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Boosting US-India private sector defence industrial cooperation

Jan 13, 2025 12:01 PM IST

This article is authored by John V. Parachini and Vivek Mishra. 

A recent meeting between United States (US) and Indian experts on security and defence cooperation identified opportunities and challenges to furthering private sector defence collaboration between the US and India in ways that advance the overall security partnership.

Prime Minister Narendra Modi and US President Donald Trump (AP Photo/File)(AP) PREMIUM
Prime Minister Narendra Modi and US President Donald Trump (AP Photo/File)(AP)

During the meeting, it was evident that the Indian government is keen on reducing traditional reliance of its defense forces on specific countries and geographies for weaponry. Despite historical ties and the current level of technical cooperation and technology transfer from Russia, Indian participants expressed an evolving need to diversify. The urgency of diversification was highlighted by Russia’s struggle to meet arms export commitments following its invasion of Ukraine. Prime Minister Narendra Modi’s Make in India initiative, which combines a realistic assessment of external threats and the need to innovate at home, is driving this shift.

The emergence of the US-India Comprehensive Global and Strategic Partnership has provided natural pathways to strengthen avenues in co-production and co-development. The two nations nurtured a mutual and strategic partnership over the course of the last two decades, marked by increasing economic trade, political engagement and security cooperation.

The rise of China as a dominant power in the Indo-Pacific has further aligned US and Indian interests. China's assertive actions in the South and East China Seas as well as in the Indian Ocean threaten regional stability, posing potential conflict risks with the US and India. Additionally, Chinese incursions along India’s border since 2017 significantly altered bilateral relations, providing both countries with compelling reasons to cooperate.

While the recent China-India agreement to pull back forces in the disputed border areas has reduced tensions, the durability of the reproachment remains to be seen. Regardless, India aims to strengthen ties with major economies in Asia and Europe to bolster its economy and assert sovereignty in its relations with all major powers. US participants noted that stronger relations between India and other democracies fit with US views on global security, enhanced by alliances that respect international laws and norms.

Although Indian arms production predominantly occurs in the public sector, the private sector is emerging as a key driver of indigenous defense production. Make in India mandates and co-production arrangements with foreign companies are expected to bolster private sector growth. Joint production of defense equipment, such as aircraft engines and MQ-9 drones, exemplifies the expanding US-India security relationship. A successful joint US-India co-development of a major defense item could serve as a significant endorsement for future cooperative projects.

Parallel to major defence systems projects, collaboration among start-up companies is seen as crucial. While venture capital for Indian start-ups is growing, it remains less robust than in the US collaboration in the dual-use sector may lead to innovations that balance the relationship between firms from both countries.

A formidable challenge for US-Indian defence industrial cooperation is the structural difference in defense system production between the two nations. The US department of defense sets system requirements with private companies competing on performance and cost, driven by profit motives. In contrast, India has prioritised government defence production entities for national security, though this may change with policies encouraging private sector involvement.

Indian companies are bidding to produce variants of the Stryker combat vehicle, which could serve as a model case. Collaboration on this system could become a significant export item for Southeast Asia, a promising market for co-produced arms exports.

The structural differences in weaponry development between the US and India have implications for co-production arrangements. American companies invest with long-term horizons, assured by strong IP protection and large R&D budgets. In India, State-owned enterprises develop products for the local market, with little competition, leading to innovation barriers and cost over-runs. The US defence industry faces similar challenges due to significant consolidation in the sector.

Defense industrial cooperation between the two countries can help boost the development of India’s technological capabilities, but doing so must overcome some hurdles resulting from the different levels of capabilities. Transferring some US defence technologies has been a stumbling block in the relationship. US companies have had concerns about IP risks and market size have made some U.S. defense companies hesitant to enter the India market. From the Indian perspective, US restrictions on technology transfer seem to reflect a lack of trust.

American companies face regulatory challenges in selling equipment to allies due to US government restrictions, which also contribute to Indian perceptions of mistrust. Indian scholars cite successful co-production with Israel, France, and Russia, questioning why similar US arrangements are not feasible. Experts suggested that foreign-partner government involvement in negotiations and financing of these co-production arrangements ensured success for political reasons rather than due to sound economic reasons.

These contrasting perspectives warrant further discussion. There is consensus that India-US relations are on an upward trajectory, particularly when it comes to co-production and technology transfer. Initiatives like the US-India initiative on Critical and Emerging Technology and the India-US Defence Acceleration Ecosystem are important to the two-countries’ defence industrial partnerships, though challenges remain. The potential economic, political, and security dividends for both countries are considerable.

This article is authored by John V. Parachini, senior international and defence researcher, RAND and Vivek Mishra, deputy director, Strategic Studies Programme, Observer Research Foundation, New Delhi.

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