Three Indian policies effecting defense trade: US industry

Amid steps taken by the Obama administration to compress timeline and share defence related technology with India, the US defence industry has expressed frustration over three critical Indian policies, which they claim has the potential to affect the bilateral defence trade.

Based on the feedback received from the defence industry in both the countries, the Pentagon has been informed that the three critical issues are the unfeasible delays and extension on letters of offer and acceptance; lack of post-delivery risk allocation and limitations of liability and finally difficulty for US industry to execute offset commitments.

The US-India Business Council (USIBC) recently in a letter urged Deputy Secretary of Defense Ashton Carter to raise the issues with India given their potential to affect ongoing and future contracts including those on the pipeline.

In its letter issued ahead of Prime Minister Manmohan Singh's visit to the US, USIBC said it has recently seen a disturbing lack of action by India in approving the Letter of Offer and Acceptance (LOA) for subsequent acquisitions such as for the follow-on order of (6) additional C-130Js from Lockheed Martin.

This is the fifth request for an extension and thus beyond internationally acceptable standard for timely action, it said, adding the BAE Systems still does not have a signed LOA for an order of 145 M777 lightweight howitzers, despite India's Ministry of Defense having had an LOA in its possession since early March.

In the letter, obtained by PTI, USIBC said India has asked both Lockheed Martin and BAE Systems to hold price and delivery schedules beyond that which is considered internationally acceptable or fiscally feasible for the contractor to sustain.

"While there is no question surrounding the reliability and technological superiority of US defense equipment, there is no justifiable rationale or reason given to our industry partners on why LOAs are being delayed or not signed," it said, adding this has also called into question whether US industry can continue to shoulder the significant cost required to reserve critical production capacity indefinitely in anticipation of a signed LOA from India.

"Our member companies' concern is not only that the sales represented by the pending LOAs may not be realized, but that the willingness of many companies to maintain a presence and focus on the Indian market may erode by means of no-bidding on contracts that do not have reasonable likelihood of successful and reasonable delivery cycles," USIBC said.

The American defense industry also expressed concern over the Indian policy regarding the allocation of post-delivery risk between the buyer (India) and seller.

The USIBC said the post-delivery product loss and special damages (also referred to as consequential and incidental damages) must be responsibly addressed by New Delhi, which would bring India's acquisition policy in line with international standard.

Finally USIBC said the ability for US companies to meet offset obligations is ever more difficult. Previously agreed upon terms and conditions are being questioned by the Ministry of Defence, thus delaying commercial contracts from being signed, it said.