Indian Defence Review

The last decade has seen a significant expansion of India-US economic ties, with total exchanges, including investment, amounting to almost $100 billion, making the US India’s largest economic partner as a single country. Vice-President Biden, during his July 2014 visit to India, envisioned $500 billion of bilateral trade if the “right choices” were made. The US seeks further economic reforms in India and has, accordingly, welcomed relaxation in FDI norms in sectors such as telecom, defence and insurance.

However, the political drift in India-US relations has been accompanied by the deterioration of the business atmosphere in economic ties. Elements of the US corporate sector, that in the past have been a driving force in improving overall ties between the two countries, have led a campaign in the US Congress against India’s trade, investment and IPR policies, prompting a year-long investigation into these policies by the US International Trade Commission. In addition, the US Trade Representative (USTR) began an investigation of India’s IPR policies under Section 301 of the US Trade Act. Issues of Preferential Market Access in the telecom and solar sectors seen as protectionist, complaints about the application of our patent laws which we see as TRIPS compliant, and retrospective application of our tax laws, have pitted some giant corporations against us. On our side, we have problems with US restrictions on movement of personnel from India to the US in the IT sector, the increased costs of H1B and L1 visas that are financially burdensome for this sector, the campaign in the US against outsourcing, our own concerns about US protectionism and market access for some of our products, as well as the unresolved issue of the equalisation agreement. On all this we do not receive a sympathetic US response, and are unlikely to get it.

Prime Minister Modi chose to accept President Obama’s invitation to visit Washington in September 2014, indicating that he considers his personal pique at being denied a visa less important than the country’s interest, which lies in changing the dynamic of India’s relations with the US and make a revived relationship with it a crucial element of his development agenda, which includes the building of the country’s manufacturing sector.

The visit presented him with a difficult challenge. He went at a time when the mood towards India had soured because of the reasons outlined earlier, including the stand-off at the WTO on the food subsidy issue. It was not immediately clear how much the visit would achieve. The joint press briefing with Obama and the joint statement issued during the visit indicate that the results were more in the nature of establishing mechanisms to sort out problems rather than actual breakthroughs. The joint statement states that both sides “will facilitate” actions to increase trade five-fold, meaning reaching US-China trade levels, which in any realistic time-frame is most unlikely. They “pledged” to establish an Indo-US Investment Initiative and an Infrastructure Collaboration Platform to develop and finance infrastructure. It is improbable that the US will develop industrial corridors like Japan or competitively build highways, ports and airports. India has “offered” US industry lead partnership in developing three smart cities, but similar offers have also been made to Japan, Singapore and even China.

US technology in Indian railway networks is mentioned as a possibility, but it is doubtful whether the US can compete with Japan, China, France and others in this sector. The two leaders “committed to work” through the Trade Policy Forum to promote an “attractive” business environment- without specifying what “attractive means- and to establish an annual high-level Intellectual Property (IP) Working Group with appropriate decision-making and technical-level meetings as part of this Forum. These discussions have started, particularly with Obama’s visit in view. They “reaffirmed their commitment “to implement fully the U.S.-India civil nuclear cooperation agreement and establish a Contact Group to advance this. How this will be done practically is difficult to envisage at this stage, as both sides will have to find a way to work around our nuclear liability law, which may not be easy.

On IT related issues, Modi mentioned that he had sought Obama’s support “for continued openness and ease of access for Indian services companies in the US market”, without indicating Obama’s response. On the food subsidy versus trade facilitation stand off in the WTO, Modi maintained his position firmly and has been subsequently rewarded with a compromise with the US which has secured the Indian position. He welcomed “the US defence companies to participate in developing the Indian defence industry”, without mentioning any specific initiative or singling out any of the ten co-development and co-production projects offered by the US as part of the TDDI.

The reference in the joint statement to India and the US intending to expand defence cooperation to bolster national, regional and global security is strikingly bold but overambitious. If bolstering national security makes immediate sense, the reference to regional security does not, given that the US continues to give military aid to Pakistan, with the US announcing in December 2014 military aid to Pakistan amounting to $1 billion, and following it up with another package of $532 million. As regards India-US defence cooperation bolstering global security, it is not clear what is implied beyond securing the Sea Lanes of Communication in the Indian Ocean Region or anti-piracy and disaster relief operations. It was decided during Modi’s visit to renew for ten years more the 2005 Framework for US-India Defence Relations, with defence teams of the two countries directed to “develop plans” for more ambitious programmes, including enhanced technology partnerships for the Indian Navy. The last holds out interesting prospects.

On geopolitical issues, Modi’s reference during the visit to the great convergence on “peace and stability in the Asia Pacific region” was significant in terms of China’s assertiveness there. That he said that the US was intrinsic to our Look East and Link West policies was a rather bold formulation geo-politically and suggested that India viewed the US as being central to its Asian policy. The joint statement speaks of a commitment to work more closely with other Asia Pacific countries, including through joint exercises, pointing implicitly at cooperation with Japan and Australia.

On the issue of terrorism and religious extremism, India and the US have rhetorical convergence and some specific cooperation on counter-terrorism issues, but, on the whole, our concerns are not adequately met because US regional interests are not fully aligned with ours. The joint statement called for the dismantling of safe havens for terrorist and criminal networks and disruption of all financial and tactical support for networks such as Al Qaeda, Lashkar-e-Taiba, Jaish-e-Mohammad, the D-company and the Haqqanis. The omission of the Taliban is striking. There is little US pressure on Pakistan to curb Hafiz Saeed, and instead of sanctions, Pakistan is being rewarded with military assistance. Not surprisingly, therefore, Pakistan is becoming more offensive in giving Hafiz Saeed more space to continue his extremist tirades, and now is dealing even with the other mastermind of the Mumbai massacre, Lakhvi, with calculated equivocation with regard to his bail, sending a clear signal to India that it is not going to seriously try those responsible for the Mumbai carnage. It is instructive that Obama felt obliged to speak to Pakistani premier Sharif to explain why while visiting India he could not visit Pakistan too.

During his Washington visit, Modi, it now appears, invited Obama to be the chief guest at our Republic Day on January 26, 2015, which the latter accepted, causing surprise that this unprecedented invitation was in the first place made and equally that it was accepted at such short notice. It is evident that Modi and Obama struck a good personal equation with Obama making the unprecedented gesture of accompanying Modi to the King Memorial. All this has certainly helped to invest Modi with political prestige as India’s man of destiny, as a “man of action” in Obama’s words. This visit and Obama’s return visit has no doubt widened India’s foreign policy space with both friends and adversaries. Even if the concrete outcomes from the Washington visit were relatively thin, the ice was broken with the US and prospects were opened up of bilateral ties regaining some of their lost momentum. This, of course, is not to minimise the difficulties that lie ahead in forging balanced and equitable ties with the US.

The US Congress has, for instance, decided to continue the investigations of India’s investment and trade policies for another year, although the USTR has halted further action under Section 301 of the US Trade Act against India’s IPR policies. The USTR has been to India in December 2014 to hold the long delayed meeting of the Trade Policy Group and has interacted with our business organisations. It would appear from his statements that while the US is encouraged by some policy steps we contemplate, it will make a final call depending on implementation of stated policies.

The US maintains its opposition to India’s manufacturing requirements and is cautioning against extending them to the defence manufacturing sector. With the Indian government moving forward decisively on the GST, raising the FDI ceilings in the insurance sector and amending the Land Acquisition Act, the signalling to the US about economic reforms is positive before Obama’s visit. We can, however, expect further pressures on us by the US on Climate Change issues following its agreement with China, even if that non-binding agreement is hollow in substance.

With the latest accommodative signals from Washington and the new Afghan President on Pakistan’s role in Afghanistan, we will face problems as the US completes the process of removing all its troops from Afghanistan by 2016. We will continue to have differences over US policies in West Asia, even if our relations with Israel have improved vastly. US policies towards Iran have affected our energy security scenario by preventing investment by our companies in the Iranian hydrocarbon sector. While the US supports India’s permanent membership of the UN Security Council, its position has not evolved since 2010, and is unlikely to do so in the foreseeable future. On the issue of reforms of the global institutions, we will continue to face US recalcitrance.

The US will expect the Obama visit to yield some visible results. The Defence Cooperation Framework Agreement will be extended for another ten years, with more ambitious content, including more military exercises. The US will want at least one joint defence manufacturing project to be announced during the visit as a start. It will be interesting to see if anything is announced on naval technologies as a follow-up to the joint statement issued during Modi’s Washington visit. Obama will not be able to give satisfaction on either the UNSC permanent membership, that of the four export control organisations or reform of global institutions.

The pro-US lobby in India prefers to see in Prime Minister Modi’s move to invite President Obama an inclination to strategically lean towards the US, shed “strategic autonomy” and end the phase of missed opportunities with the US that marked Manmohan Singh’s second term. This could be misconstruing the significance of Modi’s move, which may well be to strengthen our strategic autonomy by engaging with all countries to maximum potential, opening up opportunities in all directions and separating the economic from the political as much as possible. Modi may not be thinking of taking sides but working with all sides pragmatically. At the end of the day, India and the US have to find common ground to protect their respective interests. Dealing with the US will always test our diplomacy.

The US position on India’s permanent membership of the UN has evolved positively, indicating that the US is inclined to open the strategic space that India claims for itself. The US has also committed itself to promoting India’s membership of the existing four non-proliferation regimes.

The Iranian issue has created wrinkles in our bilateral relationship as US sanctions have interfered with India’s energy security, forcing India to reduce its oil intake from Iran quite drastically and blocking Indian investments in attractive long-term projects in the hydrocarbon sector in Iran.

The US is pushing for a Bilateral Investment Treaty. On climate change and WTO issues, India and the US have differences.