Leveraging India’s Major Defense Partner Status
May. 2017
TradeSecure

The 2017 designation of India as a “Major Defense Partner” of the United States opens new doors for US companies to expand in this dynamic economy of 1.3 billion people. Commerce’s Bureau of Industry and Security (BIS) announced on January 19, 2017, a licensing policy change of general approval for exports and re-exports to India. BIS amended the end-use and end-user provisions of the Validated End-User (VEU) authorization in India to allow items to be used for either civil or military use if such items are not used for nuclear, missile, or chemical and biological weapons activities. This licensing change in addition to Prime Minister Modi’s ‘Make in India’ initiative, which relaxed foreign direct investment (FDI) laws in late June 2016, should expand US-India trade opportunities.

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What This Means for the US Defense Industry

The Indian market for US military and dual-use goods became more accessible with the change in US licensing policy. Companies have two primary means to reduce compliance burdens for their exports: (1) being approved as a VEU by BIS, or (2) applying for a one-time license from Commerce.

US licensing changes coupled with Indian relaxation of FDI promises a more attractive environment for establishing overseas facilities. The Modi government is betting that with US companies allowed to retain majority ownership of their facilities and technologies, the domestic manufacturing capability of the world’s largest importer of military weapons will grow. Prime Minister Modi’s “Make in India” initiative will mutually benefit from the licensing change. To obtain a manufacturing license from India in industries requiring government approval (e.g. defense and private security) a company can apply to the Department of Industrial Policy & Promotion.

What Does India Want to Buy?

1. Single Engine Fighter Jets

India desperately needs single-engine fighter jets to supplement its aging fleet of only thirty-three planes. While Lockheed Martin presented a plan for producing an entire fleet of F-16s inside India, the government has yet to accept the terms while considering a separate Grippen production proposal from Saab. Currently Lockheed Martin has a 50/50 chance of winning the contract; aided by Senators Mark Warren and John Cornyn’s joint letter to Secretary of Defense James Mattis and Secretary of State Rex Tillerson calling for the Trump administration to encourage India to accept the deal. This could be a major step forward for US manufacturers.

2. Artificial Intelligence and UAV Technology

The Centre for Artificial Intelligence and Robotics (CAIR), an Indian laboratory under India’s Defence Research and Development Organisation (DRDO), is currently focused on the development of UAVs. Its work on configuring the complex artificial intelligence algorithms needed by new weapon systems has been facing some delays and setbacks. This is a great opportunity for US AI firms. Moreover, the recent $2 billion defense deal with Israel, which included 10 armed drones worth $400 million, clearly suggests that UAV purchases will be an important component of India’s military modernization efforts in the coming decades.

3. Ammunition

India’s Ministry of Defense plans to spend $3 billion on ammunition alone over the next decade, with ammunition procurement to be inked in long-term contracts with domestic private sector manufacturers. Private Indian companies are in initial rounds of talks with overseas suppliers for technology to fulfill such orders. US defense manufacturers should investigate such partnerships.

These examples above demonstrate the growing Indian demand for high technology and foreign investment in the defense sector. As Modi’s “Make in India” initiative expands, India’s private sector will soon be searching for industrial processing equipment, CNC machines, steel fiber, and a variety of dual-use commodities to expand their own operations. US firms should look to turn India’s “Major Defense Partner” status into a major business opportunity for establishing joint ventures or manufacturing subsidiaries or direct sales and service contracts with Indian companies.

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