US-India defence ties: Offsets, FDI policies remain key challenges
Washington: Even as US-India defence trade ties have reached new heights, the US looks at India's offsets and foreign direct investment (FDI) policies as key challenges to advancing this relationship, according to a US think tank.
"Recent months have seen some slowdown in the overall US-India relationship, principally due to trade and investment-related concerns," writes Karl F. Inderfurth, a former US diplomat who serves as Wadhwani Chair in US-India Policy Studies at Centre for Strategic and International Studies (CSIS.)
"However, defence cooperation remains a bright spot. In fact, over the past year, defence coopertaion has become a centerpiece of the US-India relationship," he writes in this month's US-India Insight examining the current status and future potential of bilateral defence cooperation.
President Barack Obama and Prime Minister Singh in September reaffirmed this, as the US agreed to grant India the same privileges typically reserved for its closest allies with respect to Defence trade, technology transfer, and co-production and co-development, Inderfurth noted.
US sales of military equipment to India have grown from zero in 2008 to around $9 billion today, with billions more expected in coming years. India plans to spend about $100 billion over the next decade upgrading its mostly Soviet-era military hardware.
"While it is certainly the case that US-India defence trade ties have reached new heights, it is also true that challenges remain to advancing this relationship," Inderfurth wrote noting Defence Department's fiscal 2013 report to Congress had identified offsets and foreign direct investment (FDI) policies among the most important ones.
"As indigenization continues to be India's stated goal, US companies face Indian expectations of complete 'transfer of technology' and 30 percent offset packages to directed partners to facilitate the growth of India's defence industrial base," the report noted.
"This expectation combined with a 26 percent cap on foreign direct investment in the defence sector limits the interest of US companies to fulfill Indian requests for high-technology defence articles.
"US industry is often frustrated by a lack of clarity in India's defence offset policy, unrealistic requirements in tenders and competitions, and a procurement process that can be difficult to navigate," it said.
Not surprisingly, the Indian view of challenges being faced often mirrors those of the US, especially regarding "lack of clarity", "unrealistic requirements," and a "process that can be difficult to navigate," Inderfurth concluded.