A big item on President Obama’s India to-do list this weekend is securing a $5
billion deal for Boeing to sell 10 of its C-17 cargo planes.
The agreement, for which Boeing and American officials have long laid the
groundwork, would be part of a flurry of military equipment deals that foreign
suppliers are eager to nail down with India. Mr. Obama’s French and Russian
counterparts are expected to visit New Delhi this year, with their own military
sales contracts in hand.
India, flush with new wealth but worried about
its national security, is rapidly turning into one of the world’s most lucrative
arms markets.
In the last several years, as its budget and appetite for more sophisticated weaponry have grown, India has reduced its traditional reliance on Russia for planes, ships and missiles.
The White House is backing sales like the C-17s, which India would use to transport its rapid-response forces, to help make India a regional counterweight to China. But there is a big trade motive, too. As the United States and European nations trim military spending, the biggest weapons contractors,
including Boeing and Lockheed Martin, see India as a sales lifeline.Still, American companies face complex political andbureaucratic obstacles to gaining a large part of India’s business. The president’s trip will be focused in part on trying to cut through some of those problems.Perhaps the biggest concern is Indian leaders’ wariness about relying too much on the United States, which they see as a new, untested military partner, and one that is also arming Pakistan, India’s main adversary.
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billion deal for Boeing to sell 10 of its C-17 cargo planes.
The agreement, for which Boeing and American officials have long laid the
groundwork, would be part of a flurry of military equipment deals that foreign
suppliers are eager to nail down with India. Mr. Obama’s French and Russian
counterparts are expected to visit New Delhi this year, with their own military
sales contracts in hand.
India, flush with new wealth but worried about
its national security, is rapidly turning into one of the world’s most lucrative
arms markets.
In the last several years, as its budget and appetite for more sophisticated weaponry have grown, India has reduced its traditional reliance on Russia for planes, ships and missiles.
The White House is backing sales like the C-17s, which India would use to transport its rapid-response forces, to help make India a regional counterweight to China. But there is a big trade motive, too. As the United States and European nations trim military spending, the biggest weapons contractors,
including Boeing and Lockheed Martin, see India as a sales lifeline.Still, American companies face complex political andbureaucratic obstacles to gaining a large part of India’s business. The president’s trip will be focused in part on trying to cut through some of those problems.Perhaps the biggest concern is Indian leaders’ wariness about relying too much on the United States, which they see as a new, untested military partner, and one that is also arming Pakistan, India’s main adversary.
In India, the United States “starts with a handicap” on arms
sales, said K. Raja Menon, a retired admiral who is chairman of an Indian
government task force that studies security risks.India’s accelerating
economy gives it the resources to join Saudi Arabia and the United Arab Emirates
as the biggest arms buyers. And its desire to upgrade its military was spurred
by the terror attacks in Mumbai in late 2008, when militants slipped in by sea
and killed 160 people.
“There’s nothing to galvanize the psyche of the
Indian people toward better defense and homeland security than what happened in
Mumbai,” said Tom Captain, who leads the aerospace and defense group at
Deloitte, the global consultancy.
Mr. Captain and other analysts estimate
that, as its military budget expands by 7 percent to 8 percent annually, India
could spend $50 billion to $80 billion in the next five years on
equipment.
Besides the Pakistan issue, Indian military officials say that
trade sanctions imposed after India conducted nuclear tests in 1998 have also
put the United States at a disadvantage.
Most of the sanctions, which
prohibited military exports to India and exports to Indian companies believed to
be involved in the nuclear program, were repealed in 2001. But the sanctions
have left concerns about Americans. “There is an entrenched view in
bureaucracies in India that these guys will turn off the tap,” said Mr. Menon,
the retired admiral.
Indian officials are also upset that other
technology controls remain in place, including bans on the sale of software that
could also be used for weapons. The officials will press Mr. Obama to ease those
strictures. Another sticking point could be that India has balked at signing
agreements to protect American secrets that are a standard part of any
sales.
India also uses the lure of big military contracts to require
foreign companies to farm out work to Indian companies and create high-paying
jobs there. But India’s fledging military industries cannot handle all the work,
and American officials want more flexibility in those arrangements.
At the same time, American analysts say that India’s military spending process is so chaotic and unfocused that it is proving difficult to complete deals.
“India at the moment has the money to buy weapons, but behind this
there is not much strategic direction,” said Stephen P. Cohen, an analyst with
the Brookings Institution.Still, India’s plan to modernize its military
is so sweeping that industry officials say there should be plenty of business to
go around.
“All I can say is that the market potential here is so
significant that there is room for various countries and companies,” said Vivek
Lall, the vice president in charge of Boeing’s military business in
India.One of the biggest prizes would be a $10 billion contract to
replace old Russian fighter planes with 126 new jets. Boeing, Lockheed Martin
and four companies from Europe and Russia have bid, and the contract could be
awarded next year.
Mr. Obama is likely to talk up the American companies
during his visit, just as Nicolas Sarkozy of France and President Dmitri A.
Medvedev of Russia are expected to make pitches for their manufacturers when
they visit India.
American companies are also bidding on major contracts
involving helicopters and missile systems, while some earlier deals are coming
to fruition.
Lockheed Martin, for example, is about to deliver the first
of six C-130J cargo planes that India ordered for $1 billion in 2007. Boeing,
meanwhile, is building maritime surveillance planes under a $2.1 billion
contract awarded in early 2009.But American executives say they realize
that success in India will depend on how well they can unite with Indian
companies, a process that could help them win more political
support.
Several American contractors have created joint ventures with a
government-owned company, Hindustan Aeronautics Limited. Boeing signed a
10-year, $1 billion deal with the Indian company in 2007. Hindustan is making
parts for Boeing’s 777 commercial jets and for planes it is building for the
Pentagon and India.
And the Tata Group, India’s largest business
conglomerate, is expected to deliver the first Indian-made cabins for the
Sikorsky S-92 helicopter in November.
Bharat Wakhlu, the resident
director of Tata in New Delhi, said labor costs in India were one-eighth or less
than in the United States. So even though productivity levels are lower, he
said, the American companies can still realize significant savings by moving
work there.
American officials, however, say that Indian rules limiting
foreign contractors to minority stakes in joint ventures, and requiring them to
spend 30 percent of any contract money on work in India, are too
onerous.
But as long as India’s economy is booming, American arms
suppliers may still make big gains. The cost of weapons is simply not as much a
factor as it was just a few years ago, when India relied mainly on Russia for
military equipment, said Gurmeet Kanwal, a retired brigadier and the director of
the Center for Land Warfare Studies, a research organization in New
Delhi.
American technology is seen as the “top of the top,” he said, and
“we should aim to pay a little more for the best equipment.”
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more at: http://profit.ndtv.com/news/show/wealthy-and-worried-india-is-rich-arms-market-118420?cp