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India-U.S. talks to focus on Afghanistan, economic ties

By Andrew Quinn

WASHINGTON (Reuters) - India and the United States open high-level talks this week, hoping to cement gains in a partnership still bedeviled by doubts despite vows of deeper political and economic cooperation.

Indian concerns focus on growing U.S. ties with its arch-rival Pakistan -- a key player in the U.S.-led war in Afghanistan -- while U.S. officials will likely press for more progress in opening India's huge market to U.S. companies in the energy, retail and education sectors.

Secretary of State Hillary Clinton and Indian External Affairs Minister S.M. Krishna will each lead large government teams to the Washington meetings, which begin in earnest on Wednesday and move into high gear on Thursday.

U.S. Undersecretary of State Bill Burns said on Tuesday expanding U.S. political and economic ties with India was a priority of the Obama administration, which also wanted closer cooperation on issues from East Asia to the Middle East.

"India's strength and progress on the world stage is deeply in the strategic interest of the United States," said Burns in an address to the Council on Foreign Relations.

"Never has there been a moment when partnership between India and America mattered more to the rest of the globe."

U.S. officials have repeatedly sought to reassure India that the bilateral relationship -- which blossomed under former President George W. Bush -- remains on the fast track under his successor, President Barack Obama.

Indian Prime Minister Manmohan Singh was Obama's first official state visitor in November, and Obama plans his own return visit to New Delhi later this year.

Washington cites progress on climate change, Iran and intelligence-sharing as hallmarks of the new cooperation.

STRAINS

But the partnership has come under strain in Afghanistan, where India is jostling with Pakistan for influence ahead of Washington's planned troop withdrawal to start in mid-2011.

The Obama administration has sent mixed signals over the role India should play in Afghanistan, leaving diplomats to beat back Indian fears that Pakistan's strategic interests could have more weight.

Burns sought to ease concerns over Afghanistan, saying Washington valued India's role there and saw its involvement as a "key part of that country's future success."

But analysts say these persistent doubts point to a broader uncertainty over how the two democracies will move forward.

"Be it Iran, Pakistan, terrorism or nuclear issues, Washington had still not been able to figure out if India was part of the problem or solution," Uday Bhaskar of New Delhi-based think tank National Maritime Foundation.

"There is a sense of drift on both sides."

From the U.S. perspective, there is frustration over the slow pace of major economic initiatives, including full implementation of a 2008 civilian nuclear cooperation deal that ended India's nuclear isolation since its 1974 atomic test.

U.S. officials estimate the agreement could represent a $10 billion jackpot for U.S. reactor builders such as General Electric Co. and Westinghouse Electric Co, a subsidiary of Japan's Toshiba Corp.

But while Singh said in November he saw no hurdles to full implementation of the deal, moves to set in place the legal framework have been slow and look likely to encounter further delay in India's parliament.

Also moving slowly are Indian proposals to open up its $450 billion retail sector -- of huge interest to companies such as Wal-Mart Stores -- and to allow foreign universities to set up Indian campuses, a focus for top-tier U.S. schools.

U.S. defense giants Lockheed Martin Corp and Boeing Co are watching hints that India may liberalize foreign direct investment in its defense equipment market, which could be worth $100 billion over the next 10 years.

Both companies are already bidding in India's $11 billion tender for 126 new fighter jets, which itself would be one of the largest arms deals in the world.

Political analysts say the economic payoffs may come eventually, but that the United States is learning it must be patient as India works at its own pace.

"There is considerable frustration," said Ashley Tellis, an India expert at the Carnegie Endowment think-tank. "We don't understand the dynamics of domestic Indian politics. My sense is that we will get what we want eventually, but it will never be in the first iteration."

(Additional reporting by Sue Pleming in Washington and Krittivas Mukherjee in New Delhi; editing by Cynthia Osterman)

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