How US deals with 'natural partner' India could boost defence, tech cooperation amid China tensions

India's defence capabilities are set for a boost following a series of deals signed with the United States, in what experts say is also an indication of Washington's desire to draw New Delhi closer to counter China's influence in the Indo-Pacific region.

The agreements, signed during Prime Minister Narendra Modi's meeting with US President Joe Biden in Washington last week, spanned everything from clean energy to medicines. Two on defence and technology stand out as they are likely to mark a departure from Delhi's years of dependency on Russia for arms.

"I think the linchpin of the agreements is the defence framework to make India strong and augment its deterrent capabilities," said Ashok Mehta, a retired lieutenant general in the Indian army and an independent defence analyst.

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"Americans have been constantly suggesting that India wean itself of dependence on Russia for military equipment and therefore the current agreements are indicative of that."

In particular, a deal between US firm GE and India's state-run Hindustan Aeronautics Limited to co-produce GE-F414 jet engines is a high point as it envisages technology transfers in equipment currently available only to Russia, Britain and France.

The engine deal is expected to equip India's home-grown Tejas light -combat aircraft, which are meant to replace many the of Russian-made planes that for decades have formed the bulk of the Indian Air Force.

Delhi has been struggling to build its own fighter-jet engines since the eighties and the Americans' willingness to part with the technology - though subject to conditions - showed the relationship had come a long way, Mehta said.

India also plans to purchase General Atomics' MQ-9B High Altitude Long Endurance (HALE) unmanned aerial vehicles, to aid its efforts patrolling maritime and land borders amid tensions with China ever since a border clash three years ago.

Nearly 70 per cent of the combat aircraft in India's air force are of Russian make and design, such as the Sukhoi Su-30MKI fighter jet. Most of the tanks in India's army are Russian-made T-72s and T-90s. Several of India's naval frigate warships, too, are Russian-made, as is one of the country's two aircraft carriers, the INS Vikramaditya.

But defence ties between the two nations have come under strain as Moscow has prioritised supplies of spare parts to its own forces to fight the war with Ukraine, which has hit operations of a number of India's main Su-30 fighter aircraft, analysts say.

The Indian Air Force says it needs 42 aircraft squadrons to protect the country from simultaneous attacks from Pakistan and China, but it only has 31. Over the past seven years, it has been introducing the Indian-designed Tejas powered by US-made F-404-GE-IN20 engines to replace an ageing fleet of MIG-21s.

The F-414 engine is expected to equip Tejas Mark 2, a bigger and more powerful aircraft than its predecessor. It will also be used in India's next-generation HAL Advanced Medium Combat Aircraft.

Delhi has stepped up efforts to manufacture defence equipment at home ever since its border clash with China three years ago, and raised the foreign investment limit in the defence industry to 74 per cent from 49 per cent for granting automatic approvals.

The GE-HAL deal to co-produce F-414 engines in India will need US government approval. It is expected to take three years to build the factory, and at least four to five years before the first engine rolls out, which means it will not be able to help India reduce its dependency on Russia soon, analysts say.

At the same time, India's purchases from the US and other Western nations have grown from strength to strength, especially over the last decade.

India contracted to buy 22 Apache helicopters and 15 Chinook helicopters from American manufacturer Boeing in September 2015 and had received both shipments by 2020. Delhi also signed a US$4.1 billion contract with Boeing for C-17 planes and away from the US, signed a deal with France and Dassault Aviation in 2016 to buy 36 Rafale fighter planes.

Analysts say the strategy reflects India's desire to spread its bets rather than shift its dependency to the West, noting that the country has continued scooping up discounted Russian crude oil despite Western criticism and sanctions.

Delhi has also stopped short of condemning Russia's invasion of Ukraine while advocating for a peaceful resolution, again inviting Western scrutiny because it is a member of the Quad, an informal security group that includes the US, Australia and Japan.

In a joint statement with the US during Modi's visit, the two sides emphasised the importance of a "rules-based international order", saying "the contemporary global order has been built on principles of the UN charter, international law, and respect for sovereignty and territorial integrity of states".

The measured tone of the joint statement on Russia reflected Washington's eagerness to cement its strategic alliance with India in order to have a foil to China, especially in the Indo-Pacific region, analysts say.

"The US is systematically creating a ring of alliances in an effort to contain China. The key strength of US versus China is its alliance network. India is a natural partner because of long ongoing tensions between India and China," said Pushan Dutt, professor of economics at INSEAD.

Other parts of the ring included the four-nation Quad as well as Aukus, the security partnership between Britain, Australia and the US, he said. Washington has developed closer defence ties with South Korea and Japan, and signed a pact with Papua New Guinea, with the same objective, he added.

"China looms large in all calculations," Dutt said, noting that the focus on defence and semiconductor technology in partnership with India were because these were "the two sectors that the US explicitly wants to stymie their development in China".

Delhi embarked on a programme to shore up its manufacturing base including electronic goods three years ago, and offered financial incentives worth billions of dollars. It also launched a programme to build semiconductors to cut imports valued at around US$25 billion a year.

Two US semiconductor companies said this week that they would invest in India. Micron Technology, maker of memory chips, said it would invest up to US$825 million in a chip assembly and test plant in Gujarat, while semiconductor toolmaker Applied Materials plans to invest some US$400 million in a new engineering centre in India.

Incentives from India's federal and state governments "are likely to range from 70 per cent to 125 per cent of the investments in semiconductor manufacturing in India, which are likely to attract more investments into the country", said Saurabh Agarwal, a tax partner at professional services firm EY.

The semiconductor industry has a complex value chain that can be roughly broken up into three major sections: design; fabrication; and assembly and testing. India is already a hub for the research and design of semiconductors, which require software capability, but lags in the two other areas.

The investments by the US firms could catalyse other companies to also make chips.

India currently meets all of its needs with imports from places such as Taiwan, but policymakers are keen to establish a semiconductor base in the country because chips power everything from mobile phones to sophisticated flight systems.

Modi's visit deepened technological cooperation in other areas as well. Tesla CEO Elon Musk said after a meeting with Modi that his company was looking to invest in India "as soon as humanly possible".

Musk has been trying to break into the Indian market since 2017, but the plan has been delayed by Tesla's efforts to negotiate lower import duties - a proposal that has so far been rebuffed because officials want the company to make cars before discussing tax breaks.

"It is likely that they [Tesla] will come now. There is enough push for them," said an industry executive, who did not want to be identified.

Other companies were already making inroads before Tesla's expected entry. American firm International Battery Company has said it would invest in a lithium-nickel-manganese-cobalt cell manufacturing plant in the southern Indian state of Karnataka.

Big tech firms have also warmed up, with Google CEO Sundar Pichai promising to invest US$10 billion in a digitisation fund for India to foster artificial intelligence company, while Amazon said recently that it will ramp up investment in the country to US$26 billion by 2030.

The moves have come on the heels of reports that Apple may move nearly one-fifth of its global iPhone production to India in the next two years. India currently has just 14 Apple vendors, compared with 151 in mainland China.

"The US government is keen on strengthening ties with India and encouraging companies such as Apple and GE to invest there is a key part of this strategy," said David Bach, a professor of strategy and political economy at the International Institute for Management Development.

Many companies are looking to reduce their dependence on China by testing the waters to see if India is a viable alternative in terms of the size of its market, workforce and the country's sprawling digital network, analysts say.

Yet a legacy of bureaucracy, regulations and red tape that date back to the socialist era before India's economic liberalisation in 1991 remain a hurdle. Complex processes have vastly improved, but many potential investors still have to feel their way through.

Gautam Mahajan, a former president of the Indo-American Chamber of Commerce, said too much fuss was made about the red tape issue in India. Foreign companies who had done their homework well could easily establish their operations, he said.

The trend of US and European firms ramping up their operations in India is only expected to increase in the coming months, as ancillary units come up to support bigger production ventures such as the GE-F414 jet engines, industry executives say.

Indian carrier Air India's record order of 470 jets from Boeing and Airbus, as well as Indigo's 500-aircraft order from Airbus, are also significant as these are expected to spawn a number of new manufacturing companies.

Manoj Joshi, a distinguished fellow at the Delhi-based Observer Research Foundation think tank, said the investments were materialising because the US was focusing on supply chain resilience and it viewed India as a partner.

"The depth of relations is not on the defence side alone, but there is an overall economic shift," he said. "Globalisation 2 is happening and we see certain advantages in close association with the US, just like China had seen in Globalisation 1."

This article originally appeared on the South China Morning Post (SCMP).

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