What Ashton Carter wants from India

Carter is looking at the Indian defense ministry to make it easier for US companies to do business with it and wants resolution of issues related to offsets, limitation of liability and delays in decision-making.

Indian Foreign Secretary Sujatha Singh with US Deputy Defense Secretary Ashton Carter in New Delhi on Tuesday | Photo: US Department of Defense

Indian Foreign Secretary Sujatha Singh with US Deputy Defense Secretary Ashton Carter in New Delhi on Tuesday | Photo: US Department of Defense

The US Deputy Secretary for Defense Ashton Carter has come to New Delhi with a bag full of prospects for partnerships to entice India.

Carter has come with at least five proposals for co-development or co-production of US-origin military equipment in India, which, admittedly, have the potential to take Indo-US defense trade to a new level. These include development and production partnerships for:

  • Raytheon and Lockheed Martin-built Javelin Anti Tank Guided Missile (ATGM)
  • Sikorsky and Lockheed Martin-manufactured MH-60 Romeo helicopter
  • BAE Systems Mk 45 127 mm naval gun
  • But in return, the US is looking at the Indian defense ministry to make it easier for US companies to do business with it. One of the important items on the wishlist of US vendors is flexibility on offset structuring. India typically requires international defense companies to plow back at least 30 percent of the value of any orders they receive that are worth INR 300 crore (USD 50 million) or more into Indian industry.

    Flexibility on offsets

    So, for instance, for items of co-development and co-production such as those listed above, US companies would like such programs to be exempt from offset requirements, altogether, arguing that the nature of such programs is such that they directly service the purpose of offsets by boosting the manufacturing and technological base of Indian defense industry.

    And even for other orders through, both, Foreign Military Sales (FMS) and Direct Commercial Sales (DCS), US vendors are hoping for Carter to urge the defense ministry to be more flexible in the implementation of offset contracts.

    These companies would like some leeway in being able to add, remove, change or replace Indian offset partners or restructure the values of offset contracts depending on changes in contracts, as and when, new, better candidate companies for offset partnerships emerge in India, or if existing partners no longer offer the value envisaged earlier. This, they claim, would allow them to deliver on their offset obligations more efficiently and tailor them to the best and dynamic interests of Indian defense industry.

    As things stand, no deviation is allowed from offset proposals and contracts once they are concluded.

    There is also disagreement over methodologies for valuation of technologies being considered for transfer and the credit US companies can derive from such transfers, which, some observers say, is because decision-makers in India are still to fully understand how such issues are resolved and transacted internationally.

    Limiting liability after delivery

    Another issue that Carter is expected to bring up during his visit is that of limitation of liability of US vendors after delivery of order.

    US companies feel that since neither the Indian Defense Procurement Procedure (DPP) nor the Defense Procurement Manual (DPM) talks about any specific formulae or guidelines for imposing the burden of risk on vendors, their assumption of liability at the time of selection as preferred vendors, for possible problems after future delivery, may end up uncertain and arbitrary.

    US industry says that liabilities need to be balanced to distribute risk between the vendor and the buyer.

    The defense ministry, on it’s part, seems to have gone along with this in some cases and has allowed some shelter from liability in the past, but US companies are hoping for a more defined policy on the parameters of the liabilities they will be required to assume after delivery of the order. This protection from liability has only been applied to Foreign Military Sales (FMS) orders, so far, but the US wants it extended to Direct Commercial Sales (DCS), as well.

    US companies worry that they may be required to assume unrestricted liabilities if the policy on liability limitation is not clarified in the DPP or DPM.

    They claim that liability for loss of product and consequential/incidental damages is exempted internationally, and actually rests on the owner who operates and maintains the equipment and decides on the assumption of risk to it, especially in the aerospace domain.

    The US claims that vendors are already liable to the Indian buyer in a number of ways and argues that international contract law and the Indian Sale of Goods Act should guide the definition of liability after delivery.

    Delays

    Finally, Ash Carter would like the defense ministry to speed up decision-making, especially in cases where the Letters of Offer and Acceptance (LOA) have been approved. US companies claim they find it difficult to maintain the validity of their offers indefinitely, citing rising costs and uncertainty over the life of their assembly lines.

    The underlying message is that if delays continue, they may no longer find it feasible to compete in India in the absence of valid expectations of decisions within a reasonable timeframe.

    US arms sales to India

    All said and done, the US has been fairly successful in selling defense equipment to India.

    The Indian Air Force (IAF) has placed an order for 10 Boeing C-17 Globemaster III aircraft, of which three have already been inducted into the No. 81 Squadron and delivery is expected to be complete by the end of 2014. The IAF has also acquired six Lockheed Martin C-130J Super Hercules aircraft and the follow-on order for an additional six aircraft has been approved by the Defense Acquisitions Council (DAC) of the Ministry of Defense on Friday (Note: This is not an order; The file has moved forward). The IAF has also ordered 512 Sensor Fuzed Weapons from Textron for its Jaguar aircraft.

    The Indian Navy has ordered eight Boeing P-8I Long Range Maritime Reconnaissance (LRMR) aircraft, of which the first has been delivered, in addition to Harpoon missiles for the aircraft. Harpoons have also been ordered for the IAF Jaguar aircraft. In addition, movement on an proposed order for 145 BAE Systems M-777 light weight howitzers is also awaited, the LOA for which was approved last March.

    Here’s the complete list:

  • 10 Boeing C-17 Globemaster III: USD 4.1 billion
  • 6 + 6 Lockheed Martin C-130J Super Hercules: USD 1.1 billion + USD 800 million
  • 8 Boeing P-8I: US $ 2.1 billion
  • 24 Boeing Harpoon missiles (Jaguar): USD 170 million
  • 21 Boeing Harpoon missiles (P-8I): USD 200 million
  • 512 Textron Sensor Fuzed Weapons (SFW) (Jaguar): USD 257.7 million
  • 99 GE 414 engines (LCA Mk II): USD 600 million
  • 10 GE LM2500 engines (4 for IAC + 6 for Shivalik-class frigates): USD 60 million
  • 270 Honeywell F-125IN engines (Jaguar): USD 700 million
  • USS Trenton (INS Jalashwa): USD 48.23 million
  • 12 Raytheon AN/TPQ-37 Firefinder Weapons Locating Radars: USD 190 million
  • Total: Approximately USD 10.32 billion
  • An earlier version omitted the Raytheon radars from the list above. Thanks to Shiv Aroor for pointing out the omission.

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    Follow Saurabh Joshi on Twitter @ http://www.twitter.com/saurabhjoshi Saurabh is a journalist based in New Delhi, India who has worked in print, television as well as internet news media. Besides defense and strategy, his past assignments have included reporting from Kashmir, coverage of terror strikes as well as election coverage from all over India. He has a Bachelors degree in Journalism (Honors) as well as a law degree (LLB), both from the University of Delhi.
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