Public Diplomacy Public Diplomacy

Speech by Defence Minister Pranab Mukherjee at the Executive Defense Industry Round Table Lunch organized by US-India Business Council

June 27, 2005

  • I am indeed honoured to be here today to address this august gathering of leaders of the Indian and US defence industries. I must congratulate the US India Business Council for organizing this event. They have been ever active in promoting industry-to-industry cooperation and have also been the driving force in this relationship even at the government level.
  • Relations between India and the US have been through somewhat of a roller coaster. What has been disappointing has been the fact that although the Indian and the American societies are so close in terms of shared values; we have yet to develop a substantial partnership in the defence industrial sector.
  • India and the US are the world's largest democracies. Both have strong institutions to support their vibrant democracies, like an independent judiciary and fiercely independent media. If, as many experts assert, India and the US are natural allies, then the question that arises is why has this alliance not materialized in concrete terms? Although there have been some recent positive developments, there is nevertheless enormous potential for further progress in this regard.
  • Despite several problems, India has in the last decade registered an average GDP growth rate of around 6 per centamongst the highest in the world. Our foreign trade regime has been greatly liberalized and nearly everything that a consumer would want is available in India. The foreign exchange regime, insurance and banking sectors have been liberalized. Foreign direct investment is automatic in many cases and is now permitted in practically all sectors including defence. There are of course hiccups in the process but which real democracy is free of dissent and debate? And which caring Government can afford to be indifferent to its needy and the under privileged? The process of economic reforms in India is based on strong foundations. It is alive and kicking. We have our own model, which suits our local conditions. This process may sometimes seem slow and halting, but it is irreversible with the basic principles of reform intact.
  • There are great opportunities for business in India's defence sector. Business in defence has necessarily to be viewed in a broader perspective. Security and defence are quintessentially sovereign functions. They are inextricably linked with politics and foreign policy. This is where our shared values that I have referred to earlier come into play. Even before 9 / 11, India and the United States had shared concerns about terrorism. Since then there have been a number of significant high level visits and increased cooperation. A Defence Policy Group has been set up along with several adjunct groups support of the DPG, like the Joint Technical Group and the Security Cooperation Group. They reflect a strong will and desire on either side to develop a mutually beneficial partnership. They also offer for a freer exchange of views on sensitive issues. There are many programmes of joint training and exercises between the two armed forces. This has led to a higher level of confidence. Thus, the climate today is genuinely conducive for a fruitful partnership in the defence sector. To capitalize on this, I would suggest a more focused approach to the existing cooperation in the defence industrial sector and for this a separate Group under the DPG with the exclusive mandate to address industry issues needs to be set up.
  • The overall security scenario must form the backdrop of our cooperation. Our security needs are to be appreciated in this setting. We have already been forced into four conventional wars since our independence. Unlike the U.S., we have common boundaries with nuclear weapons' states and have been living with terrorism for over two decades. India also faces the problem of a cross border terrorism in certain areas. This should persuade anyone to appreciate India's security concerns as being real. Being traditionally peace loving, India has often been a victim of aggression, rather than an aggressor. However, it has never had any territorial ambition. The focus of our national endeavour is purely on development. However, India cannot abdicate its right to defend itself and it is in this context, that the requirements of its defence sector need to be seen.
  • Given India's geo-political environment and its responsible track record, it should justifiably be allowed to access all the technologies and defence equipment it needs. There should at least be no moral inhibition on this account. However, I do realize that we live in a real world of practical people, who have to take into consideration factors of realpolitik. It has often been said that in matters of security, we should depend entirely on ourselves n approach of total self-eliance. It has also been said, "what is suitable will be denied. What is not denied may not be suitable and what is made available will be unaffordable". I am, however, more optimistic. I believe real opportunities of partnership and commerce exist at least in the following specific areas that are essentially defensive and non-lethal. Some of these are :
    1. Technologies/equipment/strategy to counter terrorism.
    2. Surveillance, communication equipment, sensors for border management.
    3. Cyber security - synergies in the field of Information Technology.
    4. Devices to neutralize IEDs.
    While we could begin modestly, it is necessary for the US to look seriously at platforms and weapons systems, which in our case, may be needed purely for self-defence and deterrence.
  • There are commercial opportunities for American industry in the sale of equipment and weapons. But India does not look at purely a "buyer-seller" relationship. Such a relationship needs to be `strategic'. We are looking for long-term commitment. Therefore, really substantial commercial opportunities will arise from the following:
    1. Transfer of technology;
    2. Co-development;
    3. Co-production;
    4. Mutual outsourcing; and
    5. Joint marketing
  • India has a strong industrial base. Some facts need to be highlighted :
    1. India has a vast and varied industrial infrastructure. In the defence sector, there are 8 Defence Public Sector Undertakings and 39 Ordnance Factories that are supported by the Defence Research 8v Development Organisation, which itself has a network of about 50 Research Laboratories. There is a vibrant and competent private sector whose production in the defence areas is growing.
    2. The total turn over of Defence Public Sector Undertakings during 2004-05 was of the order of over US$ 2.5 billion while that of the Ordnance Factories was to about US$ 1.4 billion.
    3. Hindustan Aeronautics Limited (HAL) has produced the Advanced Light Helicopter (ALH) "Dhruv" with the help of `in-house' R&D. ALH has set a record for its weight class helicopter flying at an altitude of 27000 ft.
    4. The Multi Role single engine supersonic Light Combat Aircraft (LCA) named "Tejas" is also being produced by HAL.
    5. Cost of production in India is low and it has highly trained manpower and using world-class infrastructure for production of high quality items. .
    6. Global players like Airbus Industries, Lockheed Martin, Snecma, Boeing are outsourcing work to Indian companies given latter's high degree of skill and cost competitiveness.
    7. In May 2001, Defence Industry sector was opened up to 100% by the Government of India for Indian private sector participation with Foreign Direct Investment (FDI) permissible up to 26% - both subject to licensing.
    8. A number of Indian Private Sector Enterprises have obtained Industrial Licences for manufacture of various types of Defence items under the new regime.
    9. The Defence Acquisition process in India is transparent and an amended version of the procedure has recently been released, which includes a provision for offsets against large defence contracts.
    10. The Committee set up by the Government of India under Dr. Kelkar has submitted its Report on more effective participation of the private sector in Defence Production.
    11. Recently a Joint Venture of HAL with SNECMA MOTORS manufacturing aero-engine parts has been approved where the partnership will be 50-50 per cent.
  • India has one of the world's largest technically qualified manpower. We have some claims to being a force to reckon with in the field of information technology. With this infrastructure and human resource, India can prove to be an excellent base for the US defence industry, for provision of repair, overhaul, maintenance and servicing facilities. It can become a center for regional distribution and services. With the opening up of the aviation sector in India, a large number of aircraft is being acquired. This would provide an excellent opportunity for leading US companies to enter into partnerships with established Indian companies for repair, overhaul, maintenance and other services.
  • What has been stated so far suggests a promising future. Great opportunities for a long-term, mutually beneficial partnership between the defence industries of the United States and India exist. We need to in a purposeful and progressive manner remove impediments coming in the way of our natural alliance and join hands to make this world a more secure, peaceful and prosperous place.

Washington, DC
June 27, 2005

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