US allays India's defense fears

By Siddharth Srivastava

Though it's uncertain how US President Barack Obama will impact the Indian outsourcing business, there is one legacy of the erstwhile George W Bush administration that looks set to continue - defense.

Last week, the Obama administration approved a US$2.1 billion sale to India of eight Boeing Co P-8I maritime patrol aircraft, the biggest US sale to the country to date.

The long-range maritime reconnaissance aircraft for the Indian navy will replace eight aging and fuel-guzzling Russian-origin Tupolev-142Ms. (The P-8I was derived from the commercial Boeing 737 airframe.)

The US State Department said in a statement that it cleared the direct commercial sale having factored in "political, military, economic, human-rights and arms control considerations".

It said direct arms-trade "offsets" were expected to include engineering services, manufacturing and integrated logistics-support projects of over $641 million.

Doubts in certain quarters that the Obama administration may review the strategic depth of India-US relations, an important component of which is defense, have been put to rest.

In 2005 India and the US signed the Defense Framework Agreement under the aegis of Prime Minister Manmohan Singh and Bush that blueprinted progress to be made in the next 10 years.

Ever since it is increasingly becoming clear that the American impact on Indian defense will only grow, posing a tough challenge to traditional partners such as France, Britain, Sweden and - in particular - Israel and Russia.

India's defense modernization plans are estimated to cost over $50 billion in the next few years and will include a mega-fighter jet deal valued at over $11 billion, for which US firms Boeing and Lockheed are bidding alongside several others.

For the P-8I, Boeing beat several rivals, including EADS Airbus, in the race to win the contract.

In January 2008, Washington and New Delhi inked what was at the time India's largest US arms purchase: six Lockheed Martin Corp C-130J Super Hercules military transport planes at a price of $1 billion.

The US's only substantial (and comparatively less in value) arms deal with India in recent years has been the $190 million contract of 2002 to supply 12 AN/TPQ-37 fire finder weapon-locating radars.

Last year, India purchased an amphibious transport vessel, the USS Trenton (re-christened Jalashwa), for nearly $50 million with six-UH-3H helicopters to operate alongside it, costing another $49 million.

The Jalashwa is the first-ever warship acquired by the Indian navy from the US and the second-biggest that India now possesses after the aircraft carrier INS Viraat.

India has also been looking at joint efforts with the US to build a ballistic missile defense (BMD) system, especially in the wake of the November terror attacks in Mumbai and the threat of non-state players and other loose cannons increasingly gaining ground in Pakistan.

Officials say that Indian intelligence agencies perceive a potent terror threat from the skies. A missile shield would also provide cover against inter-continental ballistic missiles (ICBMs).

The BMD system features radar and anti-missile missiles, or interceptors, which are able to destroy incoming and possibly nuclear-tipped ballistic missiles, both of which Pakistan and China possess.

This month, India successfully conducted a third missile intercept test in Orissa, as part of plans to build the BMD system by 2010. The first exo-atmospheric BMD test was conducted in November 2006, followed by an endo-atmospheric test in December 2007.

Three countries with operational BMD systems, the US (Patriot Advanced Capability-3), Russia (S-300V) and Israel (Arrow-2) have been looking to hawk their know-how to India, which is now looking at a more advanced version of its Star Wars ambitions that seeks to shoot down ICBMs in the 5,000 kilometer range.

Apart from defense, another Bush legacy that should endure is the recognition of India as a nuclear exception despite not being a signatory of international agreements such as the nuclear Non-Proliferation Treaty.

It has been a slow and arduous path to the removal of the three-and-a-half decade international nuclear trade embargo on India, since the process began in July 2005 when India and the US signed a landmark agreement.

India is now looking to import at least eight new nuclear reactors by 2012. At least five to seven possible sites for big nuclear power plants are being blueprinted to execute nuclear capacity additions by 2020. Meanwhile, American businesses will put an estimated foreign direct investment of over US$100 billion into India's nuclear power sector over the next decade.

All of this underlines the fact that Washington will continue to make decisions that obviously benefit American firms, which means that the outsourcing of US work to low-cost countries such as India is likely to suffer.

Obama's stimulus plans for the US economy make it increasingly difficult for American companies to hire foreigners on temporary skilled worker permits and visas. Washington's protectionist intentions are also making it harder for US companies that send jobs overseas to avail tax benefits, though observers say that cost savings due to outsourcing will keep its appeal alive.