US to remove hurdles for defence procurement from India

The United States is set to make it easier for its defence contractors to procure supplies from entities in India.

The meeting between Prime Minister Narendra Modi and President Joe Biden in Washington DC next week is likely to add momentum to the process of the US recognising India as a DFARS-compliant country. This will allow the US defence contractors to procure goods and services from India without much hassles.

The DFARS or the Defence Federal Acquisition Regulation Supplement governs the acquisition of goods and services, either by the US Department of Defence (DoD) directly or by the contractors for it. It allows the contractors or the US DoD to procure supplies only from entities in the DFARS- compliant countries.

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India will have to ink a reciprocal defence procurement agreement with the US to qualify to be recognised as a DFARS-compliant country. A source in New Delhi told DH that the two sides might announce the launch of the negotiations for the agreement after the prime minister’s meeting with the US president in the White House on June 22.

The US Department of Defence spent over $400 billion on contracts for goods and services in 2020 and 2021. The Modi Government has set a target of Rs 1.75 lakh crore of defence production by 2025, including exports worth Rs 35,000 crore. The volume of India’s defence exports grew from Rs 1,521 crore in 2016-17 to Rs 15,920 crore in 2022-23.

New Delhi has been nudging the Biden Administration in Washington DC to open the doors for the companies based in India to offer goods and services directly to the US Department of Defence (DoD) or through contractors.

That is why India is keen to ink a reciprocal defence procurement agreement with the US to qualify for the grant of DFARS-compliant country status.

Altogether 27 countries, including Australia, France, Canada and the United Kingdom, are at present compliant to the US DFARS.

The DFARS-compliant status might also make it easier for the companies based in India to supply goods and services to the contractors to be approved by the American Government for the co-production of military hardware in India with the transfer of technology from the US.

The issue was discussed when Defence Minister Rajnath Singh hosted his counterpart Lloyd Austin in New Delhi earlier this month. They agreed to start negotiations for the reciprocal defence procurement agreement and a formal announcement might be made after the Modi-Biden meeting in the White House.

It was also discussed during the US National Security Advisor Jake Sullivan’s visit to New Delhi on Tuesday and Wednesday. Sullivan called on Modi and had meetings with his counterpart Ajit Doval as well as External Affairs Minister S Jaishankar before returning to Washington DC.

The source in New Delhi said that once the bilateral reciprocal defence procurement agreement would be inked, it would lead to India getting a waiver from the application of the “Buy American Act”, which prevented the US Government from procuring supplies from a foreign country.