US Defence Secretary Leon Panetta’s visit to India in early June garnered headlines as he described India’s role as “a linchpin” in America’s new defence strategy. However, the speech was also notable for Panetta’s designation of Deputy Secretary of Defence Ashton Carter as the point man to deepen bilateral defence trade. The move was a good one and would be strengthened if India provides a counterpart who will have the requisite government backing and mandate to break through bureaucratic barriers in New Delhi.
He said that Carter’s mission will be to “cut through the bureaucratic red tape on both sides.” Part of this mission will inevitably deal with technology transfer which is arguably India’s top strategic objective for defence trade. While India continues to voice concerns about American reluctance to transfer technology, it is important to note the significant paradigm shift which has occurred within the US administration on technology transfers to India since 2005.
According to US Commerce Department statistics, well over 99% of licence requests for dual use technology were granted in fiscal year 2011 and the percentages were also quite similar for munitions licences. Where Indian dissatisfaction arises is when provisos, or conditions, are sometimes placed on certain systems which deny the most sensitive components or technological know-how. Unlike Russia, France, or Israel, technology is a strategic, rather than a commercial commodity for the US and is not parted with lightly. It will take more time to build US confidence on transferring technology to India - but it will grow over the long term as the relationship deepens.
However, no amount of foreign tech transfer will ever make India self-reliant in defence production. Based on a year-long examination of bilateral defence trade, here are several reforms India may consider.
To begin with, India could foster more competition for its Defence Public Sector Undertakings by allowing its own private sector to compete in the defence market. Defence minister AK Antony’s recent decision to invite private companies to compete against the public sector for the Army’s Tactical Communications System was a good start, but more needs to be done.
While private companies are eager to contribute to Indian defence needs, they currently do not have a compelling financial incentive to build the necessary infrastructure for defence production. As a result, many large Indian firms are thinking of pulling out of the defence sector altogether which is unfortunate because it deprives the Indian warfighter of potentially obtaining the best quality defence equipment through free and open competition. Fully implementing the Raksha Udyog Ratna provisions would be a welcome move that would communicate the government’s commitment to bringing in the private sector.
Second, India could encourage its private sector to engage in basic defence research. India is blessed with copious amounts of technical talent in the private sector but has not adequately tapped into this rich resource.
Third, the Ministry of Defence (MoD) should speed up its decision making process and improve transparency. While MoD decision-makers are deliberately slow in shepherding defence deals partly to ward off potential charges of corruption, defence readiness can be harmed in the process.
Fourth, India should consider increasing the rate of Foreign Direct Investment to a level above 50%. Doing so would help Indian firms gain greater exposure to American industrial practices, obtain more access to American technology, and help India towards its goal of industrial self-reliance in defence.
Finally, India would do well to seriously reconsider its offset policy. Using offsets to build a country’s defence industrial base has a dubious historical record. India’s current offset policy lacks strategic focus and the capacity to absorb billions of dollars in offsets that will be coming its way in the coming years. The lack of effective offset partners in the Indian public and private sectors for foreign firms compounds the problem. Instead, it may be worth establishing a national commission to examine the most optimal way to use offset resources.
While technology transfers will continue to be a key metric of measuring American commitment to India, New Delhi would be well served to take a good, hard look at the system undergirding its defence industry. Instituting the needed reforms will not only contribute to closer US-India defence trade ties, but, most importantly, will significantly contribute to improving India’s own indigenous capabilities and-ultimately-its national security.
S Amer Latif is a Visiting Fellow at the Wadhwani Chair for US-India Policy Studies at the Center for Strategic and International Studies. Karl F Inderfurth is Senior Advisor and Wadhwani Chair in US-India Policy Studies
The views expressed by the authors are personal.