Business Underpins India-U.S. Defense Deal

U.S. Secretary of Defense Chuck Hagel meets with Indian Prime Minister Narendra Modi at the Blair House in Washington, D.C., on Sept. 30, 2014. (Photo: Department of Defense, Master Sgt. Adrian Cadiz, U.S. Air Force)

On Jan. 25, India and the United States renewed their bilateral defense pact for 10 more years. The 2015 Framework for the U.S.-India Defense Relationship strengthens cooperation between the two countries in the areas of defense technology, military exchanges and counterterrorism.

For the first time, co-production and co-development are at the core of the defense engagement outlined in the framework, indicating the importance for India of technology transfers and indigenous manufacturing. The agreement makes India part of a group of nations that includes Japan, the United Kingdom and Taiwan, with whom the United States cooperates on defense technology.

Specifically, four pathfinder projects for co-production and co-development were identified through the Defense Technology and Trade Initiative of 2012, which serves as the guiding set of principles for the framework for cooperation. All the projects are experiments in making simpler technologies and easy-to-produce equipment. If successfully executed, they will help India build advanced weapons systems in the future and co-develop other weapons technologies with the United States.

The pathfinder projects are a real opportunity for India to move away from arms imports, which have so far constituted approximately 70 percent of the country's defense expenditure—of approximately $47.4 billion in 2013. Defense acquisitions from the United States alone have surpassed $10 billion in the last decade.

Over the last decade, the India-U.S. bilateral defense cooperation has mainly focused on purchases, including big-ticket items such as the $4.1 billion acquisition of the C-17 transport aircraft. The equipment the United States has currently offered India for co-production and co-development may appear less advanced in comparison. But as India's slow and difficult experience in indigenously developing and producing some of these basic technologies shows, they require significant amounts of R&D. Given India's modest defense industrial base, the equipment being offered by the United States is easy to produce and a good start to boosting the defense industry.

Co-production will also mean a consistent availability of high-quality weapons to the Indian armed forces. For instance, the Mobile Electric Hybrid Power Sources system will be particularly useful for the army units deployed in the remote and high-altitude locations of Jammu and Kashmir and in the northeast. Similarly, the Raven drones offer a 360-degree view of the proximate area for soldiers, providing valuable tactical intelligence.

The plans for India-U.S. defense cooperation also align well with the Modi government's "Make in India" framework and its efforts to promote the role of Indian business in defense production. In particular, two segments will benefit—the Indian partners of existing joint ventures, and small and medium enterprises, which constitute the larger defense industrial ecosystem.

Both AeroVironment and Lockheed Martin already have joint ventures in India with private defense companies—Dynamatic Technologies Limited and Tata Advanced Systems, respectively. Therefore, the go-ahead by India and the United States for these companies, which hold rights to the drone and the "roll on/roll off" technology, to undertake co-production, will give them a head-start. The plans to make Raven's joint venture in India the global manufacturing hub for the product will help Indian companies become part of the global supply chain.

While co-production implies manufacturing an existing product, co-development involves jointly conceiving and creating a new product. This will eventually be a significant opportunity for India to establish its R&D base—a basic requirement for a robust defense industrial foundation. It is what China did, and it enabled the country to transition from being the world's largest arms importer to becoming the fifth-largest arms exporter.

Since 2012, the U.S. government has offered defense technologies for co-development to India, after industry-wide consultations within the United States. Unfortunately, the Indian side has not matched these efforts. India's Defence Research and Development Organisation (DRDO) did identify advanced technologies—such as those related to lasers and hypersonic flights—for acquisition. However, in doing this, the DRDO did not consult either public-sector units or businesses in the defense sector. The Indian government must now comprehensively address these gaps.

Other potential R&D opportunities arising out of co-development with the United States must also be optimally utilized—including in naval systems, the shipbuilding sector, electronics and semi-conductor industries, which constitute the core of modern defense equipment. This potential can be realized if the government establishes a regular forum to consult with business, where larger national interests can be aligned with commercial interests.

By taking these necessary steps, India can strengthen its defense R&D and build a robust indigenous defense industrial base—and that ultimately is the goal of defense technology cooperation with the United States.

This article was originally published by Gateway House: Indian Council on Global Relations. Sameer Patil is an associate fellow on national security, ethnic conflict and terrorism at Gateway House.