Dinesh Kamath's Editorial (Improve Indo-US defence trade and India’s indigenous capabilities) that was published in Newsband

Improve Indo-US defence trade and India’s indigenous capabilities

US Defence Secretary Leon Panetta’s visit to India in early June was the best thing that happened for India. Deputy Secretary of Defence Ashton Carter was chosen to deepen bilateral defence trade. The move was a good one and would be strengthened if India responds correctly. Part of Carter’s mission will inevitably deal with technology transfer which is arguably India’s top strategic objective for defence trade.

It is true that in the past Americans were reluctant to transfer technology to India. But paradigm shift has occurred within the US administration on technology transfers to India since 2005.

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.

Indian government should allow 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.

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.

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.

Lastly, it may be worth establishing a national commission to examine the most optimal way to use offset resources.

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.