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India-US ties – A strategically indispensable and commercially promising relationship

New Delhi

The alliance between India and the US is one of the defining relationships of the 21st century.  The bi-lateral trust has grown into a global strategic partnership driven by convergence of interest on regional and global issues. The relationship between India and the US has witnessed considerable improvement owing to the political will of both the countries which ensured that the India-US relationship remain on a growth track and

become more profound year on year. Both countries have more than 50 dialogue mechanisms covering cooperation in areas of defence & security, trade & investment, civil nuclear energy, cyber security etc.

This report throws light on the evolving Indio-US defence relationship and also showcases that while US has only recently started supplying defence equipment to India in the last decade, there have been significant investments of American companies already in India which are generating employment, exports and helping India make strides in its defence capabilities and prowess.

The commercial relationship between the US and India has matured significantly over the years. Two-way trade has grown. In the prevailing geo-political backdrop, defence co-operation is a key cornerstone of Indo-US relations which is imperative both from a strategic and commercial standpoint. It has taken time for the two countries to develop strategic ties built on cohesive ambitions of economic growth and geo-political leadership.  Indo-US ties are witnessing an upward trajectory regardless of the political leadership, and will continue to remain so, owing to mutual gains on the economic and strategic front. This relationship has been fostered and strengthened by a number of significant events and milestones.

US defense players support “Make in India”

  • Indian Government has recently taken a slew of measures to ease the policy framework around Defence sector to promote investment and in-country manufacturing.
  • US OEMs have made existing investments towards building manufacturing and service hubs in India both in civil and defence domains which have been generating employment, skill development, development of allied industries, enhancement of exports and technology transfers to the country.
  • US OEMs have made existing investments towards building manufacturing and service hubs in India both in civil and defence domains which have been generating employment, skill development, development of allied industries, enhancement of exports and technology transfers to the country.
  • Even though majority of the sales to Indian MoD by American companies have only been concluded in the recent 5-7 years, there have been significant investments made by American companies in India.
  • Apart from commercial and technological benefits, various US OEMs have also been supporting India through a string of social initiatives covering a number of programmes being run by the Government. These investments are being directed towards the future of the country, impacting lives positively.

Key suggestions

  • Changes in FDI policy and defence policy should be in sync with each other and FDI upto 74 per cent should be allowed in all categories of acquisition
  • In view of synergies between defence, civil aerospace and homeland security (HLS), sourcing of civil aviation and HLS products should be an offsetable activity
  • Defence contracting should be modified and aligned with global best practices
  • The 0.5 offset multiplier on components should be reconsidered

Gaurav Mehndiratta, Partner and Head – Aerospace and Defence, KPMG in India said, “As India aspires to achieve a USD 5 trillion economy, self-reliance in defence manufacturing has been recognised as one of the key areas of focus. With India’s liberalised policy regime, the stage is set in favour of India’s establishment as a key defence manufacturer in the global defence supply chain. This report talks about the evolving Indio-US defence relationship and also highlights the way forward and expected synergies between the two nations. It details the roadblocks, which require tangible action from both sides.”

He further adds, “Considering the entire ecosystem, Indo-US partnership, specifically in the area of defence is expected to flourish in the years to come, with India gaining from the sophisticated technology & manufacturing prowess of the US and the US playing a significant part in opportunities emerging from the growing Indian defence sector.”

Abhishek Verma, Partner – Aerospace and Defence, KPMG in India said, “India and US strategic ties have grown stronger over the years which has ensured greater military interoperability between the countries. The countries are collaborating across all spectrums of warfare in the military sphere wherein defence cooperation has emerged as a major pillar of India and US partnership.”

Ranjana Khanna, Director General CEO, AMCHAM said, “Stronger U.S. – India defense partnership is strategically important in the global scenario and extends beyond the bilateral.”

India-US defence ties on a firm footing

Geopolitical changes, together with recent political disturbances, appear to have set the stage for a defining partnership in the Indo-Pacific region – between India and the US. The steady growth in India’s defence expenditure only adds room to boost Indo-US ties – especially for new age and high-tech defence systems – given the need for a strategic geopolitical partnership in the Indo-Pacific region, safeguarding national interest, and a gradual change in global supply chains. The need of the hour is to outline the contours of a sustainable trade negotiation that is broad-based and encompasses the principles of economic engagement between the two nations.