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Prime Minister Modi: A Boon to Defense Trade with India

Defense trade with India has long been the holy grail for the U.S. defense sector. With U.S. defense budgets declining and defense firms increasingly looking overseas to ramp up sales,  one would think that India  — a democracy in Asia with one of that largest militaries in the world in desperate need of modernization — would be the center of gravity for U.S. defense industry. This has not been the case.

Though the U.S.-India defense trade relationship has seen significant growth over the past decade, it has not come close to reaching its potential. Frustration with India’s offset policy, caps on foreign direct investment, and an Indian government bureaucracy that has been slow and opaque making doing business with India’s defense ministry more like a trek through a newly created level in Dante’s Purgatory than the sought for Paradise of growing international sales.

The place in which we find the U.S. and India defense initiatives is not for lack of effort on the U.S. side. The Defense Trade and Technology Initiative  (or “DTTI”) puts forward a framework for increasing defense trade and deepening technology development between the two countries. But even if the most elegant plan won’t have an impact unless there’s leadership willing to implement it.

It now appears such leadership is in place. Following his election in May, Prime Minister Modi has set in motion a number of defense-trade related initiatives that will get the attention of the defense sector. Reports in the Indian press reveal that caps on foreign investment in defense will rise from 26% to 49%, and in cases where there is technology transferred it may rise to 76% or 100%. This change, combined with other signs that the Modi government will reform India’s offset policy and increase defense spending by more than .5% GDP, means that the U.S.-India defense trade relationship is poised to leave behind a state of gridlock and frustration and enter into a new dynamic of accountability, quick decision making, and openness, with the hope and expectation that this will result in greater defense sales to India.

To be sure, there are still unanswered questions. Washington has not announced a new Ambassador to India, and Prime Minister Modi has not selected his Minister of Defense, as Minister of Finance, Arun Jaitley, was appointed to the post temporarily. The leadership vacuum needs to be addressed;  as industry in the U.S. and India will be knocking on the doors of government ready to utilize India’s new defense reforms, Delhi and Washington would be wise to make sure someone is there to answer.

© 2020 Covington & Burling LLPNational Law Review, Volume IV, Number 155

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About this Author

Ralph Voltmer, communications and media attorney, Covington
Partner

Ralph Voltmer, Jr., a partner in the firm's corporate group, advises both US and foreign clients in cross-border transactions such as mergers & acquisitions, joint ventures, strategic alliances and financings (whether debt or equity).  Mr. Voltmer has represented clients on a variety of transactions in Europe, Latin America, Asia, and heads the firm's India Practice.

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