MOD STRESSES NO IMMEDIATE CHANGE IN DEFENSE

C O N F I D E N T I A L SECTION 01 OF 02 NEW DELHI 007306

SIPDIS

SIPDIS

DEPT PLS PASS USTR

E.O. 12958: DECL: 10/22/2011
TAGS: PREL PGOV MARR ECON ETRD IN
SUBJECT: MOD STRESSES NO IMMEDIATE CHANGE IN DEFENSE
PROCUREMENT PROCEDURES TO A/USTR HARTWICK


Classified By: Charge d'Affaires Geoffrey Pyatt for Reasons 1.4 (B, D)


1. (C) Summary. Department of Defense Production Joint
Secretary (Exports) Kiran Chadha told A/USTR Ambassador

SIPDIS
Hartwick in an October 20 meeting:

-- the GOI is firm that there will be no changes in the
immediate future to defense procurement procedures, despite
the August 30 release of the new 2006 Defense Procurement
Policy (DPP);

-- there will be no change in policy on credit banking for
offset fulfillment, although the GOI will be open to
reconsidering this in the future;

-- the DPP allows for offset obligations to include
commitments and ventures with the private sector, and the GOI
will assist suppliers in finding private sector partners;

-- Given the number of corporations interested in doing
business with India, MoD is comfortable with its bargaining
position at this time, and

-- a major deal with a U.S. company will probably happen
soon, "because (India is) now open."

End Summary.


2. (C) In an October 20 meeting, A/USTR Ambassador Doug
Hartwick stressed to Department of Defense Production Joint
Secretary (Exports) Dr. Kiran Chadha the high level of

SIPDIS
potential for Indian industry if the new Defense Procurement
Policy (introduced in August 2006) can be flexibly
administered. Chadha, who heads the Defence Offsets
Facilitation Agency (DOFA),immediately stated that India's
defense procurement procedures, as laid out in the 2006 DPP,
will remain the basis for the GOI's implementation phase.
The MoD does not plan to introduce any further changes in the
near term.


3. (C) Ambassador Hartwick pressed for flexibility on the
issue of credit banking, emphasizing the importance companies
place on such investments, and noting that the issue will
only become more important to American business as the size
of investments grow in the future. Chadha was firm in
explaining that India does not plan to change policy on
credit banking now, she said, however, the GOI will review
the DPP's implementation as time goes on and to remedy
problems on a case-by-case basis. She suggested that the GOI
will be particularly flexible in cases involving high-tech
investment, particularly with well-known companies, citing
Boeing as an example, saying "If HAL (Hindustan Aeronautics
Limited) and Boeing are doing work, if they contact us
(regarding credit banking) I think we can make it work."


NEW DELHI 00007306 002 OF 002



4. (C) Responding to Ambassador Hartwick's inquiry as to
whether India's defense public sector undertakings (DPSUs)
had the capacity to absorb the large-scale offset investments
which are being projected, Chadha said India has built up its
facilities, but is now allowing foreign participants to
invest directly in the private sector. "The DPSUs are not
the best bet," she admitted. The GOI will serve as a
clearinghouse of sorts for offset partners, she explained,
saying "We will help identify partners (for U.S. companies)
so they won't be taken for a ride. DOFA is ready to do
that." India has studied offset practices of 30 other
countries, Chadha said, and has developed a system aimed at
"buying, making, indigenizing, and upgrading." India is in a
position where it does not need to compromise on technology
purchases, she explained, saying it will buy technology
rather than have it as part of an offset deal. In the past,
the technology India obtained through offsets was obsolete by
the time it mastered it, she reasoned. She also said that
investments in software development -- she used software for
developing a radar as an example -- will not need GOI
licensing and will be able to be included to fulfill offset
obligations. There are already 29 licenses which have been
issued to 19 Indian companies allowing them to be offset
partners, she stated, and more companies are approaching the
GOI and asking how to qualify.


5. (C) India feels it is in a strong bargaining position
regarding defense procurements, Chadha said, given its plans
to upgrade nearly all its weapons systems over the next 15
years. "We're in a comfortable position," she stated. "We
still have infrastructure problems, and we still have no
'single window' for procurements, but once people do business
here, they get comfortable. We now see our size as an asset,
rather than as a liability." She added that India's views on
defense procurement changed completely following the Kargil
war in 1999, when Indian policymakers realized its armed
forces were not receiving the quality materiel they needed.
Since Kargil, the Cabinet and politicians have
enthusiastically supported the military's plans to modernize.


6. (C) As Chadha moved to end the meeting, Ambassador
Hartwick emphasized that in order for the U.S.-India defense
relationship to advance as both sides have expressed they
hoped it would, and to give a confidence boost to U.S.
companies uncertain whether their long wait will pay off,
rewarding a contract to a U.S. firm -- such as Bell
Helicopter's proposal -- would be a strong signal. Chadha
concluded by saying "Something will happen for U.S. companies
soon, because we're now open." (sic)


7. (U) Ambassador Hartwick has cleared this message.
PYATT