trade balance b
(5,700)
(4,500)
(7,170)
(5,870)
(6,420)
Exports, f.o.b.
9,600
10,050
9,026
9,805
12,080
Imports, c.i.f.
15,300
14,550
16,196
15,675
18,500
Net services and transfers
2,850
2,855
3,109
2,570
2,780
Current account b
(2,850) c
(1,645)
(4,061)
(3,300)
(3,640)
Principal repayments
940
1,010
1,430
2,015
2,525
Grant aid
367
342
414
350
318
Disbursed medium- and
long-term loans
3,176
3,449
a Fiscal year beginning 1 April.
b Excluding military.
Parentheses indicate negative numbers.
d Because of Indian reporting methods, private transfers are includ-
ed in worker remittances' totals.
e Including payments to IMF on nonresident deposits.
Emerging Opportunities
Gandhi's economic modernization program offers nu-
merous opportunities for Japan and Western Europe
to expand their trade ties to India. We believe New
Delhi will emphasize foreign collaboration and direct
investment in such areas as telecommunications tech-
nology, heavy industry, and defense and space.
India's ambitious plans for improving its telecom-
munications network will probably be a prime area for
Japanese and West European involvement. New Delhi
is seeking to upgrade and expand its communications
capabilities to broaden its international economic ties
and lure international banks and businesses into In-
dia. India has primarily looked to Japan to improve its
communications capabilities. Japan's major trading
houses-Mitsui, Mitsubishi, Sumitomo, and Nippon
Electric-are providing. India with the required tech-
nology and equipment for telecommunications pro-
jects, which include satellite communications systems,
optical fiber links, and mobile radio systems. A
significant portion of Japan's OECF's concessional
loans are earmarked for telecommunications projects.
West European nations are getting involved in India's
communications efforts. France agreed to manufac-
ture sophisticated telecommunications equipment in
conjunction with Indian telephone industries and has
provided a substantial financial credit package to
implement the projects. West Germany is assisting
India's efforts to increase the communications
network's capacity by offering sophisticated fibers
optic technology to India. India also receives substan-
tial financial assistance for these projects from multi-
lateral lenders. In 1986 the World Bank provided
more than $500 million in financial assistance for
India's telecommunications projects.
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not function well on India's poor-quality fuel.
New Delhi may look to Japan and Western Europe to
help modernize its heavy industry. In his recent trip to
Tokyo, Gandhi asked for additional Japanese assis-
tance in expanding and modernizing India's Burnpur
steel mill. Included in the project will be modern
steelmaking equipment and a power plant that will
not only power the mill but also feed excess electricity
into a statewide power grid. India also is seeking
foreign assistance to expand its production of low-
grade steel. US-made equipment is on trial in India.
US Embassy officials report that, although it is
considered by Indian steel officials to be better than
that offered by its principal West German competitor,
the US equipment is also more complicated and does
the design of a third aircraft carrier.
India's efforts to upgrade its military forces and
improve its domestic defense industries will provide
several opportunities for West European firms. New
Delhi has contracted the French firm Dassault to help
design the airframe of the Indian Light Combat
Aircraft and plans to seek additional Western compo-
nents for the planes, according to US Embassy report-
ing. New Delhi also is working with the Germans on
coproduction of diesel-electric submarines and is ex-
ploring the possibilities of working with the British on
Drawbacks to Expanding Trade
Although India is eager to expand its trade relations
with Japan and Western Europe, we believe it sees
several problems associated with pursuing ties too
vigorously. India remains wary of becoming a dump-
ing ground for foreign goods, particularly Japanese
made, such as simple computers and other consumer
electronics equipment. Indian officials note that, be-
fore the late 1970s, bilateral trade between India and
Japan was nearly balanced. By 1987, however, India
had a trade deficit with Japan of $500 million. New
Delhi's trade deficit with Western Europe also grew
from $700 million in 1980 to slightly more than $3
billion in 1987.
India resents the fact that Japan and Western Europe
have not shown more interest in opening their markets
to a wider variety of Indian goods, such as textiles and
agricultural commodities, despite frequent complaints
and meetings designed to address the problem. Most
Western countries also are reluctant to boost Indian
imports because of the poor quality of Indian goods
and slow delivery schedules.
Japan and Western Europe have found it difficult to
deal with India's bureaucracy. Despite Prime Minis-
ter Gandhi's personal commitment to modernization
and stronger economic relations with the West, US
Embassy officials say many bureaucrats cling to the
Indian objective of self-reliance. The bureaucracy,
trade unions, and others are concerned that modern-
ization will reduce jobs. As a result, some bureaucrats
delay approval of investment proposals and licenses or
ignore new policy directives to secure their positions.
Not all the inefficiencies are on the Indian side,
however. According to US Embassy reporting, To-
kyo's aid missions are understaffed and frequently
have difficulty disbursing the funds. As a result of
these problems, we believe India may not receive all of
the aid promised.
New Delhi's efforts to increase imports of modern
capital goods and technology from the West have
raised questions among the political opposition about
Gandhi's commitment to self-reliance. They fear that
competition from Western companies could deny In-
dian firms the profits necessary for expanding their
own production as well as for research and develop-
ment. They also argue that India's rapidly rising
import bill and deteriorating foreign payments- posi-
tion are making the country excessively dependent on
foreign countries. These concerns are muted so far but
could prompt Gandhi to reconsider his position on
foreign imports if the opposition becomes more vocal.
Outlook and Implications for the United States
We believe Japan and Western Europe will continue
to make major economic inroads in India and that
Japan is in a good position to become the country's
largest bilateral trading partner in a few years. The
prospect of large new markets opening as a result of
liberalization will encourage both Japan and Western
Europe to continue exploiting opportunities for joint
ventures and direct investment.
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India may increasingly look to Japan and Western
Europe for the high-technology equipment because it
believes these countries may be more willing to sell
sensitive technology than the United States. New
Delhi is eager to secure items for commercial indus-
trial use and research in the following areas:
? Supercomputers. India has purchased a Cray
XMP/14 supercomputer for data processing and
meteorological forecasting, which the company be-
lieves will be delivered by October. India is serious-
ly interested in a second Cray machine. US Embas-
sy officials, however, are concerned that New Delhi
may consider a Japanese machine for its next
supercomputer, especially if the Japanese offer in-
centives such as less stringent safeguards and a
quicker licensing process.
? Microelectronics production technology. India has
active very-large-scale-integration (VLSI) and very-
high-speed integrated circuits (VHSIC) research
programs and seeks items suitable for fabricating
sophisticated devices primarily from West Germany
as well as from Japan and France. For example,
India seeks software and source codes for comput-
er-aided VLSI design. US controls restrict the
transfer of such technologies and equipment.
? Fiber optics production technology. New Delhi lists
fiber optics as a high priority for upgrading India's
severely strained telecommunications network, and
seeks foreign technology to boost weak indigenous
capabilities. New Delhi particularly wants produc-
tion technology for high-speed (140 megabits per
second or higher), long-distance transmission links.
New Delhi also seeks other technologies and equip-
ment in data communications.
Composite materials production technology. India's
push into advanced composite materials, both for
defense-related aerospace applications and for civil-
ian uses, has prompted Indian requests for produc-
tion equipment and technology from the United
States, Japan, and Western Europe.
? Mainframe computer manufacturing technology.
New Delhi is seeking cooperative programs with US
computer manufacturers fora joint venture in
hardware manufacturing and software design. Con-
trol Data Corporation negotiated a $500 million
deal for production of its medium-size mainframe
computers in India. Digital Equipment Corporation
is discussing a deal for Indian production of its
Micro VAX II. Despite the optimism over prospects
for future negotiations, New Delhi recognizes that
its access to US computer technology will be limit-
ed by US licensing requirements. The Indians,
therefore, are exploring potential projects with both
Japanese and West European firms.
New Delhi is eager to acquire sensitive defense-
related technologies. India, however, has the ability
to produce many of these items, given enough time.
The military production technologies that are the
most important to New Delhi's military development
include:
? Ballistic missile guidance and control systems.
India, in our judgment, can develop many of the
technologies needed for ballistic missile production,
but it needs assistance with advanced guidance
systems, thrust vector controls, and heat shield/
reentry vehicle technology. We believe New Delhi is
shopping for technology, probably intended for its
ballistic missile program, in France, West Germa-
ny, and Japan.
? Light Combat Aircraft subcomponents.
the Indians are .
seeking flight control, avionics, and weapons sys-
tems for the LCA from the United States, the
United Kingdom, and France. The French firm
Dassault is contracted to design the airframe and
will undoubtedly campaign hard for additional
French systems.
i
25X1
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ocu ca
The competition among the United States, Japan, and
Western Europe for shares of India's capital goods
and high-technology market, in our judgment, will
become intense over the next few years. We believe
India may be attracted to Japanese and West Europe-
an markets because it believes these countries may be
more willing to sell items less encumbered by the
regulations and licensing restrictions that delay deliv-
ery of US technology. These countries, in turn, are
laying the groundwork for fiercer competition by
adopting trade strategies that will meet the commer-
cial needs of India. They are establishing greater
government-support networks for domestic firms and
are offering enticing financial packages to India to .
support the purchase of the goods.
The pace of India's growth and capacity to purchase
Western goods and technology will, in large part,
depend on its foreign payments position. We believe
significant deterioration in the trade balance will lead
to immediate restraints on all but essential imports.
New Delhi is not likely to significantly increase
foreign borrowing to cover greater deficits because its
debt service ratio--conservatively estimated at 30
percent by the US Embassy-exceeds what most
government officials consider a prudent level. We
believe New Delhi will try to ease deficit problems by
tying future imports to increasing exports and may
open the economy to greater foreign investment.
Should New Delhi be forced to restrict foreign im-
ports because of continuing foreign exchange prob-
lems, we believe the West Europeans would be affect-
ed first. The West Europeans have made their
greatest market inroads in sectors where a domestic
Indian production capability, although less techno-
logically advanced, exists. As a result, import restric-
tions, if they become necessary, are more likely to be
imposed in the sectors where rapid West European
growth has occurred instead of in the high-technology
sectors. Japan also may be affected by the high value
of the yen, but bilateral aid, if continued at promised
levels, and access to unique high-technology items
would probably help Tokyo maintain exports to India.
The wide range of US economic ties to India and the 25X1
significant trade deficit Washington is running with
New Delhi would probably limit the effects of a
cutback on Indo-US trade relations
India's expanding trade relations with Japan and
Western Europe will not significantly affect Indo-
Soviet trade relations. India has not looked to the
Soviets for the high-technology goods it seeks. US
Embassy reporting indicates most Indian businessmen
consider Soviet goods inferior to those from developed
countries. New Delhi views commercial ties to Mos-
cow as economically beneficial, however, because
most Indo-Soviet trade is conducted in rupees and
helps India preserve its hard currency. New Delhi gets
about one-third of its petroleum imports under this
arrangement.
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secret,,.
Secret
Declassified in Part - Sanitized Copy Approved for Release 2012/10/15: CIA-RDP89SO145OR000300340001-7