By Sunil Dasgupta and Stephen P. Cohen

How Military Trade Could Energize United States - Indian Relations

Much has been made of U.S. President Barack Obama's pledge to support India's push for a permanent seat on the United Nations Security Council, which was offered during his November trip to India, but the real story from his visit was its implications for bilateral military trade. During the trip, Obama announced that the United States would sell $5 billion worth of U.S. military equipment to India, including ten Boeing C-17 military transport aircraft and 100 General Electric F-414 fighter aircraft. Although the details are still being worked out, these and other contracts already in the works will propel the United States into the ranks of India's top three military suppliers, alongside Russia and Israel. With India planning to buy $100 billion worth of new weapons over the next ten years, arms sales may be the best way for the United States to revive stagnating U.S.-Indian relations.

Even as nonmilitary trade and investment and social and cultural ties between India and the United States have advanced in recent years, Washington remains of two minds about its relationship with New Delhi. In 2005, U.S. President George W. Bush granted India an unprecedented nuclear deal, offering to assist India's civilian nuclear program in contravention of the Nuclear Nonproliferation Treaty. The nuclear deal convinced many Indians that the United States could be a viable long-term partner. Bush's adamant resistance to Chinese and international nonproliferation advocates' pressure to abandon the deal cemented his status in India, as did his rebuffs of Pakistani demands for similar treatment.

Convinced that the domestic political price of friendship with the United States was worth paying, the Indian government began in 2005 to make concessions to U.S. foreign policy priorities. It sharply cut back its official assessments of terrorist activity in Kashmir and of infiltration from Pakistan. With tensions immediately lower between India and Pakistan, the United States was able to push Pakistan to focus on the Taliban. In particular, the Pakistani army moved more troops from its eastern border with India to its western border with Afghanistan. And the same year, the Indian government even entered into secret talks with Pakistan to work out a permanent settlement on Kashmir. (The talks failed, however, when Pakistani President Pervez Musharraf's government imploded in August 2008, and they never got back on track after the November 2008 terrorist attack on Mumbai.)

Since coming to power, the Obama administration has shifted course, partly on the grounds that Bush gave India too much, especially in regard to the nuclear deal. The Obama administration wants greater reciprocity -- including Indian support for U.S. policies on global energy and trade, India's granting of more freedom of action in Afghanistan and Pakistan, and weapons contracts for U.S. firms. Obama also wants to develop ties more incrementally. One reason is that his administration's primary interest in the region is stabilizing Afghanistan and Pakistan.

The Obama administration has argued that the long-term U.S.- Indian alignment implied by the nuclear deal made Pakistan both more ambivalent about fighting the Taliban and more intent on building up its forces against India; after 2005, Pakistan increased its missile material production, fabricated more nuclear devices, and raised new missile forces. Still, in India's eyes, the Obama administration has seemingly rewarded Pakistan for its behavior. For example, the late Richard Holbrooke, who was U.S. special representative for Afghanistan and Pakistan, continually sought greater Pakistani involvement in finding a political solution in Afghanistan. For India, the more Pakistan is involved in stabilizing Afghanistan, the likelier it is that the Afghan government will become a proxy of Pakistan. As a result, New Delhi has stepped up its own efforts to secure its interests in Afghanistan -- which has only spurred on Pakistan.

Obama's two years of trying to bring Pakistan on board with Washington's plans has led only to frustration and has highlighted the importance of renewing cooperation with India in order to make progress on Afghanistan. Recently, the Obama administration started holding talks with India on counterterrorism and civilian space cooperation. But as long as Washington is unwilling to grant India special privileges, it will not be able to turn endless discussions into genuine cooperation.


During the Cold War, India got most of its military equipment from Moscow, with which it enjoyed strong ties. But even after the Cold War, India has preferred Russian goods, and Moscow remains India's top military supplier. Equipment from Russia is generally cheaper than that from the West, especially the United States. Russia does not insist on end-use monitoring agreements, which the United States requires, nor has it asked for policy coordination. This suits India, a country that greatly values foreign policy autonomy and has been leery of political conditions on arms sales since 1965, when Washington cut off weapons supplies to India after war broke out between India and Pakistan. India's defense establishment has had a residual distrust of the United States ever since. Russia has also been generous with nuclear technology -- it even leased a nuclear submarine to India in 2010. And Russian military suppliers enjoy strong relationships with the Indian military establishment and its research agency, the Defense Research and Development Organization, relationships that were developed during the Cold War. In 2006, the DRDO and a Russian venture jointly developed the BrahMos cruise missile -- a supersonic missile that combines Russian propulsion technology and new Indian guidance technology -- one of India's most successful military research projects to date. Although the quality of Russia's equipment has lagged behind that of the West's, until recently, the savings were worth it to India.

But now, after a decade of rapid economic growth that fattened India's military budgets, the Indian armed forces have set their sights on buying a range of new weapons, from traditional machinery, such as tanks, ships, and aircraft, to the most advanced innovations, such as unmanned aerial vehicles and the technology for electronic warfare. And India is increasingly turning to Israeli and Western suppliers, especially since its ties with Russian sellers started souring in early 2010, when the Russians forced a repricing of the aircraft carrier Admiral Gorshkov from $1 billion to $2.3 billion.

Israel has satisfied some of India's thirst for newer items, especially electronic warfare technology and precision-guided munitions. The Indian-Israeli arms trade amounts to more than $2 billion annually, and Israel has become India's number two military supplier. Like Russia, it offers India access to military equipment without imposing political conditions, and Israeli firms have also been able to woo the DRDO with offers of joint development of high-tech weaponry. Western firms are also increasingly competing for Indian military contracts. In 2004, the British company BAE Systems won a deal to sell advanced jet trainers to the Indian Air Force. In 2007, India paid the United States $50 million for the amphibious USS Trenton, and in 2009, Boeing won a $2 billion order for eight P-8 maritime reconnaissance aircraft and Lockheed Martin won a $1 billion contract for six C-1301J transport aircraft. Together with Obama's recent offer to sell C-17 and F-414 aircraft, these deals have put the United States on the path to becoming one of India's most important suppliers.

The biggest prize on the Indian military market today is a $10-$12 billion contract for the 126 multirole combat aircraft India wants to buy. Currently, Boeing's F-18 Super Hornet and Lockheed Martin's F-16 are in the running, alongside the Eurofighter Typhoon (developed by three European companies), the French Rafale, the Swedish Gripen, and the Russian MiG-35. Just as the Soviet Union gained a long-term foothold in the Indian market by selling the first MiG fighters to New Delhi in the 1960s, the supplier who wins this contract will gain a major advantage because it will be responsible for maintaining and supporting the aircraft over their lifetimes. This deal presents a tremendous opportunity to solidify U.S.-Indian ties.


The United States clearly has the technological edge to win Indian military contracts, but the U.S. law banning the transfer of technologies that have military uses is a major stumbling block. India's leaders have made it clear that if they purchase machinery from the United States or U.S.-based firms, they expect to be granted access to the manufacturing processes and technology behind it. On the other side, the U.S. government would have to overcome significant legal hurdles to allow technology transfers to India. There are questions about whether technology transfers would actually motivate India to make the political concessions the United States seeks and worries that Washington would have to keep offering more and more to secure Indian friendship in the future. The Obama administration is apprehensive that getting too close to India would jeopardize U.S. objectives in Afghanistan and Pakistan, especially if the Indian military were to use equipment it received from the United States against Pakistan. Even U.S. companies, which hope to profit from India's military market, are reticent about sharing their prize technologies.

India and the United States have started to make the political concessions necessary to expand their military trade, but they will need to go further. In 2009, India's leaders signed an end-use monitoring agreement that would allow U.S. representatives to periodically inspect and inventory items transferred to India -- and they did so despite criticism that the agreement's terms eroded India's sovereignty. During his visit to India in November, Obama promised to lift some export-control restrictions on India and to remove some restrictions on trade with India's space and military research agencies.

But some major obstacles remain. For one, India needs to fix its broken procurement system. Although the Indian Ministry of Defense has issued a series of new military procurement guidelines in the last few years, transparency, legitimacy, and corruption problems continue to plague the process. Indian law also requires foreign suppliers to source components and invest in research and development in India, while prohibiting them from creating wholly owned or majority-owned subsidiaries in the country. These two provisions are intended to ensure that the technology used by foreign suppliers will eventually be transferred to Indian companies. But the U.S. government and U.S. companies would not agree to this unless the U.S. law governing technology transfers were relaxed and India began to guarantee the protection of intellectual property rights.

The new nuclear liability bill that India passed in August will also have a chilling effect on U.S.-Indian military trade. It holds foreign suppliers responsible for accidents at nuclear power plants for up to 100 years after the plants' construction. The law applies to companies that supply equipment to the contractors building the reactors, even if these companies do not have a physical presence in India. Progress on the construction of any new reactors under the U.S.-Indian nuclear deal will almost certainly be slowed by this law, as U.S. companies seek to protect themselves from liability.

Given India's deep belief in the importance of technology for its national development and the conflicting need to manage Pakistan's concerns about India's growing military power, the United States should engage in joint efforts with India to develop new technologies but limit these efforts to projects that will bear fruit only in ten to 20 years. The United States can get around its own legal restrictions on technology transfers by pursuing such ambitious long-term projects, because if a technology does not currently exist, U.S. law does not protect it. Winning the contract to supply 126 multirole aircraft would be another major opportunity. Not only would the United States gain a huge foothold in the Indian military market; it could also channel any offset money it is required to invest in India into joint development projects. Already, General Electric, Microsoft, and other U.S. firms run sophisticated research-and-development centers in India. Partnering with Indian firms to develop new technology is a logical next step.

So far, however, the Obama administration has not wanted to think big and seriously consider joint technology development. This is a mistake. Short-term differences between India and the United States caused their estrangement during the Cold War. A similar rift now would not be in the long-term interest of either country.


SUNIL DASGUPTA teaches political science at the University of Maryland, Baltimore County. STEPHEN P. COHEN is a Senior Fellow at the Brookings Institution. They are the co-authors of Arming Without Aiming: India's Military Modernization.)


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