Story ID: 328
U.S. Ramps Up India Defense Role
By: Neelam Mathews
Caption: Defense procurement is moving at leisurely pace in India, causing industry frustration.
Word Count: 965
India’s defense procurement in the past few years has followed the sluggish track of the previous government, though for different reasons. The Defence Procurement Procedure (DPP)-2016, which aims to streamline and simplify procedures to give a boost to the “Make in India” initiative (through indigenous design, development and manufacture of defense equipment, platforms, systems and sub-systems), has fallen short in implementation and due to unclear guidelines.

Defense minister Nirmala Sitharaman said recently that her biggest priority was to ensure full transparency in procurement while speeding up implementation of long-pending acquisition processes. However, projects such as the joint venture between Rostec and Hindustan Aeronautics Ltd (HAL) for Ka-226t helicopters continues to be in a nascent stage, while others– notably the Indo-Russian Fifth Generation Fighter Program (FGFA), planned ten years ago–are still in limbo.

In the past year a $500-million deal to buy 1,600 Spike anti-tank guided missiles from Israel’s Rafael Advanced Defence Systems was cancelled, as was the $4.8billion project to construct 12 advanced minesweepers in collaboration with South Korea at the Goa Shipyard. A reason was not given but is believed to be related to issues over transfer of technology and costs.

A key addition to the DPP, aimed at propping up the “Make in India” mantra, is the Strategic Partnership (SP) clause, designed to encourage domestic private manufacturers to tie up with OEMs to manufacture specific military platforms such as fighter aircraft, helicopters, submarines and armored fighting vehicles (AFV)/ main battle tanks (MBT). OEM doubts over accountability versus holding minority equity shares has slowed the initiative, bringing gloom to the once-optimistic private industry that was hoping for lucrative times ahead. The SP model raised queries on how propriety technologies will be protected; the framework for legal liability in joint partnerships; how consideration will be taken for technology transfer; export market opportunities; and best value compared to relying solely on the lowest bid.

In an address to an industry body recently, Sitharaman said the government has been encouraging the private sector to produce defense platforms following the strategic partnership model, which she said is “being implemented to support domestic defense manufacturing.”  However, delays in decision making often exasperate interested industry players. “Things are different in India. Sometimes the opposite is also true…We are ready to transfer technology...[while] looking at details of how to make it happen,” said Dave Sutton, director Asia, Lockheed Martin, referring to the possible manufacture of F-16s in India under the SP model. He was speaking at the U.S.-India Business Council’s Export Control and Acquisition Conference on December 4 in New Delhi. The conference attracted senior executives from global aerospace and defense companies with an aim to promote policies that improve ease of doing business in India’s defense market and generate new industry partnerships. 

The U.S. is fast emerging a major defense trade partner of India. Many U.S. companies are in serious contention to help meet Indian fighter aircraft, helicopter, and UAV requirements.

 “Today, the backbone of India’s strategic and theater transport fleet, its heavy attack and heavy lift helicopter capability, naval rotary anti-submarine warfare platforms, and its long-range maritime patrol aircraft are all U.S.-origin equipment. These defense contracts are worth over $15 billion,” said Benjamin Schwartz, head of defense and aerospace program, USIBC. The equipment includes P-8I maritime surveillance aircraft, C-130J Super Hercules and C-17 Globemaster-IIIs, Apache and Chinook helicopters, and U.S.-origin Howitzers.

This burgeoning trade has occurred because of an increasing convergence of common interests at the international geostrategic, political and government-to-government level, said Schwartz.

“The growth of China’s military power has the potential to destabilize regional security. This reality has made a strong Indian military an important interest of the U.S.,” he said candidly.

A major challenge doing business in an environment that at every level involves bureaucracy, caused Schwartz to comment: “This is the central challenge in U.S-Indian defense relations. Our systems aren’t aligned in a manner than prompts rapid action.” Besides, the U.S. private sector-led defense industry “has been a challenge for India’s public sector lead defense industry to cooperate with.”

There is also concern among most international OEMs that “technology security mechanisms have not fully been established to provide mutual confidence that sensitive technologies won’t fall into the hands of the third party countries.” 

Indian primes that are expected to tie up with OEMs to enable transfer of technology under the SP also have a grouse. “Why cannot we be treated on par with government agencies,” said Rahul Chaudhary, CEO of Tata Power’s Strategic Engineering Division. The company was recently shortlisted to develop the over $7 billion Battlefield Management System for the Indian Army, from which the MoD is likely to withdraw.

The US-India Defense Technology and Trade Initiative (DTTI), launched six years ago, is likewise not moving fast following an initial progress phase. Impediments were identified as the U.S. revoked sanctions and took action to increase transparency about technology release processes and, in concert with export reform, moved less sensitive items from the U.S. Munitions List to the Department of Commerce’ dual-use export authority. “Challenges remain–the most significant of which is that DTTI has not been able to foster major private sector cooperation,” said Schwartz. “The government-government cooperation primarily with the Defense Research Development Organization is limiting the true potential of DTTI,” an official said. A senior Ministry of External Affairs official told AIN, “A continuous dialogue depends on U.S. willingness to share capabilities we are interested in with a focus on co-development and co-production. We have made a modest beginning.”