DEFENSE SALES TO INDIA: THE ECONOMIC DIMENSION

C O N F I D E N T I A L NEW DELHI 002299

SIPDIS

FOR DEPUTY SECRETARY ZOELLICK FROM AMBASSADOR MULFORD;
WHITE HOUSE FOR NEC DIRECTOR AL HUBBARD;
SECDEF WASHINGTON DC//USDP:DSCA//

E.O. 12958: DECL: 03/28/2015
TAGS: PGOV PARM ECON EFIN AA NSSP

SUBJECT: DEFENSE SALES TO INDIA: THE ECONOMIC DIMENSION

Classified By: AMBASSADOR DAVID C MULFORD FOR REASONS 1.4 (B,D)


1. (C) Secretary Rice's visit to India, the announcement that U.S. companies will enter the competition to supply multi-role combat aircraft to India, and India's already articulated interest in P-3C aircraft, have raised the economic dimension of our defense relationship with India to a new level. (Historically, the U.S. has been a minor defense equipment supplier to India, the world's third largest market, which imports approximately 3 billion USD annually.) At this juncture, it is critical that we devise a strategy to strengthen appreciation in the Indian bureaucracy of the economic benefits derived from a long-term strategic partnership with the U.S. Our strongest advocates will be the economists who are running the government, not the traditional military establishment. Our message is simple: the U.S. is a reliable strategic partner for defense co-production, technology sharing, and joint research. Using military sales as the platform for cooperation will catalyze development of India's defense sector, spin off new industries, catalyze economic growth, and create jobs. The U.S. is an essential partner in India's economic transformation that will, in turn, enable India to achieve its aspiration of greater strategic autonomy and a larger space in the region.


2. (C) I believe the best way to reinforce the economic dimension of our emerging strategic defense relationship is by creating a Defense Production Cooperation Group (DPCG) under the U.S.-India Economic Dialogue. This new working group could potentially subsume under it the defense industry dialogue now under the High Technology Cooperation Group and the Senior Technology Security Group (STSG). The DPCG would be convened by NEC Director Al Hubbard and Deputy Planning Commissioner Montek Ahluwalia. This would assure that our discussion of defense sales and the crafting of joint programs would feed the aspiration India's economic leadership to make defense cooperation in armaments a driving force behind our broader economic partnership. The potential for mutual benefit is huge if the Indian bureaucracy and quasi-independent agencies such as ISRO, DRDO, Ordnance Factories, and Defense Public Sector Undertakings (HAL, BEL, etc.) are able to jettison the political baggage they carry from the past and transcend narrow industrial agendas to enable real long-term cooperation. Success would drive down costs of production, catalyze technical innovation, and allow economic specialization on both sides.


3. (C) In order to achieve this win-win outcome, we will need to bring to bear a level of political oversight on each side that breaks down political barriers, removes bureaucratic speed bumps, and facilitates maximum private sector involvement. This is precisely what we have agreed should be the guiding principals of the Economic Dialogue. Defense cooperation should be treated as a vital element of our economic relationship that requires special attention at the political level to catalyze rapid evolution.


4. (C) I recommend that Secretary Rice propose during FM Singh's expected visit to Washington in April or May the establishment of a Defense Production Cooperation Group under the Economic Dialogue to be chaired by our respective Coordinators and Deputy Coordinators and supported on each side at the Deputy Secretary level in defense. This should lay the foundation for direct interaction among Indian and U.S. business leaders aimed at creating corporate structures as the basis for defense cooperation, beginning with a few discreet projects.

MULFORD