MoD snubs US proposal to increase defence trade - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Thursday 19 July 2012

MoD snubs US proposal to increase defence trade

by Ajai Shukla
Business Standard, 20th July 12

India’s defence ministry (MoD) has snubbed Washington’s gesture of appointing a top Pentagon official, Deputy Secretary of Defence Ashton Carter, to focus on boosting defence trade between the two countries. With the MoD unwilling to appoint an interlocutor for Carter, the ministry of external affairs (MEA) will discuss trade and licensing issues with Carter during his visit to New Delhi next week.

In June, while visiting India, US Defence Secretary Leon Panetta had announced that Carter would be the Pentagon’s point man on deepening defence trade with India. Carter’s brief, said Panetta, was to “cut through the bureaucratic red tape on both sides” in order to “make our defence trade more simple, responsive and effective.”

But the MoD remains unmoved. “Can you suggest someone who could be Ashton Carter’s interlocutor?” asks a senior bureaucrat impishly.

The MoD’s reluctance to engage Washington bilaterally is not new. In April, when Assistant Secretary of State for Political-Military Affairs, Andrew Shapiro renewed the so-called “pol-mil dialogue” that has an overt military component, the MoD suggested that the MEA be the lead ministry for this dialogue.

And Defence Minister AK Antony’s reported wariness of the US is believed to have scuttled a Pentagon proposal to position an Indian Army officer with the US Central Command Headquarters (CENTCOM) in Hawaii, with a corresponding US officer cross-posted to New Delhi.

Contacted for comments, the MoD has not responded.

In Washington, as in the US Embassy in New Delhi, Antony is seen as overtly anti-American. Diplomatic dispatches from New Delhi, revealed by Wikileaks, convey a forcefully impression of Antony’s anti-US orientation.

This contrasts noticeably with the MEA’s relative enthusiasm for the US. There is supposed to be an interface between the two ministries: the MoD is authorized an MEA joint secretary, who works with the defence minister on diplomatic issues. But this post of Joint Secretary (Planning and International Cooperation), or JS (PIC), is currently occupied by an Indian Administrative Services (IAS) officer, Smita Nagaraj, a reputedly competent officer but with no diplomatic experience or training.

A top New Delhi official, holding the rank of cabinet minister, recently revealed while speaking to a closed-door New Delhi audience, that no MEA officer is willing to serve as JS (PIC) in the MoD because it is a three-year tenure, while MEA officers need to serve in India for only two years in between foreign postings.

But pressure is building from Washington. The influential US think tank, Centre for Strategic and International Studies (CSIS), in a report that mirrors the Pentagon’s viewpoint that arms sales to India are a key measure of the partnership, has recommended that the “United States and India should designate one official on each side whose portfolio prioritizes the promotion of bilateral defense trade.”

The CSIS report recommends 41 specific steps to kickstart the defence relationship. Besides the designation of official interlocutors on defence trade, some of the key recommendations include:

  • The US should seriously examine the prospect of greater co-production and co-development projects with India. While such projects run the risk of essential technologies being denied by Washington, the answer could lie in co-developing non-sensitive defence equipment that “need not initially delve into sensitive technologies that are difficult (for Washington) to release.” The Pentagon is already considering this. Defence Secretary Panetta had declared in New Delhi, “Over the long term, I am certain that we will transition our defence trade beyond the “buyer-seller” relationship to substantial co-production and, eventually, high-technology joint research and development.” 

  • Currently, discussions on defence trade and licensing are spread across a number of US and Indian agencies and ministries. These should be consolidated into a single forum that focuses exclusively on defence trade.

  • India should re-evaluate its insistence on offsets since the Indian private sector is still nascent and the Defence PSUs do not have the capacity to absorb the large offsets that are arising.

  • Raise the FDI cap on foreign investment into the defence sector to above 50% from the current 26%.

  • And finally, New Delhi needs to respond to the Indian media’s frequent “inaccuracies about U.S. policies and intentions.” It is important to put out an “accurate, coordinated and balanced message to India’s strategic community about the value of U.S.-India defense (sic) ties (to) help dispel misinformation and myths.”


  1. US approach to the bilateral ties is based on how their system works. They do not sidetrack their professional and specialists such as Armed Forces officers. Indian approach to higher defence management is exclusivist, that is, more emphasis is put on excluding professional and specially the Armed Forces. The syndrome of "My File" is very basic of MoD and MEA functionality. That is why on every proposal of the Armed Forces, they create their file rather than work on the file that has been put up.

  2. No IAS Officer was willing to serve for a tenure of 3 Years as they are obligated to do 2 Years between Internation postings.

    Wow, what a solid reason for a selfless Governement Servant not to engage in an activity. I believe all big decisions, alliances, wars, national movements boil down to the competence of men handling them.

    And I believe, that the men on our side are more incompetent than the otherside.

  3. In this case I think the govt is right.There is no need to integrate our policies and sensitive sector/s to such an extent with the US.
    Yes,their tech and Defence- manufacturing sector is very advanced,but one cannot assume that this would automatically be of benefit to us.
    The onus to increase efficacy is on us,and a closer alignment with USA is not a way to do it.

    The USA too has had its share of flops, cancelled programs,mis-managed projects,failed products,cost overruns etc.Their army is about to scrap 5 billion dollars of uniforms as they found out that they mark out the men more than camouflage them!

  4. the terminator20 July 2012 at 04:05

    Col Shukla,
    Bilateral defense trade implies that it is a two way trade. The US assumes that Indian industry is so basic that it cannot assimilate US high technology. The US cites this as the reason that it cannot reinvest 50% of its earning from sales to the Indian Defense Forces. This is a very lame excuse. This was the same excuse the French used when they were accused of not giving agreed upon TOT.

    When the US agrees to the terms and conditions for a sale to India, the onus is on the US to see that it conforms to the 50% reinvestment clause or the TOT clauses.

    The US cannot claim the Indians are not capable and recuse themselves of their obligations. This is the main reason why the majority of Indians distrust and are suspicious of American intentions.

    If the US only wants to make money out of direct sales, then there is no necessity to talk about US-India strategic alliance and similar bullshit.

    Americans should realize that they are dealing with a sovereign, democratic nation and not a third world tin-pot dictatorship.

    India is not their poodle, Pakistan. India is not their beggar friend. If the US sincerely wants to develop good, friendly relationship (without strings attached) and hopes to have a bilateral trade relationship, it should remove the many obstacles that it throws in our way to deny a level playing field in bilateral trade.

    There is no point in accusing the Defense Minister as being anti-America. It is the past American dealings with regards to India that such ant-American sentiments are felt in India.

    Instead of coming up with 41 crucial points that need to be addressed for a true bilateral trade, it would be in the best interest of both nations to cut the red tape to get things moving in the right direction.

  5. Right! So the MoD is ok with importing 70% of the arms from foreign companies but not ok to do business with US. I am lovin it.

  6. "Talks" are "Myth"

    "History" is a "Tangible Fact"

    (When tangible facts reveal what/how your enemy thinks, it's imp that you remember it)

  7. The moot point is that how many such points are raised by the US, when they are dealing with Pakistan.

    Despite this it is highly pertinent that the Indo-American relations must continually improve including that of defense.

  8. Ajai-ji,

    CENTCOM is in Florida. PACOM is in Hawaii.

    You have utmost respect as an authoritative, insider who normally has an excellent grasp on issues impacting bilateral and domestic defense (not sic, just the American way of spelling the word) related matters.

    As such, this article really is quite a stretch. And please stop indicating that the MoD does not welcome US overtures with open arms, as well they should. How else is MoD expected to meet their technology acquisition needs (driven by DRDO via the critical list of technologies) without U.S. technology? Unless of course you'd like the existing (I.e. circa 1980) Russian, re-exported and re-tooled Israeli, or promised-thereof French.

    This upcoming visit is one where U.S. would keenly hope that both sides can look past the past and forward to opportunities that will foster a quicker defense trade not just for dollars, but to meet Indian service's needs faster. That is, after all, the priority. For both sides.

    -an avid reader

  9. The worst possible phenomenon is allowing Indian officials to take up residence in US or even liaise because that is the perfect time when they are (for few dollars) recruited as moles by the foreign spy agencies. In any event, India must move according to its own needs and only just that. Remember that there are a lot of Nations out their that perfectly well defend themselves without the need for military hardware from US!

  10. The US clearly wants to scuttle the two aims of India becoming an independent defence producer

    - First scuttle defense offsets. If they wont transfer tech, others will. So ask India to dilute it and kill the process by which Indian SMEs become larger players, and Indian PSUs get access to modern tech

    - Ensure Indian companies get into US control and US law framework via ITAR - by raising cap to above 50%, effectively making them American owned

    The Americans are absolutely shameless and brazen in imposing their agenda on other nations, all the while couching their intentions in PR-goody goody speak

  11. The US has certain ways of dealing with other states on their terms. India offers nothing to US except a big consumer market. The treatment only gots worse the more you become dependent on them....wait till lots of your equipment is from US. When uncle sam will say jump, india will say how high. Its the way it goes between big powers and third world.

  12. How hard is this for people to understand?

    "What uncle giveth, he taketh away".

    A significant part of the US military sales to india is worth sh!t in times of war. We're better off catapulting our supplies to the front gates.

    This dependence on other countries needs to end. The concept of "swaraj" was glorified more than half a century ago. The indian defense establishment needs to revive the concept because I don't think they remember it anymore.

  13. It's interesting we want bilateral ties, but we offer nothing they really need (cheap labor is not a necessity, it's a definite nice to have). We limit the US corporation to a certain percent ownership, while we do not mind if our companies face no such limit when they invest in the US. We place tariffs to protect our industry but are happy to export to the US that does not place similar tariffs on our manufacturers. If we want to do business on equal terms, start treating our parents the way they treat us. Offer them something they need in return for something that we want. IF we cannot offer what they need, then forget about betting what you need on your terms. Remember, he who own the gold gets to make his rules. And, that is the golden rule. Rightnow US has more things that we want to buy, therefore if we want to buy all that we like, then we need to be ready to agree with their conditions. Don't complain about bilateral business ties, as that wont lead to anything. Instead, we should focus our enery into developing products that they could be interest in.


    Is this article true?

  15. What is this circa??
    they mean the one which is put in pickle??

    Some people do not improve even over the age.

  16. Anon at 22 July 7:39, nice propaganda on behalf of your American friends, but the reality is nowhere near what you make it to be. Indian companies cannot acquire any American defense company without US Govt approval. Furthermore, by US law, the technology and other critical aspects remain in control of US citizens and the company has to follow ITAR strictly. It cannot even send work packages to India without Govt approval. Yet, US Govt wants India to relax its regulations.

    Similarly, India's trade practises are nothing compared to the manner in which USG lobbies against Indian defence. All this while, for 3 decades now, India has suffered from unofficial and official sanctions put in place by the US after India dared to explode nukes in 1974

    So please spare us the patronizing rubbish about how India should do more and more to help the US. If the US will not sell us stuff, the Europeans, Israelis and Russians will. The Americans just want to take the Indian market for themselves while ensuring Indian industry remains behind, this means they want to kill offset and also not provide proper TOT.

    India is not anyone's pet to accept such stupid restrictions. We are a sovereign nation and need to defend ourselves. If a shooting war occurs, by the time the US decides whether or not to help India, we would be in trouble.

    Besides which the US has been the biggest sponsor of conventional weaponry to the Pakistanis, for free. And they want to finance their MIC with Indian money. That too, is a bit too brazen.

  17. Anon@23 July 2012 00:19

    When I mentioned limits on foreign investments, this is not limited to just the defense sector, I mean everything. I understand US has tough laws on foreign investments in defense sector, but so does India and the rest of the world. India does have all kinds of restrictions that defend the domestic manufacturers and keeps foreign investments out. The side effect of this is lack of real competition and thus we are still stuck in the dark age of doing business. I do belive that in the short term the open market will hurt indian owned businessed, but in the long run, Indians are better cost cutters and tactical thinkers that will lead to improvements in our business environment that makes us second of none. So no I am not pro or anti anybody. I am just stating what I see from my perspective.

    If India does not like the US policies, they can either negotiate or step away. If the negotiations are not resulting in a favorable policy, then just step away. Remember US discloses all their policies up-front, it's not a change in policy or cost after the deal has been agreed to. US policies are a part of the package that we buy when we buy from the US, the good and the bad are both included in that package. The US has not put a gun to our head and forced us to buy something we did not need. IF we want to buy products from the US, or any other country for that matter, we better be prepared to live with the policies of those countries. The only other choice is making everything at home, and clearly we are not ready to go 100% home made as of yet. Everyone will be happy if that happens starting today, but the reality is something else and we all know that.

    All I am saying is that if we do not like US policies, we should not buy. buying from the US is our own decision, no other country can make that decision for us. Complaining about the US policies is like complaining about the Russian Mig-29 being a twin engine plane and wanting to change that to a single engine design before we buy it. That's just not going to happen; just like the US policies (which are a part of the package) are not going to be modified significantly to pacify the buyer. Just as the case with India, US policies are based on their Laws. There are some gray area in the law that could allow some flexibility, but over-all it does not allow much room for a major change. Certain changes can be made when we are on an equal footing. IF we have something that they really really need, then guess what the US will be forced to amend their laws to allow Indians certain flexibilities, but until we start making "Original Idea" based products, we will not have that significant of a say. Just my two cents.

  18. This comment has been removed by a blog administrator.


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