Hagel Visits India Seeking to Sell Weapons

U.S. Defense Secretary Chuck Hagel arrived in New Delhi seeking to remove barriers to the sale of American weaponry to India, the world’s largest arms buyer.

Boeing Co. (BA) wants to sell more helicopters in India, and Lockheed Martin Corp. (LMT) is keen on exporting transport planes and providing technology for an Indian version of an anti-tank missile it makes with Raytheon Corp. (RTN)

Standing in the way are Indian restrictions on foreign defense companies owning majority stakes and U.S. curbs on exporting certain technologies. A resolution hinges on the Obama administration’s ability to energize what’s long been an up-and-down relationship with India after Prime Minister Narendra Modi’s party won a May election with the country’s biggest mandate in 30 years.

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“There’s a degree of disappointment and a degree of frustration” among U.S. officials “in dealing with India, because India itself has not really resolved” what kind of relationship it wants, Sadanand Dhume, a South Asia analyst at the American Enterprise Institute, a policy organization in Washington, said in an interview. “The U.S. is not used to dealing with this neither fish-nor-fowl kind of country.”

Modi “expressed concern about the deteriorating situation in Iraq and its potential implications for the region” in a meeting with Hagel today, according to a statement from the Indian government. Hagel briefed Modi on U.S. plans in Iraq, the government said in the statement, without elaborating.

Technology Transfer

Modi also told Hagel he’d like to see further progress in defense ties with the U.S., including manufacturing in India, technology transfer and exercises, according to the statement.

They also spoke about Modi’s “forward-looking agenda” for his meeting with U.S. President Barack Obama in the coming months, Department of Defense spokesman Rear Admiral John Kirby said in a separate statement.

Hagel arrived last night for a two-day visit before going on to Sydney where he will meet up with Secretary of State John Kerry and Army General Martin E. Dempsey, the chairman of the Joint Chiefs of Staff, for Australia-U.S. security talks.

To underscore the importance the U.S. attaches to bolstering defense trade with India, Hagel brought with him Frank Kendall, the Pentagon’s top weapons buyer, and Puneet Talwar, the assistant secretary of state for political-military affairs. Together, Kendall and Talwar, whose Indian-American heritage made headlines in India when he was named to his post, oversee U.S. arms exports.

No Second Cousin

Asked about India’s reluctance to embrace the U.S. as an ally and defense partner, Hagel told reporters traveling with him en route to New Delhi, “The U.S. is mindful of the sensitivity of India’s independence, and it has been an independent non-aligned nation since it became a democracy.”

“No nation wants to be seen as a second-cousin type of arrangement to the U.S. or any other country,” he said. “That is as it should be.”

Hagel plans to meet with his counterpart, Defense Minister Arun Jaitley, who’s also finance minister in Modi’s three-month-old government. Hagel’s visit follows one last week Kerry, who spent much of his time on long-distance phone calls seeking a cease-fire between Israel and Hamas in the Middle East.

Hagel’s Goals

Among Hagel’s goals will be preparing the groundwork for the next 10-year U.S.-India framework for defense ties before the current agreement expires next year, said Richard Rossow, who holds the Wadhwani Chair in U.S.-India policy studies at the Center for Strategic and International Studies in Washington.

From a few contracts 10 years ago, India now has about $12 billion in defense deals with the U.S., Rossow said.

“Both sides would like to renew the agreement and strengthen ways to cooperate on defense trade and co-production,” Rossow said in a phone interview. He said the U.S. is seeking progress on weapons deals that the previous Indian government, led by Prime Minister Manmohan Singh, “was reluctant to sign on.”

The U.S. is working to sell Apache and Chinook helicopters valued at about $2.5 billion from Chicago-based Boeing, as well as a follow-on order for the company’s C-17 transport planes, according to Rahul Madhavan, senior manager at the U.S.-India Business Council, whose members include U.S. defense contractors.

Making Javelins

Lockheed, the largest U.S. defense contractor, wants India to buy more of its C-130J transport aircraft, Madhavan said.

Of about a dozen joint development and co-production projects the Pentagon has proposed to India, emphasis is being placed on a deal that would let India co-develop and manufacture the Javelin anti-tank missile made by a joint venture of Bethesda, Maryland-based Lockheed and Waltham, Massachusetts-based Raytheon.

India also has expressed interest in joint development of a maritime version of the U.S. Army’s Black Hawk transport helicopter and a five-inch naval gun, according to a U.S. defense official, who asked not to be identified discussing the private talks.

India increased defense spending by 12 percent from a year earlier, to 2.29 trillion rupees ($40 billion) in its latest budget as the Modi government seeks to modernize the armed forces to counter China’s rising power.

Surpassing China

India surpassed China in 2010 to become the world’s largest arms importer and relies on purchases from abroad for 70 percent of its weapons, according to the Stockholm International Peace Research Institute. Russia accounted for 75 percent of India’s arms imports since 2009, followed by the U.S. with 7 percent, Sipri said in March.

Standing on the deck of India’s biggest warship in June, Modi called for the country to minimize its reliance on imports and become self-sufficient in weaponry. To do so, India is working to increase foreign investment in its defense industry.

In the last 13 years, India’s defense industry has attracted about $5 million in foreign investment, less than the amount for glue and gelatin production, government data show.

Modi’s cabinet this week raised the limit on direct investment in the industry to 49 percent from 26 percent, while retaining management control to allay security concerns. Still, U.S. companies have said they’d be still reluctant to share sensitive defense technology if they don’t have management control.

China, Pakistan

India’s state-run defense companies have failed to produce the weapons the army needs to guard borders with neighbors China and Pakistan, leaving tanks without shells and soldiers without bulletproof vests.

Even as India has bought more weapons from abroad, major deals have stalled. Two years after Paris-based Dassault Aviation SA (AM) won an $11 billion order for 126 Rafale fighter jets, a shortage of funds is holding up the deal.

Jaitley, the defense minister, approved 210 billion rupees ($3.4 billion) rupees in defense procurement last month, including naval ships, helicopters and transport aircraft, in an effort to expedite purchases.

India may have to improve its strategic ties with the U.S. before it can get the technology it wants to kick-start its domestic defense industry, said Uday Bhaskar, a fellow at the Society for Policy Studies in New Delhi.

“We need access to high technology, and it’s not easy to pry that out of the Americans,” Bhaskar said. “To me that is the holy grail.”

To contact the reporter on this story: Gopal Ratnam in New Delhi at gratnam1@bloomberg.net

To contact the editors responsible for this story: John Walcott at jwalcott9@bloomberg.net Larry Liebert, Daniel Ten Kate

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