U.S. defense firms trying to find bigger foothold in India


At a factory in the middle of a large swathe of pastoral farmland, Indian and American engineers pore over mechanical drawings as other workers weld and rivet the parts of the American Super Hercules military transport aircraft. (Rama Lakshmi/THE WASHINGTON POST)
September 1, 2012

The strategic defense partnership between the United States and India should have been a match made in heaven. The first is the world’s biggest arms manufacturer; the second is among the biggest arms importers.

But the legacy of decades of mistrust, together with lingering barriers to technology transfer, continues to dog defense trade between two allies whose relationship President Obama said would be “one of the defining partnerships of the 21st century.”

A year after the crushing blow of losing India’s mammoth $12 billion contract for 126 fighter aircraft, the United States is now paying closer attention to India’s concerns. Many of the problems date back to the fallout of the U.S sanctions imposed on India in the wake of its nuclear tests, a move that froze technology sharing.

“We want to knock down any remaining bureaucratic barriers in our defense relationship and strip away the impediments,” Ashton Carter, the U.S. deputy defense secretary, said during a visit to India in July.

Carter was asked recently to take on the task of easing defense trade and technology transfer to India, and he says the U.S. government has begun to rework stringent export controls that hinder sharing of high-end technology.


AProjects like these are the first steps toward reshaping ties between the world's biggest arms manufacturer and the biggest arms buyer, by going beyond trade and toward joint-production, defense officials say. (Tata Lockheed Martin Aerostructures Ltd)

“We trust India and know India is not a re-exporter or exploiter of our technologies,” Carter said. “We want to move beyond defense trade and towards cooperative research and development and co-production with India.”

With a wary eye on China’s military buildup, India is in the midst of an ambitious defense acquisition program — worth about $100 billion over more than a decade — to replace its aging Soviet-era arsenal and buy new fighter aircraft, maritime patrol aircraft, infantry combat vehicles, helicopters, assault rifles, underwater submarines and tanks.

Because India’s own defense production industry is relatively small, much of that equipment has to be imported.

But India also wants an opportunity to build its domestic defense expertise every time it buys defense equipment from a foreign company — and in the long term become more self-reliant.

It is an effort that the United States is now trying to embrace.

A factory in the middle of a large swath of pastoral farmland in Adibatla, outside the southern Indian city of Hyderabad, is a model of how to build both goodwill and partnership, U.S. and Indian officials say.

The Bethesda-based aerospace major Lockheed Martin and the Indian company Tata Advanced Systems are jointly producing wing parts and tail sections for the American Super Hercules military transport aircraft at Adibatla.

Earlier this month, the factory produced six wing parts in India to be assembled in Lockheed Martin’s Atlanta factory.

“India is an expanding market for us, and by building our industrial footprint here, we are saying: ‘We are not here to sell and walk away. We have got our skin in the game. We are here to stay,’” Abhay Paranjape, national executive for India at Lockheed Martin Aeronautics, said in an interview.

Defense trade between the United States and India grew from almost nothing to generate $8 billion since 2005, marking a definite shift on India’s part toward buying American equipment. But Russia continues to be the top arms supplier to India, with the United States and Israel vying for second.

The big disappointment came last year when, after several rounds of fierce competition, the contract for 126 fighter aircraft went to the French company Dassault.

“There was a lot of scratching of heads here when the U.S. lost the contract, given that the U.S. had invested such a lot of political and diplomatic capital into this relationship,” said S. Amer Latif, visiting fellow at the Washington-based Center for Strategic and International Studies.

The 2005 civil nuclear energy deal helped cement the United States’s relationship with India as a counter to China’s rise in Asia. The U.S. plan to move 60 percent of its naval fleet to the Asia Pacific by 2020 makes the partnership with India vital.

“The big difference between other countries and the U.S. is that others look at India as a commercial market,” Latif said. “But the U.S. defense partnership with India is a key component of a larger strategic partnership that it hopes to foster based on converging interests.”

In India, though, the vision is somewhat different. New Delhi closely guards its strategic freedom and is reluctant to get too closely aligned militarily with Washington.

India has dragged its feet on signing key agreements that would enable the closer defense cooperation that the U.S. government has been asking for, including promises to provide logistical support to the American military and increase defense communication interoperability.

A senior Indian Defense Ministry official, who spoke on the condition of anonymity because he is not authorized to talk to reporters, said India wants to avoid getting fully locked into U.S. weapons systems not only because it could be politically controversial but also because memories of the U.S. sanctions, after the Indian nuclear tests in 1974 and 1998, are still fresh here.

India continues to make it difficult for U.S. inspectors to verify the end user of its products, ranging from police rifles to night-vision devices on naval ships.

“There is now a growing understanding among Americans of what it takes to deal with a country like India that wants to retain its freedom to buy arms from various sources,” said Ajai Shukla, consulting editor for strategic affairs for Business Standard and a defense blogger. “The U.S. is now trying to rework its technology export control rules. But can the U.S. rewrite its laws just because India is a special case? With all the goodwill in the world, the U.S. is still cagey about passing on advanced technology even to its closest allies.”

To gain defense technology expertise, India requires that 30 percent of the value of all defense contracts worth at least $55 million be plowed back into the Indian defense industry.

But foreign defense vendors say they feel handcuffed by the obligations and have complained that India’s private industry is just too small to absorb the huge volume of the offset contracts. Responding to their concerns, New Delhi relaxed the policy to allow the foreign defense companies more latitude in meeting the requirement, by allowing investment in civil aviation, homeland security and training as well in defense.

U.S. defense experts have also urged India to allow foreign investors to take on a majority stake in defense firms, up from a current limit of 24 percent, to facilitate higher-end technology partnerships. Experts say that offset obligations often lead companies to merely check the boxes and not transfer any real technological expertise.

The Adibatla factory was not built as part of a defense offset obligation, “but we will get offset benefits from this facility in the long term,” Paranjape said.

By 2014, the factory will manufacture a component every 15 days for the Super Hercules military aircraft, according to Paranjape.

“This is just the beginning,” he said. “This can practically grow into anything.”

Rama Lakshmi has been with The Post's India bureau since 1990. She is a staff writer and India social media editor for Post World.
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