Maj Gen Mrinal Suman (IDR Mar 2005)
Introduction
On 25 February 2002, Defence Security Cooperation Agency of the United States Government notified Congress of a possible sale to India of 8 AN/TPQ-37 FIRE FINDER counter-battery artillery radar sets with associated equipment and services. The deal was signed subsequently, valued close to USD 150 million. It was touted as a path breaking deal, ushering in a new era of Indo-US cooperation in the field of defence equipment. A Security Cooperation Group (SCG) was also constituted to coordinate and expedite defence deals. India wanted a vast array of latest systems. The US authorities appeared receptive to Indian requests and amenable to the sale of latest weaponry. The air was thick with optimism. Many predicted an end to the predominance of Russian weaponry in the Indian armed forces. They believed that India was aligning itself with the US and the new dispensation would result in India getting critical high-tech systems.
A number of SCG meetings have since been held. Both sides are sincere in carrying the process forward, but one is yet to see the anticipated flood of the US equipment. It is not even a trickle as yet. India has been able to procure or obtain promises for spares for existing equipment and some items for special forces. For all major systems, India continues to depend on Russia, Israel and South Africa.
There is no denying the fact that the US authorities are keen to strengthen the bond and are striving to further the process. They understand and appreciate India’s requirements. Yet, the results on ground do not reflect changed dispositions. Things are not moving fast enough, belying all hopes of expeditious sale of military equipment to India.
The US Defence Export Regime
For an analysis of reasons for the slow progress, it is imperative to take a look at the US system of sale of military equipment to other countries.
The US sells military items through two basic routes – Foreign Military Sales and Direct Commercial Sales. Though subjected to the same licencing regime, both have their distinct characteristics.
The US Government also provides equipment on lease for a period up to 5 years. It is always a case specific agreement, generally to meet an immediate requirement of the indenting nation till bulk procurements materialise. Additionally, stocks held in excess of the requirements of the US forces are also offered at highly reduced rates (5 to 50% of original cost) to selected countries.
Foreign Military Sales (FMS)
FMS is generally known as a government-to-government deal. India bought Weapon Locating Radars through this route. This route is generally followed in respect of the items which have already been inducted in the US forces. The US Government offers similar items to foreign governments at the rate at which these items had been purchased for the US forces, albeit with additional handling charges. There are three types of FMS cases. Defined Orders are meant for specific weapon systems, Blanket Orders are to cover follow-on support and Cooperative Logistics Supply Support Arrangement enables a buyer nation to invest in the US Supply System with access to the US defence stocks.
The buyer nation forwards a Letter of Request (LOR) to the US Government. It is a comprehensive document containing information about the equipment, its planned usage and support facilities. As per the norms, it should not take more than 120 days to process a request once LOR is found in order. However, it takes much longer as the actual procedure is highly complex and multi-echeloned.
If the request is cleared, a Letter of Offer (LOO) is sent to the requesting Government. The buying Government is required to submit a Letter of Acceptance (LOA) along with the initial advance. Every LOA includes Standard Terms and Conditions as dictated by the US laws for acceptance by the buyer. It contains requirements regarding liability, discrepancy reporting and monitoring of equipment usage. A legal contract is signed thereafter. The US Government may supply the item from its own existing stocks or procure it afresh from the producer.
There are no middlemen in FMS. The buyer nation is saved considerable effort and expenditure, as the US Government procures the item as per its well established acquisition procedure. The quality and performance parameters are assured. Deliveries may be faster in case the equipment incorporates Government furnished material, as Government orders get priority. Since the item is already in use with its forces, the US Government is in a better position to provide logistic, training and exploitation support. Even joint training and development of usage doctrine get facilitated. FMS route is ideally suited for the US allies who have common operational doctrine and where inter-operability of equipment is an essential consideration.
Direct Commercial Sales (DCS)
These are pure commercial transactions between a buyer government and the industry. The role of the US Government is limited to the grant of licence by the Office of Defence Trade Controls of the State Department. This route facilitates open competition amongst various producers world wide. DCS route is preferred when the performance parameters of the equipment sought are materially different than the US military specifications. Parameters of the equipment sought can be determined by the buyer to suit his country’s operational requirements. The buyer may ask them to submit techno-commercial proposals for evaluation.
Transfer of technology and joint production can also form an integral part of the overall package. It is for the contracting parties to draw out terms and conditions of the deal to suit their perceived interests. Delivery of the item may be faster if it is in current production or if the company has ready stocks. Buyer nations can demand and negotiate compensatory offsets to minimise strain on their economies with in-built reciprocity clauses. In other words, the US companies are required to compete with producers from other countries to clinch deals.
Applicability to India
Both the options are open to India. It is not possible to compare FMS and DCS routes. Both have their distinct advantages. However, their applicability needs to be examined on case to case basis.
For India, FMS route is ideal in respect of high-tech systems, which no other nation possesses or is ready to offer. It implies that the equipment should undisputedly be the best available and there should be no need to carry out comparative trials. This route will also be better for complex weapon systems as India can get them fully integrated and configured.
However, they should preferably be stand alone systems, so that their integration in the existing inventory and the current operational doctrine pose no major problem. As the majority of the present equipment in the armed forces is of Russian origin, this aspect becomes a major constraint. While FMS route has the advantages of fixed prices, sovereign guarantees and after sale support, it precludes competition and trials. In other words, it is a ‘take it or leave it’ situation for the buyer. Thus, usefulness of FMS is highly limited in India’s case.
India has to exploit DCS route, wherein it can procure equipment as per its own parameters and after carrying out competitive trials with equipment from other countries. In the present day buyers’ market in the arms trade, India can not only get the best equipment but also drive hard bargains to get most favourable commercial terms.
India can also extract both indirect and direct offsets including transfer of technology. In year 2002 alone, US signed new offset-related defence export contracts valued at 7.4 billion dollars. The value of attached offsets was 6.1 billion dollars or a huge 82.3% of the total value. They contained arrangements with built-in reciprocity clauses for compensatory trade to provide relief to the buyers to help them pay for the purchases. Such benefits are normally not available under FMS.
Additionally, Indian defence acquisitions are governed by Defence Procurement Procedure–2002, which lists ‘free competition’ as its basic aim and underlying philosophy. The procedure repeatedly stresses the importance of generating maximum competition. It also mandates that competitive tendering be followed as a norm. Therefore, Indian defence acquisitions have to be broad based with tenders being issued to all eligible producers. DCS fits in this arrangement well. American companies can compete with others both on technical and commercial levels.
Though cost is always a major consideration, it is difficult to make an across-the-board comparison. In many case FMS route is cheaper due to economies of scale as the US Government negotiates a consolidated deal by combining their own requirement as well. On the other hand, DCS is an open market transaction and the cost can be highly competitive, especially if producers from other countries are also in the fray. In that case, cost becomes a function of market dynamics.
Reasons for Sluggish Progress
As seen earlier, usefulness of FMS is limited to some high-tech stand-alone systems only. It is, therefore, the DCS route which India has to adopt for the bulk of its purchases from the US. As a matter of fact, India has been exploring this avenue for quite some time, especially after the lifting of sanctions in 2001. A number of US companies have been issued tenders inviting them to submit their techno-commercial proposals. But the response has been very poor. No worthwhile deal has been signed with any US company so far. Some of the major causes for this lack of progress are discussed in the succeeding paragraphs. Slow tardy
Inconsistency of the US Policies
The single most important reason is lack of credibility of the US commitments. India is very wary of the US laws which impose sanctions even on purely commercial transactions. Having suffered earlier, India is unwilling to have the threat of unilateral abrogation of agreements impinge on its freedom to take decisions in its national interests. India wants to tread very carefully lest it lands itself in a situation like Pakistan, when the US declined to either supply the contracted F-16 aircraft or refund the amount paid in advance. India may have been happy at the non-delivery of F-16 to Pakistan but it certainly empathised with it for the unfair treatment it received. This also made India aware of the perils and uncertainties of US obligations. The Defence Minister of India was quite candid and forthright when he mentioned lack of reliability of supplies as the primary stumbling block in enhanced Indo-US military trade at Aero India 2005.
During all discussions and meetings, the US officials understand and appreciate Indian apprehensions regarding assured follow-up support. But they regret their inability to make any guaranteed commitments due to the current US laws. Any sub-committee of the US legislature can overrule contractual obligations entered into by their executive.
Tedious Licencing Procedure
All sales of military equipment are governed by Arms Export Control Act and Foreign Assistance Act. The US Government examines all requests for their compliance with the US laws and statutory provisions. Each request is reviewed and validated by various wings of the US Military Department, Defence Security Cooperation Agency and the State Department. The most important aspect of the review is whether the technology involved is releasable to the requesting country. In other words, it is examined whether the requesting country is eligible for the receipt of the said technology or not.
Licencing procedure in respect of items categorised as Significant Military Equipment (SME) is more tedious. SME is an item designated in the International Traffic in Arms Regulation (ITAR) that warrants special export controls because of its capacity for substantial military utility. In case LOR includes any SME item, it has to be reviewed by the US Ambassador to that country as well. If any FMS deal is expected to exceed USD 14 million of Major Defence Equipment (MDE), or exceed a total case value of USD 50 million, then the US Congress has to be notified of the prospective deal under Section 36 (b) of Arms Export Control Act. MDE is a subcategory of SME.
The US licensing system is not only rigid and time consuming but also a little unpredictable. US companies are hesitant to submit their bids as they are not confident of getting export clearance in the time available.
Post Sale Monitoring of Equipment Usage
The US Government insists that the equipment sold by it be used strictly as per the initially stated intent. All changes are to be intimated to the US. The US retains even the right of ground inspection. Golden Sentry is the name given to the US End Use Monitoring (EUM) programme. Its aim is to ensure security of technology, industrial base protection and foreign compliance with the terms of delivery of equipment. There are various levels of monitoring depending on the sensitiveness of the equipment and the host country. In addition to regular monitoring, EUM visits are undertaken for ground verification. Generally, there are three types of EUM visits – Familiarisation Visits to help develop effective EUM compliance plans, Tiger Team Visits to review/evaluate host nation’s compliance programme and Investigation Visits to examine any alleged violations.
If India purchases any military equipment for use by its Army, its transfer to the Navy or the Border Security Force has to be intimated to the US who retains the right not to concur. The US can carry out ground inspection to reassure itself. At the face of it, it appears to be a very harmless and innocuous provision but a deeper study reveals the extent to which the US Government exercises control over the equipment usage. The buyer nation has to intimate the location of the equipment as also open its bases (where the said equipment is located) for inspection to the US. Many consider it to be a highly unfair arrangement while some call it downright humiliating. They aver that no self-respecting nation can
acquiesce in it, as it compromises its operational plans and prevents optimum exploitation of a duly paid for system in a rapidly changing war scenario.
Existing Communication Gap
US firms have still not grasped the potential of the Indian defence market. Therefore, they are not aware of the opportunities available here. May be it is a fallout of decades of limited interaction. Additionally, there is apprehension amongst some that India may not be able to absorb training and handle high-tech systems.
US firms are also wary of the Indian procurement regime. It is partially due to old misconceptions and partly due to India’s strict insistence to field trials which are generally on ‘No Cost No Commitment’ basis. Many firms express surprise that India wants to trial evaluate the equipment which the US and the NATO forces have found fit and inducted into their respective services. They feel that what is good for them ought to be good enough for India. Their condescending attitude tends to hurt sensitivities at times.
Indian Government’s knowledge about the US producers is limited to a few large business groups which are highly visible. They get invited for submitting their bids. Ironically, big business groups do not find India financially lucrative due to orders for limited quantities and intense open competition. They prefer sales through the FMS route as it entails no further trials and commercial negotiations. On the other hand, medium or small scale manufacturers who could be willing to participate in an open competition get left out by default.
The Way Ahead
India is aware of the technological superiority of the US weapon systems. It wants to develop a long-lasting defence relationship with the US, which would stand the test of time and prove mutually beneficial. It made a beginning by purchasing Weapon Locating Radars under FMS route, in a government to government deal. But the very character of FMS inhibits its across-the-board applicability. It can at best be used for complex, high-tech and stand-alone systems. India has to explore ways and means of doing business directly with the US companies under DCS route.
India must accept the pre-eminence of the US laws over all their export obligations. It has to understand the way the US system functions. The US being a global power looks at all issues with a different perspective. India must appreciate its genuine security concerns and proliferation worries. On the other hand, India cannot let the earlier experience cloud its future relationship. It must be granted to the US lawmakers that they are aware that every unilateral abrogation of sovereign agreements harms their credibility the world over. It shows them as unreliable friends. They are also conscious of the fact that every non-fulfillment of contractual obligations results in loss of business for the US industry.
On the other hand, the US authorities have to be careful of the Indian sensitivities. They must change their condescending attitude. They must appreciate the difference between military sale and military aid. A buyer has equal right to assure himself and indemnify his interests. Virtually every single clause of the US drafted contract reads like an undertaking being extracted from a helpless buyer.
India has carried out wide-ranging reforms in its procurement organisation and procedures. The new procurement procedure ensures transparency, fair play and open competition amongst all vendors whether foreign or Indian and public or private sector. Additionally, the defence industry has been opened to the private sector and 26% foreign direct investment has been allowed. These steps have thrown open immense opportunities for the US companies.
Both sides could benefit from the joint development of new technologies and defence equipment with shared costs and export potential. It could be done by establishing bilateral or even multi-lateral consortiums, as is done in Europe. It will also help India graduate from the present position of being a supplier of components to the level of a systems integrator. Co-development and co-production should be the objective.
There is a need to establish an institutionalised joint working group of the defence industries of the two countries under the aegis of the SCG to explore areas of mutual interests. For example, there is immense potential for joint ventures in the field of battlefield and training simulators with US technology and Indian software prowess. The aim should be to engage US companies in areas of future growth. They have to be apprised of the potential of the Indian and South East Asian markets. It has to be a win-win situation for both sides. Indian technical manpower with its cost advantage could make India a global hub for outsourcing of weapon systems.
Building up relationships between nations is an arduous, excruciatingly slow and demanding task. It becomes all the more onerous when the burden of past misapprehensions and non-engagement has to be shed in a spirit of understanding and accommodation. It takes time to change old mindsets. Despite all proclamations of on-going bon-homie, it is going to be a convoluted proposition. However, the recent visit of the US Secretary of State Condoleeza Rice may mark a new beginning towards more optimistic horizons.
Introduction
On 25 February 2002, Defence Security Cooperation Agency of the United States Government notified Congress of a possible sale to India of 8 AN/TPQ-37 FIRE FINDER counter-battery artillery radar sets with associated equipment and services. The deal was signed subsequently, valued close to USD 150 million. It was touted as a path breaking deal, ushering in a new era of Indo-US cooperation in the field of defence equipment. A Security Cooperation Group (SCG) was also constituted to coordinate and expedite defence deals. India wanted a vast array of latest systems. The US authorities appeared receptive to Indian requests and amenable to the sale of latest weaponry. The air was thick with optimism. Many predicted an end to the predominance of Russian weaponry in the Indian armed forces. They believed that India was aligning itself with the US and the new dispensation would result in India getting critical high-tech systems.
A number of SCG meetings have since been held. Both sides are sincere in carrying the process forward, but one is yet to see the anticipated flood of the US equipment. It is not even a trickle as yet. India has been able to procure or obtain promises for spares for existing equipment and some items for special forces. For all major systems, India continues to depend on Russia, Israel and South Africa.
There is no denying the fact that the US authorities are keen to strengthen the bond and are striving to further the process. They understand and appreciate India’s requirements. Yet, the results on ground do not reflect changed dispositions. Things are not moving fast enough, belying all hopes of expeditious sale of military equipment to India.
The US Defence Export Regime
For an analysis of reasons for the slow progress, it is imperative to take a look at the US system of sale of military equipment to other countries.
The US sells military items through two basic routes – Foreign Military Sales and Direct Commercial Sales. Though subjected to the same licencing regime, both have their distinct characteristics.
The US Government also provides equipment on lease for a period up to 5 years. It is always a case specific agreement, generally to meet an immediate requirement of the indenting nation till bulk procurements materialise. Additionally, stocks held in excess of the requirements of the US forces are also offered at highly reduced rates (5 to 50% of original cost) to selected countries.
Foreign Military Sales (FMS)
FMS is generally known as a government-to-government deal. India bought Weapon Locating Radars through this route. This route is generally followed in respect of the items which have already been inducted in the US forces. The US Government offers similar items to foreign governments at the rate at which these items had been purchased for the US forces, albeit with additional handling charges. There are three types of FMS cases. Defined Orders are meant for specific weapon systems, Blanket Orders are to cover follow-on support and Cooperative Logistics Supply Support Arrangement enables a buyer nation to invest in the US Supply System with access to the US defence stocks.
The buyer nation forwards a Letter of Request (LOR) to the US Government. It is a comprehensive document containing information about the equipment, its planned usage and support facilities. As per the norms, it should not take more than 120 days to process a request once LOR is found in order. However, it takes much longer as the actual procedure is highly complex and multi-echeloned.
If the request is cleared, a Letter of Offer (LOO) is sent to the requesting Government. The buying Government is required to submit a Letter of Acceptance (LOA) along with the initial advance. Every LOA includes Standard Terms and Conditions as dictated by the US laws for acceptance by the buyer. It contains requirements regarding liability, discrepancy reporting and monitoring of equipment usage. A legal contract is signed thereafter. The US Government may supply the item from its own existing stocks or procure it afresh from the producer.
There are no middlemen in FMS. The buyer nation is saved considerable effort and expenditure, as the US Government procures the item as per its well established acquisition procedure. The quality and performance parameters are assured. Deliveries may be faster in case the equipment incorporates Government furnished material, as Government orders get priority. Since the item is already in use with its forces, the US Government is in a better position to provide logistic, training and exploitation support. Even joint training and development of usage doctrine get facilitated. FMS route is ideally suited for the US allies who have common operational doctrine and where inter-operability of equipment is an essential consideration.
Direct Commercial Sales (DCS)
These are pure commercial transactions between a buyer government and the industry. The role of the US Government is limited to the grant of licence by the Office of Defence Trade Controls of the State Department. This route facilitates open competition amongst various producers world wide. DCS route is preferred when the performance parameters of the equipment sought are materially different than the US military specifications. Parameters of the equipment sought can be determined by the buyer to suit his country’s operational requirements. The buyer may ask them to submit techno-commercial proposals for evaluation.
Transfer of technology and joint production can also form an integral part of the overall package. It is for the contracting parties to draw out terms and conditions of the deal to suit their perceived interests. Delivery of the item may be faster if it is in current production or if the company has ready stocks. Buyer nations can demand and negotiate compensatory offsets to minimise strain on their economies with in-built reciprocity clauses. In other words, the US companies are required to compete with producers from other countries to clinch deals.
Applicability to India
Both the options are open to India. It is not possible to compare FMS and DCS routes. Both have their distinct advantages. However, their applicability needs to be examined on case to case basis.
For India, FMS route is ideal in respect of high-tech systems, which no other nation possesses or is ready to offer. It implies that the equipment should undisputedly be the best available and there should be no need to carry out comparative trials. This route will also be better for complex weapon systems as India can get them fully integrated and configured.
However, they should preferably be stand alone systems, so that their integration in the existing inventory and the current operational doctrine pose no major problem. As the majority of the present equipment in the armed forces is of Russian origin, this aspect becomes a major constraint. While FMS route has the advantages of fixed prices, sovereign guarantees and after sale support, it precludes competition and trials. In other words, it is a ‘take it or leave it’ situation for the buyer. Thus, usefulness of FMS is highly limited in India’s case.
India has to exploit DCS route, wherein it can procure equipment as per its own parameters and after carrying out competitive trials with equipment from other countries. In the present day buyers’ market in the arms trade, India can not only get the best equipment but also drive hard bargains to get most favourable commercial terms.
India can also extract both indirect and direct offsets including transfer of technology. In year 2002 alone, US signed new offset-related defence export contracts valued at 7.4 billion dollars. The value of attached offsets was 6.1 billion dollars or a huge 82.3% of the total value. They contained arrangements with built-in reciprocity clauses for compensatory trade to provide relief to the buyers to help them pay for the purchases. Such benefits are normally not available under FMS.
Additionally, Indian defence acquisitions are governed by Defence Procurement Procedure–2002, which lists ‘free competition’ as its basic aim and underlying philosophy. The procedure repeatedly stresses the importance of generating maximum competition. It also mandates that competitive tendering be followed as a norm. Therefore, Indian defence acquisitions have to be broad based with tenders being issued to all eligible producers. DCS fits in this arrangement well. American companies can compete with others both on technical and commercial levels.
Though cost is always a major consideration, it is difficult to make an across-the-board comparison. In many case FMS route is cheaper due to economies of scale as the US Government negotiates a consolidated deal by combining their own requirement as well. On the other hand, DCS is an open market transaction and the cost can be highly competitive, especially if producers from other countries are also in the fray. In that case, cost becomes a function of market dynamics.
Reasons for Sluggish Progress
As seen earlier, usefulness of FMS is limited to some high-tech stand-alone systems only. It is, therefore, the DCS route which India has to adopt for the bulk of its purchases from the US. As a matter of fact, India has been exploring this avenue for quite some time, especially after the lifting of sanctions in 2001. A number of US companies have been issued tenders inviting them to submit their techno-commercial proposals. But the response has been very poor. No worthwhile deal has been signed with any US company so far. Some of the major causes for this lack of progress are discussed in the succeeding paragraphs. Slow tardy
Inconsistency of the US Policies
The single most important reason is lack of credibility of the US commitments. India is very wary of the US laws which impose sanctions even on purely commercial transactions. Having suffered earlier, India is unwilling to have the threat of unilateral abrogation of agreements impinge on its freedom to take decisions in its national interests. India wants to tread very carefully lest it lands itself in a situation like Pakistan, when the US declined to either supply the contracted F-16 aircraft or refund the amount paid in advance. India may have been happy at the non-delivery of F-16 to Pakistan but it certainly empathised with it for the unfair treatment it received. This also made India aware of the perils and uncertainties of US obligations. The Defence Minister of India was quite candid and forthright when he mentioned lack of reliability of supplies as the primary stumbling block in enhanced Indo-US military trade at Aero India 2005.
During all discussions and meetings, the US officials understand and appreciate Indian apprehensions regarding assured follow-up support. But they regret their inability to make any guaranteed commitments due to the current US laws. Any sub-committee of the US legislature can overrule contractual obligations entered into by their executive.
Tedious Licencing Procedure
All sales of military equipment are governed by Arms Export Control Act and Foreign Assistance Act. The US Government examines all requests for their compliance with the US laws and statutory provisions. Each request is reviewed and validated by various wings of the US Military Department, Defence Security Cooperation Agency and the State Department. The most important aspect of the review is whether the technology involved is releasable to the requesting country. In other words, it is examined whether the requesting country is eligible for the receipt of the said technology or not.
Licencing procedure in respect of items categorised as Significant Military Equipment (SME) is more tedious. SME is an item designated in the International Traffic in Arms Regulation (ITAR) that warrants special export controls because of its capacity for substantial military utility. In case LOR includes any SME item, it has to be reviewed by the US Ambassador to that country as well. If any FMS deal is expected to exceed USD 14 million of Major Defence Equipment (MDE), or exceed a total case value of USD 50 million, then the US Congress has to be notified of the prospective deal under Section 36 (b) of Arms Export Control Act. MDE is a subcategory of SME.
The US licensing system is not only rigid and time consuming but also a little unpredictable. US companies are hesitant to submit their bids as they are not confident of getting export clearance in the time available.
Post Sale Monitoring of Equipment Usage
The US Government insists that the equipment sold by it be used strictly as per the initially stated intent. All changes are to be intimated to the US. The US retains even the right of ground inspection. Golden Sentry is the name given to the US End Use Monitoring (EUM) programme. Its aim is to ensure security of technology, industrial base protection and foreign compliance with the terms of delivery of equipment. There are various levels of monitoring depending on the sensitiveness of the equipment and the host country. In addition to regular monitoring, EUM visits are undertaken for ground verification. Generally, there are three types of EUM visits – Familiarisation Visits to help develop effective EUM compliance plans, Tiger Team Visits to review/evaluate host nation’s compliance programme and Investigation Visits to examine any alleged violations.
If India purchases any military equipment for use by its Army, its transfer to the Navy or the Border Security Force has to be intimated to the US who retains the right not to concur. The US can carry out ground inspection to reassure itself. At the face of it, it appears to be a very harmless and innocuous provision but a deeper study reveals the extent to which the US Government exercises control over the equipment usage. The buyer nation has to intimate the location of the equipment as also open its bases (where the said equipment is located) for inspection to the US. Many consider it to be a highly unfair arrangement while some call it downright humiliating. They aver that no self-respecting nation can
acquiesce in it, as it compromises its operational plans and prevents optimum exploitation of a duly paid for system in a rapidly changing war scenario.
Existing Communication Gap
US firms have still not grasped the potential of the Indian defence market. Therefore, they are not aware of the opportunities available here. May be it is a fallout of decades of limited interaction. Additionally, there is apprehension amongst some that India may not be able to absorb training and handle high-tech systems.
US firms are also wary of the Indian procurement regime. It is partially due to old misconceptions and partly due to India’s strict insistence to field trials which are generally on ‘No Cost No Commitment’ basis. Many firms express surprise that India wants to trial evaluate the equipment which the US and the NATO forces have found fit and inducted into their respective services. They feel that what is good for them ought to be good enough for India. Their condescending attitude tends to hurt sensitivities at times.
Indian Government’s knowledge about the US producers is limited to a few large business groups which are highly visible. They get invited for submitting their bids. Ironically, big business groups do not find India financially lucrative due to orders for limited quantities and intense open competition. They prefer sales through the FMS route as it entails no further trials and commercial negotiations. On the other hand, medium or small scale manufacturers who could be willing to participate in an open competition get left out by default.
The Way Ahead
India is aware of the technological superiority of the US weapon systems. It wants to develop a long-lasting defence relationship with the US, which would stand the test of time and prove mutually beneficial. It made a beginning by purchasing Weapon Locating Radars under FMS route, in a government to government deal. But the very character of FMS inhibits its across-the-board applicability. It can at best be used for complex, high-tech and stand-alone systems. India has to explore ways and means of doing business directly with the US companies under DCS route.
India must accept the pre-eminence of the US laws over all their export obligations. It has to understand the way the US system functions. The US being a global power looks at all issues with a different perspective. India must appreciate its genuine security concerns and proliferation worries. On the other hand, India cannot let the earlier experience cloud its future relationship. It must be granted to the US lawmakers that they are aware that every unilateral abrogation of sovereign agreements harms their credibility the world over. It shows them as unreliable friends. They are also conscious of the fact that every non-fulfillment of contractual obligations results in loss of business for the US industry.
On the other hand, the US authorities have to be careful of the Indian sensitivities. They must change their condescending attitude. They must appreciate the difference between military sale and military aid. A buyer has equal right to assure himself and indemnify his interests. Virtually every single clause of the US drafted contract reads like an undertaking being extracted from a helpless buyer.
India has carried out wide-ranging reforms in its procurement organisation and procedures. The new procurement procedure ensures transparency, fair play and open competition amongst all vendors whether foreign or Indian and public or private sector. Additionally, the defence industry has been opened to the private sector and 26% foreign direct investment has been allowed. These steps have thrown open immense opportunities for the US companies.
Both sides could benefit from the joint development of new technologies and defence equipment with shared costs and export potential. It could be done by establishing bilateral or even multi-lateral consortiums, as is done in Europe. It will also help India graduate from the present position of being a supplier of components to the level of a systems integrator. Co-development and co-production should be the objective.
There is a need to establish an institutionalised joint working group of the defence industries of the two countries under the aegis of the SCG to explore areas of mutual interests. For example, there is immense potential for joint ventures in the field of battlefield and training simulators with US technology and Indian software prowess. The aim should be to engage US companies in areas of future growth. They have to be apprised of the potential of the Indian and South East Asian markets. It has to be a win-win situation for both sides. Indian technical manpower with its cost advantage could make India a global hub for outsourcing of weapon systems.
Building up relationships between nations is an arduous, excruciatingly slow and demanding task. It becomes all the more onerous when the burden of past misapprehensions and non-engagement has to be shed in a spirit of understanding and accommodation. It takes time to change old mindsets. Despite all proclamations of on-going bon-homie, it is going to be a convoluted proposition. However, the recent visit of the US Secretary of State Condoleeza Rice may mark a new beginning towards more optimistic horizons.
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