A high level political engagement between Oman and India will push the relations in the positive direction and also provide a fresh fillip to the economic relations.
Oman has been a key pillar of India's West Asia Policy. Both states celebrated the 60th anniversary of their diplomatic relations in 2015. Ministerial-level engagements with the important Persian Gulf state have increased in the past three years. External Affairs Minister Sushma Swaraj visited Oman during February 17-18, 2015, when both sides agreed to expand economic relations and flagged radicalisation as a major threat. Defence Minister Manohar Parrikar paid a three-day visit to Oman in May 2016. The visit sought to expand defence relations between the two countries.
Parrikar expressed his gratitude to Oman for its assistance pertaining to the ‘Operational Turnaround’ (OTR) of the ships of the Indian Navy engaged in anti-piracy patrols as well as for technical support for landing and over flight of Indian Air Force (IAF) aircraft. Four memorandums of understanding (MoUs) in the domain of defence and security were signed between the countries during his visit. These included a MoU on defence cooperation, a MoU between the Coast Guards of the two countries to prevent crime at sea, a MoU on maritime issues and a protocol between their respective air forces on Flight Safety information Exchange.1
In December 2016, Minister of State for External Affairs M. J. Akbar addressed the 5th India-Arab Partnership Conference in Muscat. Akbar pointed out that there was ‘substantial space for co-operation in both conventional instruments of security as well as new approaches as in cyber security’.2 Interactions in the defence/security sphere have been robust in recent times. In January 2016, Indian Navy and the Royal Navy of Oman conducted maritime exercise ‘Naseem al-Bahr’ in the Arabian Sea off the coast of Goa, from January 22-27, 2016. It was subsequently followed by the goodwill visit of Indian Coast Guard Ship (CGS) Sankalp to Muscat in February 2016. In March 2017, the troops of the two countries concluded 'Al Nagah-II 2017' military exercise in Himachal Pradesh. Oman is the first Gulf State to buy Indian Small Arms System (INSAS), developed by the state-run Ordnance Factory Board. It has also given the birthing rights to India’s naval vessels to fight against piracy in the Gulf of Aden.3
Bilateral economic ties have witnessed some significant developments in last few years. Currently, there are around 3000 joint ventures between Indian and Omani partners with a total investment of around $7.5 billion.4 The India-Oman Joint Investment Fund, a private equity fund backed by the State General Reserve Fund of Oman (SGRF) and State Bank of India (SBI) began operations in 2011 and the initial seed capital of $100 million has been utilised.5 Bilateral trade however in last few years has seen a drop. In 2014-15, total bilateral trade dropped to $4,131.69 million from $5,763.45 million in 2013-14. It further decreased to $3,865.50 million in 2015-16, largely the result of falling oil prices.
India does not have enough energy resources to serve its current or future energy requirements. The rapidly growing energy demand has contributed to the need for long term energy partnerships with countries like Oman. For years, India has been considering to construct an underwater natural gas pipeline via Oman, the Middle East to India Deepwater Pipeline (MEIDP) — also known as the Iran-Oman-India pipeline. The project sought to bring Iranian natural gas to India via Oman. But it has been very slow in materialising due to various obstacles such as lack of suitable technology, sanctions on Iran and objections from Pakistan.
Oman’s Duqm Port is situated in the middle of international shipping lanes connecting East with the West Asia. Chinese company Ningxia China-Arab Wanfang has signed a project to develop a $10.7 billion industrial city near the port of Duqm. India needs to engage with Oman and take initiatives to utilise opportunities arising out of the Duqm Port industrial city.6
Like other Gulf countries, the Omani economy is also struggling with low oil and gas prices. To come out of this situation, Oman intends to develop its other economic sectors, such as transport, shipping, agriculture, mining, tourism, and logistics. Oman's Supreme Council for Planning came out with its 9th development plan (2016-2020) on January 2, 2016 to reduce the Sultanate's economic reliance on oil by 50 percent. This is in line with Vision 2020, which was put forth in 1998 to deal with falling oil prices then.7
Current Indo-Omani ties are dominated by the defence relations. India needs to broaden areas of cooperation with this crucial Gulf state, which has enormous business opportunities in shipping, transport, infrastructure building, mining, logistics and tourism. Omani ruler Sultan Qaboos Bin Said al-Said last visited India in 1997. Sultan Qaboos is yet to receive the Jawaharlal Nehru Award for International Understanding which was conferred on him for the year 2004. In 2013, Sultan Qaboos was supposed to visit India as the chief guest for the Republic Day parade but the visit did not materialise for some reasons. From the Indian side as well, Prime Minister Narendra Modi has visited important countries in the region such as the UAE, Saudi Arabia, Iran and Qatar but has not yet visited Oman.
In this context, a high level political engagement between Oman and India will push the relations in the positive direction and also provide a fresh fillip to the economic relations. Such an engagement will also cement India’s interests in the Gulf region in general and with Oman in particular. However, issues regarding Sultan Qaboos’s health and uncertainties regarding succession may be factors that could be impeding such an engagement currently. India-Oman ties in the meanwhile will continue to be pushed forward by complementarities in the defence and economic sphere.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
Possible Outcomes after the US Exit from the Paris Climate Agreement
Rajeesh Kumar
June 06, 2017
China may emerge as the sole leader of global climate negotiations by supporting the Green Climate Fund, which faces a budget crisis with the US exit. This will also provide an opportunity for China to reshape its current global image.
Donald Trump’s decision to pull the United States out of the Paris Climate Agreement will be a real setback to the future of global climate negotiations. Even when Trump had tweeted a few days earlier that “I will make my decision on the Paris Accord next week!”, the world was still hopeful that he would not take such a drastic decision. However, his choice became clear at the G-7 Summit, where he refused to yield to pressure from his European allies to support the landmark deal on climate change. Trump's decision to pull out of the Agreement not only jeopardises the fate of the deal but the future of humanity as well. Experts note that the US exit will have devastating effects on our already ravaged climate.
The Paris Agreement, which endeavours to cap global warming at below 2C, was signed by 195 nations on December 12, 2015. On November 4, 2016, the agreement came into force, and 147 signatories, including the United States, have ratified it. The agreement intends to enhance the ability of countries to deal with the consequences of climate change and requests all Parties to do this through 'nationally determined contributions' (NDCs). As a result, Parties to the Agreement are obliged to report periodically on their emissions and implementation efforts.
Why did Trump Pull Out?
Many reasons have been given for Trump’s decision to pull out of the Paris Agreement. The first relates to the US economy, which is evident in Trump’s statement that “the agreement is less about the climate and more about other countries gaining a financial advantage over the United States and it had disadvantaged the US to the exclusive benefit of other countries leaving American businesses and taxpayers to absorb the cost.”1 Trump believes that “the concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive.”2 Announcing the decision to withdraw from the Agreement, Trump complained about the unequal treatment meted out to the US in the pact. He said: “China will be allowed to build hundreds of additional coal plants. So we can’t build the plants, but they can, according to this agreement. India will be allowed to double its coal production by 2020. We’re supposed to get rid of ours.”3
It is argued that if the US implements the regulations to comply with the Agreement, it will severely affect the carbon-based industries in America and, consequently, its economy and quality of life. According to the Heritage Foundation, implementing the Paris agreement would result in “increased U.S. electricity expenditures of 15-20 percent over the next decade, 400,000 fewer American jobs, a total income loss of over $30,000 for an American family of four, and a loss of over $2.5 trillion in U.S. gross domestic product.”4 Exiting the agreement will also help Trump withdraw from the multilateral financial commitments made by his predecessor. At Paris, the Obama government had not only promised a 28 percent cut in US greenhouse emissions by 2025 but also pledged USD three billion to the Green Climate Fund (GCF), which aims to help developing countries deal with global warming. In his ‘America first' budget blueprint in March 2017, Trump proposed a 20 percent cut in US funding to the UN climate body, the Framework Convention on Climate Change (UNFCCC).
The second factor in Trump’s decision is pressure from the coal lobby as well as from advisors. Like Trump, many in the White House believe that the Paris Agreement is “a bad deal for the US” and further that climate science itself is “a deliberate misinformation.” Environmental Protection Agency (EPA) Chief Scott Pruitt, White House Chief Strategist Steve Bannon, and Attorney General Jeff Sessions are some of the prominent climate change deniers in the Trump administration. They also believe that the Paris deal is one-sided and that “the U.S. is shouldering the burden of billions of dollars whereas countries like China, India, and Russia will contribute nothing.”5 In April 2017, when he visited Harvey Mine in Pennsylvania, a part of Bailey Mine Complex, the US’ largest underground mine, Scott Pruitt talked about the “Back to Basics” agenda of the Trump administration against Obama’s “Clean Power Plan.”Since taking office, Trump has signed several executive orders with the intention of revising the previous administration's environmental policies. Rolling back of regulations on carbon emissions from power plants, and amending the Office of Surface Mining’s Stream Protection Rule, which protects waterways from coal mining waste, are some of the environmentally destructive measures that the Trump Administration has taken in this regard. In addition, by pulling out from the Paris Agreement, Trump aims to unravel Obama’s signature multilateral policies. From the very beginning, Trump along with other Republican leaders had opposed and attempted to reverse Obama's multilateral pledges, terming them as impractical.
Exit Will Not Be Easy
However, exit from the Paris Agreement would not be easy for Trump. The first reason is technical. According to the provisions of the Paris Agreement, no country shall be allowed to exit the deal before three years after its entry into force. Moreover, the actual process of withdrawal, which begins after three years, would take one more year to complete. Hence, if Trump decides to pull out of the deal now, the process will continue until 2020. Here, an easy but costly option for Trump would be to withdraw from the UN Framework Convention on Climate Change (UNFCCC), which would take one year or less. However, this would take the US out of all climate-related negotiations and affect its soft power in such issue areas forever. Though the US cannot claim all the credit for producing the Paris agreement, the Obama administration was widely seen as a decisive force behind the pact. As a result, many countries accepted the US as the champion of climate change negotiations. With Trump's declaration, global goodwill for the US as an international negotiating partner was doused overnight.6
Furthermore, such a move would also intensify American public opinion against the current dispensation in the White House. In contrast to Trump, a majority of Americans think that climate change is a reality and they trust the prognostications made by climate scientists. According to the Yale Climate Opinion Maps, 70 percent of Americans believe global warming is occurring and that it will harm future generations and plants and animals as well.7 Around 75 percent of people support strict CO2 regulation policies and CO2 limits on existing coal power plants.8 Interestingly, more than six in ten Trump voters back taxing and regulating pollution that causes global warming.9
In addition to domestic opposition, the China factor also makes an exit from the Paris deal costlier for Trump. A prominent group of Trump advisors, including Secretary of State Rex Tillerson and Senior Advisor Jared Kushner, hold the view that if the US leaves the agreement, China will fill that vacuum. Chinese Premier Le Keqiang’s statements in Berlin that “fighting climate change is a global responsibility” and that “China will stand by its responsibilities on climate change” are an indication of how Beijing is going to step in and fill the void left by the US. Le’s visit to Germany also points to a looming China-EU axis of cooperation on this issue. To get a clearer picture, one needs to read Le’s comment alongside the statements of German Chancellor Angela Merkel and Miguel Arias Canete, the European Union Commissioner on Climate Change. In her meeting with the Chinese Premier, Merkel said: “the cooperation of the European Union with China in this area will play a crucial role, especially in regards to new technologies.”10 Similarly, Canete said that “No one should be left behind, but the EU and China have decided to move forward. Our successful cooperation on issues like emissions trading and clean technologies are bearing fruit. Now is the time to further strengthen these ties to keep the wheels turning for ambitious global climate action.”11 Moreover, China may take this as an opportunity to emerge as the sole leader of global climate negotiations by supporting the Green Climate Fund (GCF), which faces a budget crisis with the US exit. Stepping up as the leader of climate talks will also be an opportunity for China to reshape its current global image from “illiberal, authoritarian” to a “liberal, responsible global power.”12
How does it affect India?
Trump’s withdrawal may not have any direct impact on India; however, it will affect India’s future climate policies with some repercussions on its development projects. Though Prime Minister Narendra Modi reiterated India's pledges to the Paris accord, it will not be easy for the country to keep its promises intact. India's participation in the agreement was conditional upon receiving financial aid from developed countries to reduce its carbon footprints. India accounts for four percent of global emissions and, at Paris, it promised “to reduce its carbon footprint by 35 percent from its 2005 levels, by 2030.”13 In order to attain this ambitious target, India needs to reduce its dependence on fossil fuels and invest in renewable energy sources. With Trump’s decision to stop the financial assistance to the Green Climate Fund (GCF), the future of India’s renewable energy projects will be in trouble.14
Another possible effect is India's stake in the future climate negotiations. If China dominates future negotiations, the ongoing tensions between the two nations will have a significant impact on India’s place in such negotiations. However, there is some good news as well for India. First, like for China, for India also the US pull out is an opportunity to lead the future climate change negotiations. Prime Minister Modi’s statement at Elysee Palace in Paris on June 3 —the Paris Agreement reflects “our duty towards protecting the Earth and our natural resources. For us, this is an article of faith” – not only explains India's commitments towards the deal but also manifests India's move to position itself as a leader in sustainable development. Here, India should also expose the hypocrisy of China in investing trillions of dollars in projects such as OBOR and CPEC while at the same time asking for funds from developed countries to meet its emission targets. Second, India could make use of the uncertainty of US renewable energy projects and invest more in its own renewable energy market. To meet its solar targets, India needs around USD 100 billion, and this sector has enormous potential for foreign investments. It will not only boost Prime Minister Modi’s signature policy of ‘Make in India' but could also challenge the Chinese monopoly in solar energy technology.
Future Scenarios
A domino effect, prompting other signatories of the accord to leave or reconsider their efforts and expenses of cutting emissions, is the first scenario that emerges when we reflect upon the future of the Paris agreement after the US pull out. The second possibility is exactly opposite to the first. In the absence of the US, which almost always plays a significant role in building multilateral treaties and regimes, other countries may come forward to fill the leadership vacuum. One should also not discount the possibility of Trump pushing for a renegotiation of the Agreement. Chances are higher for such renegotiations since that would be the only win-win option for both the US and the rest of the world. However, such a development would mean global recognition of the fact that the future of climate negotiations will be dark without the US, the second largest greenhouse gas emitter and the major contributor to the Green Climate Fund. And for its part, the Trump administration needs to reconsider its position that climate change is a hoax and instead accept it as reality.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
14. The US has pledged USD three billion of a total global input from 43 countries of USD 10.13 billion for the Green Climate Fund of the United Nations.
United Nations, Climate Change, China, United States of America (USA)
What Can India Expect from the Shanghai Cooperation Organisation?
P. Stobdan
June 05, 2017
India should use SCO for building convergences with China and Russia as well as minimise the intensity of China-Pakistan alignment which undercuts India’s direct access to Eurasia.
India and Pakistan will join as full members of the Shanghai Cooperation Organisation (SCO) at the Astana summit on June 8-9, 2017. Last year, both countries signed the 30-odd obligatory papers necessary to join the pan-Eurasian grouping.
Chinese officials have already warned the two new entrants to "strictly follow" the spirit of “good-neighborliness” prescribed in Article 1 of SCO’s Charter. But the key agenda item in Astana is going to the twin admission of India and Pakistan and, for sure, this will be peddled as the SCO’s key achievement – something even Washington has been unable to accomplish. The addition of another 1.5 billion people would provide fresh excitement, for the SCO will now represent the voice of three billion people – half the world’s population.
The SCO’s charter prohibits the raising of bilateral issues. But behind the scenes, Moscow and Beijing seem to be craving to beget a closer India-Pakistan entente through the auspices of the SCO. Surely, they are also mindful of the negative impact a failure in this regard may have for the grouping.
No explicit signs are in the offing, but it was noticeable that when Vladimir Putin and Nawaz Sharif had an informal meeting in Beijing recently, Xi Jinping also joined at the end. Putin and Xi supposedly offered to play a mediatory role between Sharif and Modi at Astana. Sharif is said to have conveyed in advance that a meeting would be useful only “if India assures cessation of hostilities against the innocent people of Kashmir.”
In practical terms, the scenario looks hazy for India. Let us not forget that the SCO was the key motivator behind China’s BRI concept and Beijing has now pledged additional billions for the initiative in Eurasia. That is why, with the exception of Tajikistan, the heads of all SCO members participated in the Beijing Summit. With Pakistan also in the BRI, the SCO is fully aligned with China’s vision, which may be showcased at the upcoming summit.
So, how will India find itself in this flock of ‘wild swan geese’ flying in the Eurasian space? To be sure, multiple conflicting interests would intersect at the SCO forum, ranging from regional and global issues to combating terrorism. India’s positions may sometimes be at odds with those of other countries which have been going along with the Chinese viewpoints.
No change is expected in Beijing’s stance on preventing Masood Azhar’s listing in the UN sanctions list. In fact, the ‘Shanghai spirit’ or its consensus decision based-making approach could further complicate India’s NSG membership case.
Even Russia has deviated from its traditional understanding with India on Afghanistan – opting for a solution through closer alignment with Pakistan. Of course, Beijing has been hedging its own bets in Afghanistan by formulating a sub-regional security grouping consisting of Afghanistan, Pakistan, and Tajikistan.
India has chosen to stay out of BRI for sovereignty reasons. But China is not alone; Kyrgyzstan and Kazakhstan had long crossed India’s sovereignty red lines when they signed the Quadrilateral Traffic in Transit Agreement (QTTA) with Pakistan in 1995 to use the Karakoram Highway (KKH) passing through Gilgit-Baltistan as a transit corridor.
It is a different matter that QTTA has not been effective for facilitating traffic, but it did nullify India’s objection much before even BRI came into being. Tajikistan has recently joined the QTTA and Kazakhstan has shown interest in joining CPEC. Tapping the potentials of CPEC/QTTA will form an agenda as also a useful instrument for raising Islamabad’s standing in SCO.
But if the recent UN report is to be taken seriously, CPEC would become more a driver of instability than facilitating economic integration. And, if CPEC strains India’s ties with Pakistan, the QTTA too will potentially dent India’s ties with other SCO states.
As for the potential benefits, India could gain from SCO’s Regional Anti-Terrorist Structure (RATS) – manned by 30 professionals analysing key intelligence inputs on the movements of terror outfits, drug-trafficking, cyber security threats and public information in the region that we in India know little about. Likewise, participation in SCO’s counter-terror exercises and military drills could be beneficial to the Indian armed forces. Profiting in terms of energy security would be critical, but the idea of a SCO “Energy Club” will gain full meaning only if Iran joins the grouping eventually.
The practical implications of SCO are unlikely to be dramatic. Except for political rhetoric, member states will continue to function through bilateral as well as other multilateral engagements, though China could seek inclusion of bilateral contents in the SCO’s ambit.
Pakistan has been waiting in the wings to link up with Eurasia to seek multiple opportunities, and it could put a spanner in India’s goals. Knowing the quirky nature of Indo-Pak relations, many fear that the spotlight would get shifted away from Central Asia thus making it harder to advance regional cooperation.
But, more worrying for some, especially given its track record in SAARC and ECO, is that Pakistan’s involvement would prove detrimental for SCO’s growth if not a “time bomb” waiting to explode.
At the same time, SCO might provide a rare opportunity for the militaries of Pakistan and India to share several multilateral tables – antiterrorism structure, military exercises etc. – under the SCO framework, which in many ways might change the regional climate and have a positive impact on Indo-Pak relations.
For now, India would do well to enter into the Eurasia integration path by seeking an early conclusion of a Free Trade Agreement with the Eurasian Economic Union (EEU) in order to enable unhindered flow of goods, raw-materials, capital and technology.
The commissioning of the International North South Transport Corridor (INSTC) along with the proposed Chabahar project would enable Indian goods to gain better access to the untapped markets of the entire Eurasian region including Russia’s Far East.
To raise its standing in the SCO in a more meaningful way, India should rope in one or more SCO countries, preferably Uzbekistan and Kazakhstan, in its effort to project Chabahar as India’s gateway to Eurasia. In the meantime, it should seek to benefit from maintaining a regional presence, tracking regional trends in security, energy, trade, connectivity and cultural interests. India should use the SCO atmosphere for building better convergences with China and Russia as well as to minimise the intensity of China-Pakistan alignment which actually undercuts India’s direct access to Eurasia.
If nothing else, the limited immediate benefits of joining SCO will be more than compensated for by improved diplomatic access to Central Asia.
P. Stobdan served as Ambassador in Central Asia and is currently a Senior Fellow at IDSA, New Delhi.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
An Assessment of the Strategic Partnership Model in Defence Industry
Laxman Kumar Behera
June 02, 2017
The SP model, if implemented well, is likely to have a number of benefits for both the private sector and the larger Indian defence industry.
In a major policy reform intended to promote Make in India in defence manufacturing, the Ministry of Defence (MoD) announced on May 31, 2017 the much-anticipated Strategic Partnership model for the Indian private sector.1 The model, whose concept was first suggested by the Dhirendra Singh Committee in its July 2015 report, populates Chapter VII of the Defence Procurement Procedure 2016 (DPP 2016). It visualises designating a few private companies as Strategic Partners (SPs) that would not only assume the role of system integrators but also lay a strong defence industrial foundation by making long-term investment on production and R&D infrastructure, creating a wider vendor base, nurturing a pool of skilled workforce, and making a commitment to indigenisation and technology absorption. The ultimate aim of the model is to enhance India’s self-reliance index in defence procurement which continues to remain at an abysmally low level despite a huge defence industrial complex much of which is managed by state-owned Defence Public Sector Undertakings (DPSUs) and the Ordnance Factory Board (OFB).
Strategic Partnership: The Model
The strategic partnership model seeks to identify a few Indian private companies as Strategic Partners who would initially tie up with a few shortlisted foreign Original Equipment Manufacturers (OEMs) to manufacture big-ticket military platforms. In the initial phase, the selection of SPs would be confined to four segments: Fighter Aircraft, Helicopters, Submarines, and Armoured Fighting Vehicles (AFV)/Main Battle Tanks (MBT). In each segment, “only one SP would generally be selected”, says the new DPP chapter.
To allay fears that the MoD may favour one company over another, the selection of SPs and their foreign OEM partners would be based on a competitive process to be undertaken simultaneously. The main criteria for the selection of OEMs would be the compatibility of their products with the Services Staff Qualitative Requirements (SQRs), and their commitment to provide technology and other assistance to enable their Indian partners to produce in India with maximum indigenisation. Parallel to the shortlisting of OEMs, the MoD would also identify a list of Indian companies in each segment based on certain technical, financial and infrastructure-related parameters. These shortlisted Indian companies would then be issued Requests for Proposal (RFP) along with the list of segment-wise OEMs in order to enable them to engage foreign partners and submit bid responses. Post submission of bid responses, field trials of the equipment would be conducted to shortlist the Indian companies whose products meet the technical and performance requirements of the armed forces. After field trials, the financial bids of the companies that qualify in each segment would be opened to identify vendors who have quoted the lowest price. In each segment, the contract would be awarded to the company that has quoted the lowest price, and it would be designated as a Strategic Partner. It is to be noted, however, that existing Strategic Partners would not be the automatic choice for future contracts, although they would be given some weightage in the tendering process for the core expertise developed during the execution of the initial contract under the Strategic Partnership model.
According to the guidelines stipulated in the new Chapter VII of DPP 2016, any applicant company interested in participating in the selection process for strategic partners must be owned and controlled by resident Indians. This means that the majority in a company’s board of directors, including the Chief Executive Officer (CEO), must be resident Indians, and that a minimum 51 per cent of its equity must be owned by resident Indians. The cap of a maximum of 49 per cent Foreign Direct Investment (FDI) in SPs, which is also the condition in the newly revised ‘Make’ procedure, is intended to keep the crucial decision-making and intellectual property rights (IPR) in the hands of resident Indians.
In a major departure from the recommendation of the Dhirendra Singh Committee, which had strongly recommended against any cross-holding in two or more SPs by one parent company, the MoD’s notified model has left this issue open. This would allow a number of subsidiary companies of a particular conglomerate to be eligible to be designated as SPs, provided they satisfy the other stipulated condition.
Potential Benefits
The SP model, if implemented well, is likely to have a number of benefits for both the private sector and the larger Indian defence industry. From the private sector’s point of view, the biggest benefit would be the opportunity to participate in some big ticket contracts – estimated to be worth over two lakh crore rupees in the initial phase of execution ¬– which were hitherto reserved for the DPSUs and OFs. At the same time, the model would also go a long way in bridging the long-standing trust gap between the Indian private sector and MoD, with the latter perceived to be friendlier toward public sector entities.
Further, Strategic Partners, being private sector companies, are expected to exploit their dynamism, competiveness, profit orientation, and exposure to the civilian sector for efficient utilisation of the technology, manpower and infrastructure developed in the process. Moreover, given that future orders would not be awarded automatically after the initial contract, it is in the interest of SPs to constantly improve upon their competitiveness and core expertise. The development of competitiveness and expertise to compete to win future contracts, which was lacking in the case of DPSUs/OFs because of a constant flow of orders handed over on a platter by the MoD, is something that would contribute to laying a strong and credible foundation for India’s military industrial complex.
Some Concerns
Despite potential benefits, there are two concerns which need to be addressed to make SPs contribute in a meaningful and time-bound manner. The first and foremost concern is the lack of institutional capacity and ability to guide the new process to its logical conclusion. In the past, several promising measures, especially those connected with the ‘Make’ and ‘Buy and Make (Indian)’ procedures, have failed to yield the desired results because of these shortcomings. Although the new Chapter VII of DPP talks of “an appropriate institutional and administrative mechanism” besides “adequate expertise in relevant fields like procurement, contract law and ToT [Transfer of Technology] arrangements”, much would depend on how they unfold. Needless to say, it is the lack of reforms in the structures and decision-making processes surrounding procurement and production that have inhibited the development of a strong defence industry.
There is also a concern regarding the long-term viability of SPs largely due to the privileged position enjoyed by public sector entities. Time and again, the MoD has deviated from its own promise of fair play in award of contracts and handed over large orders to DPSUs and OFs on nomination. It would be futile to expect SPs to make major investments if the government does not provide a level-playing filed to the private sector.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
Fog clears over industrial licensing for defence industry but questions remain
Amit Cowshish
May 29, 2017
There seems to be no clear advantage of giving an overarching role to the Ministry of Home Affairs as regards formulation of policy or grant of industrial licence for manufacture or export of defence items.
The notification issued by the Ministry of Home Affairs (MHA) on May 19, 20171 delegating the power to issue licences for the manufacture and sale etc. of arms and ammunition to the Secretary, Department of Industrial Policy and Promotion (DIPP) raises more questions than it provides answers.
The powers and functions delegated through this notification are the ones that are exercisable by the MHA under the following provisions of the MHA-administered Arms Act, 1959: sub-section (1) of section 5 (dealing with licences for manufacture, sale, etc. of arms and ammunition), clauses (b) and (c); section 7 (dealing with prohibition of acquisition or possession, or of manufacture or sale, of prohibited arms or prohibited ammunition); and, Chapter III (containing provisions relating to licenses).
The notification also says that the delegated powers are to be exercised in respect of the category of arms and ammunition and defence items specified in the schedule that forms a part of the notification. This would have been alright but for the fact that the items mentioned in this schedule are actually defence items that were notified by the DIPP vide Press Note 3 of 2014 series 2 with a view to bringing about absolute clarity about the defence items that require industrial licence under the provisions of the DIPP-administered Industrial (Development and Regulation) Act, 1951.
Between January 2001 (when the defence sector was opened to private sector participation) and June 2016, as many as 342 licenses were issued by DIPP for manufacture of items by the defence industry.3 There has never been any doubt about the DIPP’s authority to issue these licences. But the notification of the Arms Rules, 2016 on July 15, 20164 seems to have created a logjam. Unbeknown to many, an important note on the official G2B ebiz portal took away the licensing powers from DIPP.5 The note, which is yet to be modified after the May 19, 2017 notification, reads as follows:
[Important Note – “Subsequent to the notification of Arms Rule 2016, items configured for Military use have come under purview of Arms Rules 2016. Hence, No further processing of Industrial License application pertaining to Defence Sector will be considered in Department of Industrial Policy & Promotion. The applicants may apply directly to Ministry of Home Affairs (Arms Section), IS-II Division, NDCC Building, Jai Singh Road, Connaught Place, New Delhi under Arms Rules 2016 for obtaining manufacturing licenses for Defence Items.”]
This note made it unambiguously clear that industrial licence would be required for manufacturing “items configured for military use”, which is not the same as saying that licence would be required for the specific items notified just two years earlier vide DIPP’s Press Note 3 of 2014 series. It also gave the impression that licence was required under the provisions of the Arms Act, 1959/Arms Rules 2016 without making it clear whether this requirement was in lieu of, or in addition to, the requirement of obtaining an industrial licence under Industrial (Development and Regulation) Act, 1951. There was no proper explanation as to why DIPP had been divested of the function it had been discharging all along.
It was a strange decision for it passed on control over the defence industry to the MHA, which is neither concerned with external defence nor with industrial development. The objective of the MHA-administered Arms Act, 1959 and DIPP-administered Industrial (Development and Regulation) Act, 1951 are different. While the former seeks to strike a balance between the right of the citizens to possess arms and ammunition for self-defence and the need for maintaining law and order as also to prevent such arms and ammunition from falling into the hands of undesirable elements, the latter’s objective is to develop and regulate important industries, including the defence industry, that affect the country as a whole.
Just because ‘arms and ammunition’ happen to be common to both these Acts was no reason to disturb the status quo. Instead of restoring the status quo, the May 19, 2017 notification has raised new issues.
First, is industrial licence required to be obtained for the manufacture of defence items notified vide Press Note 3 of 2014, and now also incorporated in the May 19 notification, under the Arms Act, 1959 or the Industrial (Development and Regulation) Act, 1951, or both? Since the Industrial (Development and Regulation) Act, 1951 continues to be in operation and has not been repealed, it appears that DIPP will need to issue separate licences under both these Acts. It is difficult to visualise what purpose will be served by this.
Second, the list of defence items notified vide Press Note 3 of 2014 series and the items mentioned in the schedule of the May 19, 2017 notification overlap to a large extent, although these are not exactly the same. There are at least three points of difference:
The Press Note 3 of 2014 series talks about aircraft including ‘but not limited to’ helicopters, whereas the words ‘not limited to’ do not appear in the May 19 notification. Does this have any special implication?
A very large number of items listed at bullet points 7 to 11 against the category of “arms and ammunition and allied items thereof; parts and accessories thereof” in Press Note 3 of 2014 series do not figure in the May 19 notification. It surely cannot mean that no industrial licence is required for these excluded items since Press Note 3 has not been repealed. Does it then imply that for the items that do not figure in the May 19 notification, DIPP will not be competent to issue industrial licence and MHA will continue to be the licensing authority for these excluded items?
The powers delegated to DIPP in respect of the category mentioned at (b) above also excludes “small arm of calibre up to 12.7 mm as defined under clause (51) of sub-rule (I) of rule 2 of the Arms Rules, 2016 and parts and components and ammunition for such small arm”. Does it mean that industrial licence for manufacture, sale, etc. of these small arms will continue to be granted by MHA?
Third, the power delegated by the May 19 notification to the Secretary, DIPP is subject to the conditions that s/he will be subject to the supervision and control of the MHA in regard to exercise of the delegated power and that s/he will observe the policies and instructions laid down by MHA and “not enunciate any new policy or issue instructions in relation thereto without” its prior consent. The notification also says that the central government may revoke the delegation of power if such a course of action becomes necessary in the public interest.
This adds another angle to decision-making in regard to grant of licence for the defence industry, which presently has to contend with the Department of Defence Production and DIPP. There seems to be no clear advantage of giving an overarching role to the MHA as regards formulation of policy or grant of industrial licence for manufacture of defence items for the armed and paramilitary forces as well as for export.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
President Trump’s victory and his subsequent actions after assuming the presidency seem to indicate the US withdrawal from a leadership role towards a degree of insulation from world affairs.
A large number of us in India had the perception that the US democratic system, having evolved over almost two centuries, was a better organised and almost corruption free system providing for better governance and rule of law. That perception had been laid to rest by the time Donald Trump got elected as President after a campaign involving a lot of mudslinging. However, a rapid succession of hiring and firing of top executives as well as a barrage of happenings within the administration emerging on a daily basis since the commencement of the Trump presidency is indeed alarming.
Of course, none of this would have mattered to the rest of the world if the consequences of these events were limited to the US alone. But the fact that the USA has been the undisputed leader of the world since the end of the Second World War and has been instrumental in shaping global economic and strategic policies for the past 70 years means that there are global consequences of domestic events in that country. While the Cold War may have ended, the European Union may have become broader and deeper, and China may have been rising for the last three decades, the pre-eminence of the US as the leading power in shaping global policies was never in doubt.
Trump has risen to the presidency on the premise of ‘America for Americans’. The reality of present day Americans being the immigrants of yesteryears has been conveniently cast aside because Americans today feel threatened by the influx of new immigrants. They feel that their job security and financial survival is at stake unless the outsourcing of jobs, import of cheaper labour and threat of terrorism are minimised by limiting immigration. However, migrations from overpopulated backward regions to less populated advanced countries where opportunities abound are a fact of history that would keep repeating itself at periodic intervals.
President Trump’s victory and his subsequent actions after assuming the presidency seem to indicate the US withdrawal from a leadership role towards a degree of insulation from world affairs, somewhat akin to the policy of ‘splendid isolation’ followed by it prior to World War I. Giving up membership of the Trans Pacific Partnership (TPP), revisiting the Paris climate deal, and insistence on NATO partners spending at least two per cent of their GDP on defence are initial indicators of the Trump administration’s approach to global affairs that project a sense of withdrawal. Of course, it may be early days to form a definitive opinion but the trends do suggest it.
The institutional and bureaucratic set up in the USA, having matured over a long period, is indeed very strong. It has survived the idiosyncrasies and nuances of a series of past presidents with forceful personalities and minds of their own. Whether Trump’s actions bring an early end to his presidency or the institutional mechanisms reassert their supremacy is still in the realm of conjecture. Notwithstanding this, the possibility that the Trump presidency may veer too much towards abdication of the traditional US leadership role in global affairs exists. Therefore, it is important to look at its implications in the long run, both for the US and the world at large.
China has gradually been rising over the past few decades. While continuing to respect the established international order, it is attempting to break free of the constraints that come in the way of its expansionism. In doing so, it has shifted from a policy of greater assertiveness to aggressiveness in bolstering its claims. Its stances in the South China Sea (SCS), East China Sea (ECS), towards Taiwan, and on the boundary issue with India are all clearly indicative of this approach. Any withdrawal of the US from the Asian arena would give China a free hand in going ahead with enhancing its claims and influence worldwide. The recently concluded Belt and Road Initiative (BRI) summit on May 14-15 is a clear indicator of the Chinese designs. Xi Jinping’s pronouncement that China is prepared to step in and assume a leadership role wherever required further confirms it. This has major implications for the smaller nations of the Asia Pacific region which cannot match China’s aggressive designs with force.
Secondly, the currently international order is based on the policies shaped by the US and the West for the past 70 years. Both the security and economic architectures are creations of a dominant US in the period after the Second World War. Thus NATO, the Bretton Woods twins, Nuclear Non-Proliferation Treaty (NPT), Missile Technology Control Regime (MTCR), etc. all reflect it. A withdrawal by the US and stepping in of China and Russia to fill that void is likely to bring in its wake massive turbulence and upheaval. How well a world in which a majority of the countries are still developing will be able to absorb such changes is a question mark. India stands to lose more than most.
Thirdly, there is a need to look at how the US itself will be impacted by its withdrawal from a global role. It is an indisputable fact that technologically the US is way ahead of the rest of the world including China. However, in order to leverage the advantages of such an edge, it needs to export the products of its superior technology worldwide. To be able to gain access to and exploit global markets, the US therefore needs to continue to be a part of global economic architecture rather than insulate itself from it. China’s thrust in the form of the BRI aims specifically to address the issue of capturing world markets for Chinese goods.
There is an important link between economic prosperity and hard military power. Economic growth is possible only if it is backed by a strong military, thus ensuring stability for further growth. A strong economic power is likely to be pushed aside if it does not possess matching military clout. A rethink in Japan over developing military capabilities in view of the growing Chinese threat to the Senkaku islands is a clear example. Thus, in the final analysis, the economic and security architectures do get inextricably linked. Any attempt to insulate itself from global security issues would hurt US economic interests in the long run.
Finally, the process of globalisation and interdependence has gone too far ahead by now. In fact, it is virtually irreversible since the benefits of globalisation far outweigh any of its perceived adverse effects. The shrewd businessman that Mr. Trump is, it appears he is gradually realising how detrimental it would be for US interests if he decides to minimise its global role.
There are many in Britain today who feel that Brexit was not perhaps the right decision. Even if Brexit finally does come about, Britain would have to pay a very heavy price for it, including possibly the breakaway of Scotland and Northern Ireland from the United Kingdom. The isolationist and ‘going it alone’ winds sweeping across Europe post the Trump victory and Brexit referendum also appear to be ebbing. Geert Wilders in The Netherlands and Marine Le Pen in France have suffered major electoral defeats, and support for the continuation of the European Union is growing by the day. In Germany, there has been a stop to the waning popularity of Angela Merkel, a strong proponent of the EU, and a relative decline in support for parties like the AfD. All in all, the sentiment seems to be predominantly in favour of globalisation.
The Trump presidency has been mired in too many controversies in the short period since assuming office. Senior appointments have had to be replaced even before they had a chance to perform, either because of questionable conduct or because they had ‘lost Mr. Trump’s confidence’, a euphemism for not doing his bidding. There is an unprecedented inconsistency in the actions and words of the president of the most powerful nation on earth, leading to a degree of confusion and uncertainty across the globe. Tweets seem to be conveying much more than the more formal official channels of communication, even though the former is used to put across purely personal sentiments. In any case, Twitter is not the appropriate forum for a discussion on the dismissal of a senior official. The talk of impeachment of the president on various counts doing the rounds in the corridors of power in Washington may at times seem premature, but the fact that it is being discussed is disturbing.
The reverberations of President Trump’s actions are not only going to be felt within the US but would have effects worldwide. The realignment of the global economic and security architecture as a result would be inevitable. That, in turn, would cause destabilisation across the globe, especially to less developed and developing nations like India. How well these nations can insulate themselves from the effects of such upheavals would indicate the strength of their domestic systems.
General Deepak Kapoor is a former Chief of the Army Staff.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
Portents of France’s International Posture under Emanuel Macron
Gautam Sen
May 24, 2017
Emanuel Macron is likely to set different trends with regard to policy towards the EU, the Francophone region of Africa, the UN, major powers as well as medium and pivotal countries like India and Japan.
France’s 35th president Emanuel Macron is likely to set different trends with regard to the country’s policy towards the European Union (EU), former colonies or the Francophone region of Africa, the United Nations (UN), major powers as well as medium and pivotal countries like India and Japan. The change, rather re-orientation, is expected to unfold fast, albeit in a flexible manner. And Macron’s approach is also likely to be marked by both continuity and change. The imperatives for the new president are economic stability and growth. The French economy has achieved the second largest gross domestic product of more than USD 2.6 trillion after Germany (excluding Britain) within the EU. And that is likely to help fulfil the strategic needs of the country and ensure the prevalence of a spirit of universalism and openness in the socio-political milieu – a theme of Macron’s presidential campaign. It is anticipated that Europe and EU as well as France`s strategic presence in Africa will continue to have primacy in the new French president’s foreign policy.
With respect to the EU, Macron’s approach may be more nuanced and likely to be complementary to that of German Chancellor Angela Merkel. While Macron has evinced interest in substantive reform of the EU and strengthening the Eurozone, even suggesting the need for changes in the treaties underpinning the bloc, it is likely that he will not rush towards making changes but instead adopt an accommodative stance towards reforming them. There are shades of difference in the approaches of Macron and Merkel on what should be the desirable changes in this regard. However, both seem to agree in principle that changes are unavoidable – as discernible from the outcome of their recent summit in Berlin. While Macron has been eloquent on “a more efficient Europe, a more democratic Europe and a more political Europe”, thereby implying a more economically productive, democratically vibrant and politically integrated and institutionalized Europe, he will endeavour to take Merkel along while attempting to give content to his ideas.
Macron had earlier mentioned the need to transfer the budget surpluses of EU members to southern EU countries, keeping in view fiscal imbalances and requirements of countries in the Balkans in particular. France, under President Hollande, was not on the same page as Germany’s Merkel, on such issues. Macron and Merkel will now have to resolve these issues, and the former may be in a position to better influence the latter in the present political circumstances. As Deputy Secretary General in the office of President Hollande between 2012 and 2014, Macron was earlier involved in Franco-German discussions on deeper economic institutional changes in the core of the Eurozone to foster currency stability and need-based intervention in that domain. Action towards this end may get accelerated with a more proactive involvement from Macron in his current capacity as the French president. The deep friendship between France and Germany and their present leaders will facilitate the deepening of bilateral relations and, in turn, strengthen the core of the EU and the Eurozone. Nevertheless, the relatively high rate of unemployment (nearly 10 per cent of the employable French workforce) and the consequential subsidies and social security measures, the economy’s over- dependence on the services sector, and adverse Franco-German trade balance, will all have to be resolved in their overall interest. In all probability, these issues would have been briefly contended with during the short but crucial first state visit of Macron to Germany last week.
Furthermore, an appraisal on the basics of the Franco-German relationship and the possibility of adopting a mutually reinforcing future course of action on fundamental issues of concern to both countries and to Europe in general would have been undertaken during Macron’s Berlin visit. Macron, in the course of his presidential campaign, had advocated open borders within the EU, inter-alia stating that, there is no reason to stop Africans from coming to France if they bring useful skills. This approach is to an extent similar to that of Merkel, though the latter had gone to the extent of also advocating refuge and succour to refugees from West Asia and North Africa during the height of the refugee exodus in 2016. Macron had then applauded Merkel’s border and refugee policy by declaring that they have “saved our collective dignity”. The French president and the German chancellor may now try to work out some norms in this respect, keeping in view the present political context in Europe in the backdrop of Macron and his En Marche`s substantive electoral victory against conservative forces resistant to such phenomenon.
As regards relations with Russia, notwithstanding President Putin’s congratulatory message to Macron on the latter’s assumption of office, an overhang of mistrust is likely to persist. This is especially so given the hacking of Macron`s presidential campaign establishment by alleged Russian elements as well as observations on Russian TV maligning Macron as “addicted to cocaine and involvement in money-laundering through offshore companies”. It is anticipated that both geopolitical interest and the imperative of the integrity of the EU and North Atlantic Treaty Organisation (NATO), Macron will try to more intimately align France’s policies with those of Germany on Ukraine (a NATO member) to control the Russia-aided Crimean separatists and evolve a congruent approach towards Moscow.
On NATO, President Macron and Chancellor Merkel are expected to present a joint approach to both the USA and Russia, though on different premises. Because of Franco-German convergence for the reason pertinent to Ukraine mentioned above, Putin may find Macron and Merkel more unyielding in the present scenario on Russian postures towards NATO member states in the Balkans and central Europe. As regards NATO, Macron may see no reason to accede to President Trump’s demand for re-working of the financial burden and military expenditure. France’s contribution, at 11 per cent of the NATO budget according to NATO Secretary General’s Report of 2017, and a troop contribution of more than 200,000 personnel are not inconsiderable. In any event, given renewed tensions in US-Russia relations induced by the compulsions of their respective commitments to combatants involved in the Syrian civil war, Trump may not have much scope to extract financial concessions from either Macron or Merkel in the NATO forum.
Macron has already signalled his government’s commitment to Africa during his second state visit last week to Mali, a former French colony where nearly 4000 French troops are deployed in support of President Ibrahim Boubacar Keita`s government in counterinsurgency operations against Al-Qaeda affiliated rebels (initially a home-grown rebellion by Tuaregs in northern Mali). Macron’s approach towards the African community in France has been quite distinctive and more pronounced than that of his Socialist predecessor, Francois Hollande. Macron’s presidential campaign platform `En Marche` had acknowledged African Frenchmen’s contribution to France’s polity and prosperity. Macron had struck a chord in the hearts of the people of African origin including non-radical Muslims when he described the Algerian War that France waged in the late 1950s and early `60s as a “crime against humanity”. Macron’s visit to Mali was intended to reiterate a long-standing French commitment towards that country`s stability, and signal resoluteness towards defending regimes in Africa facing subversion and armed intervention by externally-supported radical Islamic elements. The French president seemed to affirm that his government will use military power to protect or support an international political architecture free from radicalism in areas of France’s strategic interest.
Macron has explicitly indicated his government`s intention to maintain France`s military commitment to Mali. He will not only endeavour to strengthen the Multidimensional Integrated Stabilisation Mission in Mali (MINUSMA) set up under UN Security Council Resolution 2295, but is also expected to work towards augmenting the mission’s mandate which is expiring on June 30, 2017. Macron has already indicated that the French expeditionary force will remain as a back-up, while capacity building of the Malian Army will be undertaken by MINUSMA in concert with the French force. At present, the situation in Mali is far from stable, even with the presence of MINUSMA and French forces. 300 Malians and two French journalists were killed by Islamic extremists in 2016.
So far as investment and financial aid are concerned, Macron has emphasized that there will be an up-scaling of aid to African countries to at least 0.71 per cent of France’s gross national product. France, with its strength in automotive and aerospace industries, rail development and infrastructural matters, is expected to leverage these attributes for investment in the west, south and north African regions, which are areas of its historical interest. It is possible that France and China could find common ground in Africa. Over 200 Chinese companies are already operating in Africa in the infrastructure sector and ancillary industrial activities. It is to be seen how Macron manages to dovetail Chinese involvement in Africa with France`s strategic interests, particularly in the Francophone countries.
India may be at a disadvantage vis-à-vis China in such countries because its strength lies in the services sector where France already has a surfeit of expertise. Nevertheless, France under Macron and India should be able to build upon the already existing defence-based system production and technology transfer mechanism in place. Moreover, Paris and New Delhi would have enough scope to go in for co-production of telecommunication and military systems as well as engage in non-conventional energy initiatives in African countries. Reckoning the democratic ethos of both countries, the personal rapport that has existed between a succession of French and Indian leaders, the past track record of high level of cooperation and understanding on issues like UN reform, peacekeeping under UN aegis and cooperation on nuclear technology, there should be adequate opportunity to expand the Franco-Indian bilateral relationship under President Macron as well.
The author is a retired IDAS officer who has served in senior appointments with the Government of India and a State Government.
Strategic Partnership Model – formulation of the scheme a big challenge
Amit Cowshish
May 22, 2017
The objective of promoting Indian industry can be achieved in a simpler manner if after selecting the platform to be inducted MoD leaves it to the foreign OEM to tie up with the Indian company of its choice.
The Defence Acquisition Council (DAC) approved the broad contours of the Strategic Partnership Model (SPM) in its meeting held on May 20, 2017 under the chairmanship of the Defence Minister. It may be recalled that this model was recommended by the MoD-appointed Committee of Experts in July 2015. It has been under consideration since then.
The press release issued by the Press Information Bureau (PIB)1 states that the policy is intended to engage the Indian private sector in the manufacture of hi-tech defence equipment in India. It also notes that the SPM envisages the ‘‘establishment of long-term strategic partnerships with qualified Indian industry majors through a transparent and competitive process wherein the Indian industry partners would tie up with global OEMs to seek technology transfers and manufacturing know-how to set up domestic manufacturing infrastructure and supply chain.”
These contours are indeed too broad to form an opinion on the workability of the SPM. One cannot help but go back in time to the year 2006 when the ‘Make’ procedure was adopted by MoD with much fanfare to promote “development of systems based on indigenous research and design” with a view to providing “the requisite framework for increased participation of Indian industry in the defence sector.”2 More than a decade later, the first design and development contract is yet to be signed. Every time an effort is made by MoD to finalise a Make contract it runs into procedural difficulties.
Attention to detail is crucial in translating good intent into a blueprint for action. Unlike the Make procedure which was probably adopted by MoD on its own, the SPM is likely to be taken to the Cabinet Committee on Security (CCS). And that means that it will first be examined by the Ministry of Finance (MoF). Given the nature of the scheme, it will not be surprising if it is also examined by the Ministry of Law (MoL) to make sure that it does not fall foul of the competition law. Such pervasive scrutiny should ensure that no loose ends are left untied but it would do no harm if MoD pay attention to the contrarian views on various aspects of the proposed scheme before forwarding the proposal for CCS approval.
Going by the press release and other stories appearing in the media, MoD will kick start the process by selecting strategic partners for four segments, namely, fighter aircraft, submarines, armoured vehicles, and helicopters (but this does not find mention in the press release). In a separate process, MoD will also select the foreign Original Equipment Manufacturers (OEM) who could supply a particular platform required by MoD with transfer of the requisite scope, range and depth of technology for its manufacture in India.
It is not clear whether it is these strategic partners who will tie up with the chosen OEMs and participate as prime vendors in the MoD tender or whether MoD would enter into a contract with the foreign OEM and nominate a pre-chosen strategic partner as the Indian Production Partner (IPP). In either case, much would depend on the process of selection. The process of selecting the platform would have to follow the same procedure as laid down in the Defence Procurement Procedure, which, among other things, entails lengthy field trials. It is doubtful if the adoption of SPM per se will lead to a hastening of this process.
What may turn out to be more problematic is the process of selection of strategic partners. It is virtually impossible to adopt unchallengeable objective criteria for selection. These problems have been faced even in the context of a few ‘Make’, which, incidentally, continue to be a work-in-progress.
At the present juncture, the SPM looks like a closed door club. Unless the scheme provides an entry route for new companies and Micro, Small and Medium Enterprises (MSME), the scheme may not be in tune with the competition law that aims to prevent practices that have an adverse effect on competition.
The issue of whether one strategic partner (including its group companies) will be eligible for only one project poses a challenge. Such a provision may not be acceptable to the private industry. Logically, a one-partner-one-project policy should also apply to the Defence Public Sector Undertakings (DPSUs) and Ordnance Factories. But such a provision may have a large impact on DPSUs, especially defence shipyards, which, having been awarded one project in a particular segment, will be ineligible for any other project in the same segment.
Price discovery is an important component of the scheme. While there may be a reasonable assurance of price discovery in the initial contract because of the competition among strategic partners or OEMs, as the case may be, the mechanism for price discovery for maintenance contracts over the life time of the platform and for upgrade projects will need to be evolved as these contracts will be negotiated with the sole strategic partner who had undertaken the initial project in an environment of a virtual monopoly. Unless MoD builds up capability in costing and audit of development projects, management of cost-plus contracts with strategic partners at a later stage for upgrades or manufacture of newer versions of the same platform could throw up an insurmountable challenge.
The presumption underlying the SPM is that the OEMs will be happy to transfer technology to Indian companies or Joint Ventures (JVs) with Foreign Direct Investment (FDI) up to 49 per cent and that they will have no problem even if they are given no choice in selecting the Indian partner with which they could tie up. These are questionable assumptions. To top it all, there is the sensitive issue of Intellectual Property Rights (IPR), which is one of the reasons why foreign OEMs are generally reluctant to transfer technologies.
There are several other issues which must be addressed before unveiling the scheme in its entirety. Some of these issues seem intractable from a distance. For example, binding a strategic partner through a long-term legal covenant lasting the entire life of a platform and its subsequent upgrade, which may spread over several decades, would be quite a challenge.
Quite frankly, the entire rigmarole seems unnecessary. The same objective of promoting the Indian industry can be achieved in a simpler manner if after selecting the platform to be inducted – a process that will have to be gone through even under the SPM – MoD leaves it to the selected foreign OEM to tie up with the Indian company of its choice. This does not require formulation of a new scheme as the enabling provision for letting OEMs decide the IPA already exists in DPP 2016.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
1. See PIB Press Release of May 20, 2017 “Defence Acquisition Council Finalises Broad Contours of Policy to Engage Indian Private Sector in Manufacture of High-Tech Defence Equipment in India,” accessible at http://pib.nic.in/newsite/PrintRelease.aspx?relid=161984
Preference for Local Industry in Defence Contracts: What India Can Do
Laxman Kumar Behera
May 22, 2017
The new enabling provision in GFR-2017 provides the MoD a chance to amend its own procurement document and include a provision of production reservation and price preference for domestic industry.
In a significant development, the Ministry of Finance (MoF) has included a new enabling provision in the revised General Financial Rules (GFR) with the intention of favouring domestic industry over foreign companies in government procurement contracts. The new provision, under Rule 153 (Reserved Items and other Purchase/Price Preference Policy) of GFR-2017, arms the central government with the power to “provide for mandatory procurement of any goods and services from any category of bidders, or provide for preference to bidders on the grounds of promotion of locally manufactured goods or locally provided services.”1 The broad policy framework is part of the government’s ambitious Make in India initiative to accelerate the share of manufacturing in the country’s gross domestic product. While the new provision is applicable to all government procurements, one area where its implementation is likely to have a far reaching impact is defence procurement. Unlike procurement by other ministries/departments, that of the Ministry of Defence (MoD) is immune from international trade restrictions. The operationalisation of the new provision by the MoD, however, requires, a suitable tweaking of the existing procurement procedures to bridge a vital gap that exists in India’s attempt to push forward the Make in India initiative in defence manufacturing.
International Trade Norms and Protectionism
The World Trade Organisation (WTO), to which India has been a party since 1995, generally prohibits protectionism in international trade. However, it does provide several exemptions for member states with regard to various restrictive trade practices such as offsets and other forms of counter trade, preferential treatment to local industry and domestic content requirement. Two areas where the WTO is silent on restrictive practices are: arms trade, and government procurement outside the framework of the Agreement on Government Procurement (GPA) – a plurilateral agreement to which 19 out of 162 WTO members are presently party. GPA promotes free trade among member states in so far as government procurement contract is concerned. India is not yet a member of the GPA, but has had observer status since February 2010. Even within the framework of the GPA, there is a clear provision that allows member states to take measures to prohibit foreign participation in public procurement on national security grounds.
Many countries, including those party to the GPA, have exploited the above mentioned exemptions provided in the WTO, and devised suitable laws and provisions to promote their domestic industrial interests. Israel, for instance, has a law that allows a price preference of up to 15 per cent for the local industry in a government procurement tender open to non-GPA members. The price preference, in essence, artificially inflates the price bid of a foreign supplier when its bid price is found to be the lowest among all the bidders. The artificially increased price is then compared with the lowest offered price of a domestic supplier so as to find whether the said domestic supplier can match the price of the foreign supplier. In case the domestic bid price is found to be lower than or equal to the artificially increased price, then the contract is awarded to the domestic bidder. This allows the government to keep the tax payers’ money confined to the furtherance of local business and employment.
The country with the longest history of protectionism in government procurement is, however, the United States, which has a number of laws to favour American business and labour. Three specific laws that are widely used to the advantage of local industry are the Buy American Act, the Berry Amendment and the Speciality Metal Restriction. The Buy American Act is by far the oldest and best known statute that discourages procurement of foreign products in federal procurement contracts. Enacted first in 1933, the Act requires federal agencies to procure domestic end products and construction materials in contracts exceeding a certain value (usually USD 3,500). As implemented, the 84-year old Act establishes a price preference for domestic bidders. The price preference usually varies from six per cent (in case the lowest domestic bid comes from a large US company) to 12 per cent (when the US bid is from a small company) and 50 per cent (for defence procurement). The highest price preference for defence procurement is a clear indication of the importance attached to preserving the domestic defence R&D and manufacturing base.
The Berry Amendment and the Speciality Metals Restriction, whose origins also date back to the first half of the 20th century, are, on the other hand, specific to defence procurement and intended to insulate the US defence industrial base by prohibiting the procurement of certain items from foreign sources. These two laws are also intended to bridge a crucial gap in the Buy American Act, which treats a product as domestic so long as it is a commercial-off-the-shelf (COTS) item or if the cost of a product’s parts and components mined, produced or manufactured in the US is more than 50 per cent. Both also do away with any concession and require items to be fully indigenous in origin. As implemented in the public law, the Berry Amendment mandates the Department of Defence (DOD) to purchase such items as food, clothing, tents, certain fabrics and hand and measuring tools to be entirely “grown, reprocessed, reused, or produced in the United States.”2 The Speciality Materials Restriction prohibits the DOD from purchasing aircraft, missile and space systems, ships, tank and automotive items, weapon systems, ammunition or any components thereof if they contain any speciality metal that is not melted or produced in the US. It defines a metal as speciality metal if it includes “certain types of steel; certain metal alloys made of nickel, iron-nickel and cobalt; titanium and titanium alloys; and zirconium and zirconium alloys.”3
It is to be noted, however, that all the three above mentioned US laws regulating domestic content requirements have certain exemptions under which federal agencies (including the DOD) can purchase foreign products. These waivers are provided under certain conditions that include unavailability and obligation under international treaties, among others. However, obtaining an exemption is easier said than done and when it comes to defence procurement waivers are few and far between. Consequently, almost all the defence contracts issued by the DOD are bagged by US defence companies. In 2015, only a mere four per cent of all DOD procurement contracts was placed on foreign entities, with the rest being monopolised by US defence companies. It has been argued by many that these laws have been used effectively by US policy makers to nurture, preserve and develop what now exists as the most powerful defence industry in the world.
What India Can Do
The new enabling provision in GFR-2017 provides the MoD a chance to amend its own procurement document and include a provision of production reservation and price preference for domestic industry. For product reservation, the MoD may like to identify a list of items including strategic materials that would be the exclusive purview of the domestic industry and subject to maximum indigenisation. And for price preference, the MoD may like to factor it particularly in ‘Buy (Global)’ procurement contracts in which the nascent Indian private sector companies are often exposed to overwhelming competition from giant global companies. The crux of the matter is that defence industry worldwide is the most protected sector and India should not shy away from taking measures that others have adopted for long.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
1. Ministry of Finance, Government of India, General Financial Rules 2017, p. 44.
2. “10 USC 2533a: Requirement to buy certain articles from American sources; exceptions,” available at http://uscode.house.gov/
3. Kate M. Manuel et al, “Domestic Content Restrictions: The Buy American Act and Complementary Provisions of Federal Law”, CRS Report, September 12, 2016, p. 15.
Need for incorporating a limitation of liability clause in defence contracts
Amit Cowshish
May 17, 2017
It would be both graceful and fair to pay a reasonable amount that is seen as equitable compensation for infringement of the fundamental right to life or damages arising from tortious liability of the government.
In a verdict pronounced on May 2, 2017, the Delhi High Court awarded Rs 55 lakh to a serving officer of the Indian Air Force by way of compensation for ‘infraction of his fundamental right to life’ guaranteed by Article 21 of the Constitution.1 The officer had sustained injuries when the MiG 21 aircraft he was flying burst into flames soon after take-off from the Nal Air Base on January 4, 2005. The court of inquiry attributed the cause of accident to poor workmanship on the afterburner manifold at the Hindustan Aeronautics Limited (HAL) during production.
Recognising the officer’s right to seek public law remedy under Article 226 of the Constitution,2 which empowers high courts to issue orders or writs to any person or authority for enforcement of any constitutional right, the court made it clear that it was ruling on compensation that would make good the infraction of his constitutional right and not on tortious liability of the defendants.
Be that as it may, and without going into the legal aspects of the verdict, five issues arise from it which merit attention. One, this could become a landmark judgement, paving the way for more such claims being filed not only on the grounds of infringement of the fundamental right to life arising from flying accidents but on account of a wide variety of other causes. One of the observations made by the court is significant in this regard. It says:
“... Over the years, the right to life has been expanded to include within its fold, various facets of what is considered to be essential facets of a life of dignity; a life that represents the minimum that the state must ensure and seek to protect. Amongst these facets of ‘life’ is the right to work in a safe environment. It denotes that an individual engaged in public employment, shall at the very least, work in an environment that is secure and does not expose him to unnecessary harm.”3
This opens up the debate on whether the environment in which the armed forces are working, be it in regard to the personal equipment or the weapon systems they use, satisfies the test of a ‘safe environment’. For example, a bullet proof jacket that does not meet the specifications worked out by the armed forces or a rifle that jams at a critical moment could amount to infraction of the right to operate in a safe environment.
Two, fundamental rights are guaranteed by the constitution to all citizens, including the armed police, paramilitary forces and civilians. The paramilitary forces, in particular, operate in highly troublesome areas marked by the activities of left wing extremist groups and arguably without adequate training, rest and proper equipment. The high court verdict opens a vista for them as well.
Three, the High Court has given directions to the government to draw up an insurance scheme for pilots “against the special risks that they undertake in the discharge of their duties.” While there is no reason to delay it, such a scheme should cover all personnel of the armed and paramilitary forces as well as civilians engaged in high-risk jobs. It would be both graceful and fair to pay a reasonable amount that is seen as an equitable compensation for infringement of the fundamental right to life or damages arising from tortious liability of the government. The government should consider pre-empting aggrieved persons from approaching the courts through appropriate policy intervention. The insurance policy should aim at making it pointless for aggrieved parties to approach the court or creating a reasonable certainty that the courts, if approached by an aggrieved party, would consider the amount already paid to be reasonable compensation/damage. It may be a good idea to enact a law on this.
Four, the High Court verdict is premised on attributability of the accident to HAL, which, in turn, comes from the internal Court of Inquiry (CoI) conducted by the Indian Air Force. There is some indication in the judgement that HAL had not admitted its culpability. Without intending to question the impartiality of the CoI, and HAL’s non-admission notwithstanding, the fact remains that impartiality of the findings in regard to the cause of accident will assume great significance if the government is faced with more and more claims arising from a variety of real or perceived infractions. It would, therefore, be worth considering whether to create or designate independent authority(ies) to enquire into, and determine the cause of accidents, and probably also the quantum of compensation/damages.
Five, while the government as well as the state-owned HAL may pay the compensation awarded in this case without much demur, things could turn out very differently if it were to be a private sector entity that has to cough up the compensation. If anything, such a possibility will increase in future with more and more private sector entities undertaking manufacture, maintenance, repair and overhaul (MMRO) of defence equipment, weapons systems, ammunition, small arms and other platforms. This will require incorporation of suitable clauses in defence contracts.
The High Court’s judgement is bound to revive the debate on the absence of a clause on limitation of liability in defence contracts. Foreign vendors, particularly US companies, have been raising this issue for a long time. The claim for compensation on account of infraction of the fundamental right to life or damages on account of tortious liability of the seller could be raised by civilians also who may suffer such infraction or damage.
In the absence of a limitation of liability clause, sellers are presently forced to cover the risk, wherever they can, by taking insurance policies, the cost of which is ultimately borne by the government as the buyer. The highest risk-prone area, incidentally, is defence and aerospace.
There is some merit in the demand for incorporation of a limitation of liability clause in defence contracts. The matter was discussed in a seminar at the Institute for Defence Studies and Analyses sometime in 2011, which was attended by, among others, the then Director General (Acquisition). The discussion clearly established the need for a limitation of liability clause. But the clause continues to be conspicuous by omission in the standard contract template laid down by the Ministry of Defence. It is not a day too early to revive the debate on this issue.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
A high level political engagement between Oman and India will push the relations in the positive direction and also provide a fresh fillip to the economic relations.
Oman has been a key pillar of India's West Asia Policy. Both states celebrated the 60th anniversary of their diplomatic relations in 2015. Ministerial-level engagements with the important Persian Gulf state have increased in the past three years. External Affairs Minister Sushma Swaraj visited Oman during February 17-18, 2015, when both sides agreed to expand economic relations and flagged radicalisation as a major threat. Defence Minister Manohar Parrikar paid a three-day visit to Oman in May 2016. The visit sought to expand defence relations between the two countries.
Parrikar expressed his gratitude to Oman for its assistance pertaining to the ‘Operational Turnaround’ (OTR) of the ships of the Indian Navy engaged in anti-piracy patrols as well as for technical support for landing and over flight of Indian Air Force (IAF) aircraft. Four memorandums of understanding (MoUs) in the domain of defence and security were signed between the countries during his visit. These included a MoU on defence cooperation, a MoU between the Coast Guards of the two countries to prevent crime at sea, a MoU on maritime issues and a protocol between their respective air forces on Flight Safety information Exchange.1
In December 2016, Minister of State for External Affairs M. J. Akbar addressed the 5th India-Arab Partnership Conference in Muscat. Akbar pointed out that there was ‘substantial space for co-operation in both conventional instruments of security as well as new approaches as in cyber security’.2 Interactions in the defence/security sphere have been robust in recent times. In January 2016, Indian Navy and the Royal Navy of Oman conducted maritime exercise ‘Naseem al-Bahr’ in the Arabian Sea off the coast of Goa, from January 22-27, 2016. It was subsequently followed by the goodwill visit of Indian Coast Guard Ship (CGS) Sankalp to Muscat in February 2016. In March 2017, the troops of the two countries concluded 'Al Nagah-II 2017' military exercise in Himachal Pradesh. Oman is the first Gulf State to buy Indian Small Arms System (INSAS), developed by the state-run Ordnance Factory Board. It has also given the birthing rights to India’s naval vessels to fight against piracy in the Gulf of Aden.3
Bilateral economic ties have witnessed some significant developments in last few years. Currently, there are around 3000 joint ventures between Indian and Omani partners with a total investment of around $7.5 billion.4 The India-Oman Joint Investment Fund, a private equity fund backed by the State General Reserve Fund of Oman (SGRF) and State Bank of India (SBI) began operations in 2011 and the initial seed capital of $100 million has been utilised.5 Bilateral trade however in last few years has seen a drop. In 2014-15, total bilateral trade dropped to $4,131.69 million from $5,763.45 million in 2013-14. It further decreased to $3,865.50 million in 2015-16, largely the result of falling oil prices.
India does not have enough energy resources to serve its current or future energy requirements. The rapidly growing energy demand has contributed to the need for long term energy partnerships with countries like Oman. For years, India has been considering to construct an underwater natural gas pipeline via Oman, the Middle East to India Deepwater Pipeline (MEIDP) — also known as the Iran-Oman-India pipeline. The project sought to bring Iranian natural gas to India via Oman. But it has been very slow in materialising due to various obstacles such as lack of suitable technology, sanctions on Iran and objections from Pakistan.
Oman’s Duqm Port is situated in the middle of international shipping lanes connecting East with the West Asia. Chinese company Ningxia China-Arab Wanfang has signed a project to develop a $10.7 billion industrial city near the port of Duqm. India needs to engage with Oman and take initiatives to utilise opportunities arising out of the Duqm Port industrial city.6
Like other Gulf countries, the Omani economy is also struggling with low oil and gas prices. To come out of this situation, Oman intends to develop its other economic sectors, such as transport, shipping, agriculture, mining, tourism, and logistics. Oman's Supreme Council for Planning came out with its 9th development plan (2016-2020) on January 2, 2016 to reduce the Sultanate's economic reliance on oil by 50 percent. This is in line with Vision 2020, which was put forth in 1998 to deal with falling oil prices then.7
Current Indo-Omani ties are dominated by the defence relations. India needs to broaden areas of cooperation with this crucial Gulf state, which has enormous business opportunities in shipping, transport, infrastructure building, mining, logistics and tourism. Omani ruler Sultan Qaboos Bin Said al-Said last visited India in 1997. Sultan Qaboos is yet to receive the Jawaharlal Nehru Award for International Understanding which was conferred on him for the year 2004. In 2013, Sultan Qaboos was supposed to visit India as the chief guest for the Republic Day parade but the visit did not materialise for some reasons. From the Indian side as well, Prime Minister Narendra Modi has visited important countries in the region such as the UAE, Saudi Arabia, Iran and Qatar but has not yet visited Oman.
In this context, a high level political engagement between Oman and India will push the relations in the positive direction and also provide a fresh fillip to the economic relations. Such an engagement will also cement India’s interests in the Gulf region in general and with Oman in particular. However, issues regarding Sultan Qaboos’s health and uncertainties regarding succession may be factors that could be impeding such an engagement currently. India-Oman ties in the meanwhile will continue to be pushed forward by complementarities in the defence and economic sphere.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
China may emerge as the sole leader of global climate negotiations by supporting the Green Climate Fund, which faces a budget crisis with the US exit. This will also provide an opportunity for China to reshape its current global image.
Donald Trump’s decision to pull the United States out of the Paris Climate Agreement will be a real setback to the future of global climate negotiations. Even when Trump had tweeted a few days earlier that “I will make my decision on the Paris Accord next week!”, the world was still hopeful that he would not take such a drastic decision. However, his choice became clear at the G-7 Summit, where he refused to yield to pressure from his European allies to support the landmark deal on climate change. Trump's decision to pull out of the Agreement not only jeopardises the fate of the deal but the future of humanity as well. Experts note that the US exit will have devastating effects on our already ravaged climate.
The Paris Agreement, which endeavours to cap global warming at below 2C, was signed by 195 nations on December 12, 2015. On November 4, 2016, the agreement came into force, and 147 signatories, including the United States, have ratified it. The agreement intends to enhance the ability of countries to deal with the consequences of climate change and requests all Parties to do this through 'nationally determined contributions' (NDCs). As a result, Parties to the Agreement are obliged to report periodically on their emissions and implementation efforts.
Why did Trump Pull Out?
Many reasons have been given for Trump’s decision to pull out of the Paris Agreement. The first relates to the US economy, which is evident in Trump’s statement that “the agreement is less about the climate and more about other countries gaining a financial advantage over the United States and it had disadvantaged the US to the exclusive benefit of other countries leaving American businesses and taxpayers to absorb the cost.”1 Trump believes that “the concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive.”2 Announcing the decision to withdraw from the Agreement, Trump complained about the unequal treatment meted out to the US in the pact. He said: “China will be allowed to build hundreds of additional coal plants. So we can’t build the plants, but they can, according to this agreement. India will be allowed to double its coal production by 2020. We’re supposed to get rid of ours.”3
It is argued that if the US implements the regulations to comply with the Agreement, it will severely affect the carbon-based industries in America and, consequently, its economy and quality of life. According to the Heritage Foundation, implementing the Paris agreement would result in “increased U.S. electricity expenditures of 15-20 percent over the next decade, 400,000 fewer American jobs, a total income loss of over $30,000 for an American family of four, and a loss of over $2.5 trillion in U.S. gross domestic product.”4 Exiting the agreement will also help Trump withdraw from the multilateral financial commitments made by his predecessor. At Paris, the Obama government had not only promised a 28 percent cut in US greenhouse emissions by 2025 but also pledged USD three billion to the Green Climate Fund (GCF), which aims to help developing countries deal with global warming. In his ‘America first' budget blueprint in March 2017, Trump proposed a 20 percent cut in US funding to the UN climate body, the Framework Convention on Climate Change (UNFCCC).
The second factor in Trump’s decision is pressure from the coal lobby as well as from advisors. Like Trump, many in the White House believe that the Paris Agreement is “a bad deal for the US” and further that climate science itself is “a deliberate misinformation.” Environmental Protection Agency (EPA) Chief Scott Pruitt, White House Chief Strategist Steve Bannon, and Attorney General Jeff Sessions are some of the prominent climate change deniers in the Trump administration. They also believe that the Paris deal is one-sided and that “the U.S. is shouldering the burden of billions of dollars whereas countries like China, India, and Russia will contribute nothing.”5 In April 2017, when he visited Harvey Mine in Pennsylvania, a part of Bailey Mine Complex, the US’ largest underground mine, Scott Pruitt talked about the “Back to Basics” agenda of the Trump administration against Obama’s “Clean Power Plan.”Since taking office, Trump has signed several executive orders with the intention of revising the previous administration's environmental policies. Rolling back of regulations on carbon emissions from power plants, and amending the Office of Surface Mining’s Stream Protection Rule, which protects waterways from coal mining waste, are some of the environmentally destructive measures that the Trump Administration has taken in this regard. In addition, by pulling out from the Paris Agreement, Trump aims to unravel Obama’s signature multilateral policies. From the very beginning, Trump along with other Republican leaders had opposed and attempted to reverse Obama's multilateral pledges, terming them as impractical.
Exit Will Not Be Easy
However, exit from the Paris Agreement would not be easy for Trump. The first reason is technical. According to the provisions of the Paris Agreement, no country shall be allowed to exit the deal before three years after its entry into force. Moreover, the actual process of withdrawal, which begins after three years, would take one more year to complete. Hence, if Trump decides to pull out of the deal now, the process will continue until 2020. Here, an easy but costly option for Trump would be to withdraw from the UN Framework Convention on Climate Change (UNFCCC), which would take one year or less. However, this would take the US out of all climate-related negotiations and affect its soft power in such issue areas forever. Though the US cannot claim all the credit for producing the Paris agreement, the Obama administration was widely seen as a decisive force behind the pact. As a result, many countries accepted the US as the champion of climate change negotiations. With Trump's declaration, global goodwill for the US as an international negotiating partner was doused overnight.6
Furthermore, such a move would also intensify American public opinion against the current dispensation in the White House. In contrast to Trump, a majority of Americans think that climate change is a reality and they trust the prognostications made by climate scientists. According to the Yale Climate Opinion Maps, 70 percent of Americans believe global warming is occurring and that it will harm future generations and plants and animals as well.7 Around 75 percent of people support strict CO2 regulation policies and CO2 limits on existing coal power plants.8 Interestingly, more than six in ten Trump voters back taxing and regulating pollution that causes global warming.9
In addition to domestic opposition, the China factor also makes an exit from the Paris deal costlier for Trump. A prominent group of Trump advisors, including Secretary of State Rex Tillerson and Senior Advisor Jared Kushner, hold the view that if the US leaves the agreement, China will fill that vacuum. Chinese Premier Le Keqiang’s statements in Berlin that “fighting climate change is a global responsibility” and that “China will stand by its responsibilities on climate change” are an indication of how Beijing is going to step in and fill the void left by the US. Le’s visit to Germany also points to a looming China-EU axis of cooperation on this issue. To get a clearer picture, one needs to read Le’s comment alongside the statements of German Chancellor Angela Merkel and Miguel Arias Canete, the European Union Commissioner on Climate Change. In her meeting with the Chinese Premier, Merkel said: “the cooperation of the European Union with China in this area will play a crucial role, especially in regards to new technologies.”10 Similarly, Canete said that “No one should be left behind, but the EU and China have decided to move forward. Our successful cooperation on issues like emissions trading and clean technologies are bearing fruit. Now is the time to further strengthen these ties to keep the wheels turning for ambitious global climate action.”11 Moreover, China may take this as an opportunity to emerge as the sole leader of global climate negotiations by supporting the Green Climate Fund (GCF), which faces a budget crisis with the US exit. Stepping up as the leader of climate talks will also be an opportunity for China to reshape its current global image from “illiberal, authoritarian” to a “liberal, responsible global power.”12
How does it affect India?
Trump’s withdrawal may not have any direct impact on India; however, it will affect India’s future climate policies with some repercussions on its development projects. Though Prime Minister Narendra Modi reiterated India's pledges to the Paris accord, it will not be easy for the country to keep its promises intact. India's participation in the agreement was conditional upon receiving financial aid from developed countries to reduce its carbon footprints. India accounts for four percent of global emissions and, at Paris, it promised “to reduce its carbon footprint by 35 percent from its 2005 levels, by 2030.”13 In order to attain this ambitious target, India needs to reduce its dependence on fossil fuels and invest in renewable energy sources. With Trump’s decision to stop the financial assistance to the Green Climate Fund (GCF), the future of India’s renewable energy projects will be in trouble.14
Another possible effect is India's stake in the future climate negotiations. If China dominates future negotiations, the ongoing tensions between the two nations will have a significant impact on India’s place in such negotiations. However, there is some good news as well for India. First, like for China, for India also the US pull out is an opportunity to lead the future climate change negotiations. Prime Minister Modi’s statement at Elysee Palace in Paris on June 3 —the Paris Agreement reflects “our duty towards protecting the Earth and our natural resources. For us, this is an article of faith” – not only explains India's commitments towards the deal but also manifests India's move to position itself as a leader in sustainable development. Here, India should also expose the hypocrisy of China in investing trillions of dollars in projects such as OBOR and CPEC while at the same time asking for funds from developed countries to meet its emission targets. Second, India could make use of the uncertainty of US renewable energy projects and invest more in its own renewable energy market. To meet its solar targets, India needs around USD 100 billion, and this sector has enormous potential for foreign investments. It will not only boost Prime Minister Modi’s signature policy of ‘Make in India' but could also challenge the Chinese monopoly in solar energy technology.
Future Scenarios
A domino effect, prompting other signatories of the accord to leave or reconsider their efforts and expenses of cutting emissions, is the first scenario that emerges when we reflect upon the future of the Paris agreement after the US pull out. The second possibility is exactly opposite to the first. In the absence of the US, which almost always plays a significant role in building multilateral treaties and regimes, other countries may come forward to fill the leadership vacuum. One should also not discount the possibility of Trump pushing for a renegotiation of the Agreement. Chances are higher for such renegotiations since that would be the only win-win option for both the US and the rest of the world. However, such a development would mean global recognition of the fact that the future of climate negotiations will be dark without the US, the second largest greenhouse gas emitter and the major contributor to the Green Climate Fund. And for its part, the Trump administration needs to reconsider its position that climate change is a hoax and instead accept it as reality.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
India should use SCO for building convergences with China and Russia as well as minimise the intensity of China-Pakistan alignment which undercuts India’s direct access to Eurasia.
India and Pakistan will join as full members of the Shanghai Cooperation Organisation (SCO) at the Astana summit on June 8-9, 2017. Last year, both countries signed the 30-odd obligatory papers necessary to join the pan-Eurasian grouping.
Chinese officials have already warned the two new entrants to "strictly follow" the spirit of “good-neighborliness” prescribed in Article 1 of SCO’s Charter. But the key agenda item in Astana is going to the twin admission of India and Pakistan and, for sure, this will be peddled as the SCO’s key achievement – something even Washington has been unable to accomplish. The addition of another 1.5 billion people would provide fresh excitement, for the SCO will now represent the voice of three billion people – half the world’s population.
The SCO’s charter prohibits the raising of bilateral issues. But behind the scenes, Moscow and Beijing seem to be craving to beget a closer India-Pakistan entente through the auspices of the SCO. Surely, they are also mindful of the negative impact a failure in this regard may have for the grouping.
No explicit signs are in the offing, but it was noticeable that when Vladimir Putin and Nawaz Sharif had an informal meeting in Beijing recently, Xi Jinping also joined at the end. Putin and Xi supposedly offered to play a mediatory role between Sharif and Modi at Astana. Sharif is said to have conveyed in advance that a meeting would be useful only “if India assures cessation of hostilities against the innocent people of Kashmir.”
In practical terms, the scenario looks hazy for India. Let us not forget that the SCO was the key motivator behind China’s BRI concept and Beijing has now pledged additional billions for the initiative in Eurasia. That is why, with the exception of Tajikistan, the heads of all SCO members participated in the Beijing Summit. With Pakistan also in the BRI, the SCO is fully aligned with China’s vision, which may be showcased at the upcoming summit.
So, how will India find itself in this flock of ‘wild swan geese’ flying in the Eurasian space? To be sure, multiple conflicting interests would intersect at the SCO forum, ranging from regional and global issues to combating terrorism. India’s positions may sometimes be at odds with those of other countries which have been going along with the Chinese viewpoints.
No change is expected in Beijing’s stance on preventing Masood Azhar’s listing in the UN sanctions list. In fact, the ‘Shanghai spirit’ or its consensus decision based-making approach could further complicate India’s NSG membership case.
Even Russia has deviated from its traditional understanding with India on Afghanistan – opting for a solution through closer alignment with Pakistan. Of course, Beijing has been hedging its own bets in Afghanistan by formulating a sub-regional security grouping consisting of Afghanistan, Pakistan, and Tajikistan.
India has chosen to stay out of BRI for sovereignty reasons. But China is not alone; Kyrgyzstan and Kazakhstan had long crossed India’s sovereignty red lines when they signed the Quadrilateral Traffic in Transit Agreement (QTTA) with Pakistan in 1995 to use the Karakoram Highway (KKH) passing through Gilgit-Baltistan as a transit corridor.
It is a different matter that QTTA has not been effective for facilitating traffic, but it did nullify India’s objection much before even BRI came into being. Tajikistan has recently joined the QTTA and Kazakhstan has shown interest in joining CPEC. Tapping the potentials of CPEC/QTTA will form an agenda as also a useful instrument for raising Islamabad’s standing in SCO.
But if the recent UN report is to be taken seriously, CPEC would become more a driver of instability than facilitating economic integration. And, if CPEC strains India’s ties with Pakistan, the QTTA too will potentially dent India’s ties with other SCO states.
As for the potential benefits, India could gain from SCO’s Regional Anti-Terrorist Structure (RATS) – manned by 30 professionals analysing key intelligence inputs on the movements of terror outfits, drug-trafficking, cyber security threats and public information in the region that we in India know little about. Likewise, participation in SCO’s counter-terror exercises and military drills could be beneficial to the Indian armed forces. Profiting in terms of energy security would be critical, but the idea of a SCO “Energy Club” will gain full meaning only if Iran joins the grouping eventually.
The practical implications of SCO are unlikely to be dramatic. Except for political rhetoric, member states will continue to function through bilateral as well as other multilateral engagements, though China could seek inclusion of bilateral contents in the SCO’s ambit.
Pakistan has been waiting in the wings to link up with Eurasia to seek multiple opportunities, and it could put a spanner in India’s goals. Knowing the quirky nature of Indo-Pak relations, many fear that the spotlight would get shifted away from Central Asia thus making it harder to advance regional cooperation.
But, more worrying for some, especially given its track record in SAARC and ECO, is that Pakistan’s involvement would prove detrimental for SCO’s growth if not a “time bomb” waiting to explode.
At the same time, SCO might provide a rare opportunity for the militaries of Pakistan and India to share several multilateral tables – antiterrorism structure, military exercises etc. – under the SCO framework, which in many ways might change the regional climate and have a positive impact on Indo-Pak relations.
For now, India would do well to enter into the Eurasia integration path by seeking an early conclusion of a Free Trade Agreement with the Eurasian Economic Union (EEU) in order to enable unhindered flow of goods, raw-materials, capital and technology.
The commissioning of the International North South Transport Corridor (INSTC) along with the proposed Chabahar project would enable Indian goods to gain better access to the untapped markets of the entire Eurasian region including Russia’s Far East.
To raise its standing in the SCO in a more meaningful way, India should rope in one or more SCO countries, preferably Uzbekistan and Kazakhstan, in its effort to project Chabahar as India’s gateway to Eurasia. In the meantime, it should seek to benefit from maintaining a regional presence, tracking regional trends in security, energy, trade, connectivity and cultural interests. India should use the SCO atmosphere for building better convergences with China and Russia as well as to minimise the intensity of China-Pakistan alignment which actually undercuts India’s direct access to Eurasia.
If nothing else, the limited immediate benefits of joining SCO will be more than compensated for by improved diplomatic access to Central Asia.
P. Stobdan served as Ambassador in Central Asia and is currently a Senior Fellow at IDSA, New Delhi.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
The SP model, if implemented well, is likely to have a number of benefits for both the private sector and the larger Indian defence industry.
In a major policy reform intended to promote Make in India in defence manufacturing, the Ministry of Defence (MoD) announced on May 31, 2017 the much-anticipated Strategic Partnership model for the Indian private sector.1 The model, whose concept was first suggested by the Dhirendra Singh Committee in its July 2015 report, populates Chapter VII of the Defence Procurement Procedure 2016 (DPP 2016). It visualises designating a few private companies as Strategic Partners (SPs) that would not only assume the role of system integrators but also lay a strong defence industrial foundation by making long-term investment on production and R&D infrastructure, creating a wider vendor base, nurturing a pool of skilled workforce, and making a commitment to indigenisation and technology absorption. The ultimate aim of the model is to enhance India’s self-reliance index in defence procurement which continues to remain at an abysmally low level despite a huge defence industrial complex much of which is managed by state-owned Defence Public Sector Undertakings (DPSUs) and the Ordnance Factory Board (OFB).
Strategic Partnership: The Model
The strategic partnership model seeks to identify a few Indian private companies as Strategic Partners who would initially tie up with a few shortlisted foreign Original Equipment Manufacturers (OEMs) to manufacture big-ticket military platforms. In the initial phase, the selection of SPs would be confined to four segments: Fighter Aircraft, Helicopters, Submarines, and Armoured Fighting Vehicles (AFV)/Main Battle Tanks (MBT). In each segment, “only one SP would generally be selected”, says the new DPP chapter.
To allay fears that the MoD may favour one company over another, the selection of SPs and their foreign OEM partners would be based on a competitive process to be undertaken simultaneously. The main criteria for the selection of OEMs would be the compatibility of their products with the Services Staff Qualitative Requirements (SQRs), and their commitment to provide technology and other assistance to enable their Indian partners to produce in India with maximum indigenisation. Parallel to the shortlisting of OEMs, the MoD would also identify a list of Indian companies in each segment based on certain technical, financial and infrastructure-related parameters. These shortlisted Indian companies would then be issued Requests for Proposal (RFP) along with the list of segment-wise OEMs in order to enable them to engage foreign partners and submit bid responses. Post submission of bid responses, field trials of the equipment would be conducted to shortlist the Indian companies whose products meet the technical and performance requirements of the armed forces. After field trials, the financial bids of the companies that qualify in each segment would be opened to identify vendors who have quoted the lowest price. In each segment, the contract would be awarded to the company that has quoted the lowest price, and it would be designated as a Strategic Partner. It is to be noted, however, that existing Strategic Partners would not be the automatic choice for future contracts, although they would be given some weightage in the tendering process for the core expertise developed during the execution of the initial contract under the Strategic Partnership model.
According to the guidelines stipulated in the new Chapter VII of DPP 2016, any applicant company interested in participating in the selection process for strategic partners must be owned and controlled by resident Indians. This means that the majority in a company’s board of directors, including the Chief Executive Officer (CEO), must be resident Indians, and that a minimum 51 per cent of its equity must be owned by resident Indians. The cap of a maximum of 49 per cent Foreign Direct Investment (FDI) in SPs, which is also the condition in the newly revised ‘Make’ procedure, is intended to keep the crucial decision-making and intellectual property rights (IPR) in the hands of resident Indians.
In a major departure from the recommendation of the Dhirendra Singh Committee, which had strongly recommended against any cross-holding in two or more SPs by one parent company, the MoD’s notified model has left this issue open. This would allow a number of subsidiary companies of a particular conglomerate to be eligible to be designated as SPs, provided they satisfy the other stipulated condition.
Potential Benefits
The SP model, if implemented well, is likely to have a number of benefits for both the private sector and the larger Indian defence industry. From the private sector’s point of view, the biggest benefit would be the opportunity to participate in some big ticket contracts – estimated to be worth over two lakh crore rupees in the initial phase of execution ¬– which were hitherto reserved for the DPSUs and OFs. At the same time, the model would also go a long way in bridging the long-standing trust gap between the Indian private sector and MoD, with the latter perceived to be friendlier toward public sector entities.
Further, Strategic Partners, being private sector companies, are expected to exploit their dynamism, competiveness, profit orientation, and exposure to the civilian sector for efficient utilisation of the technology, manpower and infrastructure developed in the process. Moreover, given that future orders would not be awarded automatically after the initial contract, it is in the interest of SPs to constantly improve upon their competitiveness and core expertise. The development of competitiveness and expertise to compete to win future contracts, which was lacking in the case of DPSUs/OFs because of a constant flow of orders handed over on a platter by the MoD, is something that would contribute to laying a strong and credible foundation for India’s military industrial complex.
Some Concerns
Despite potential benefits, there are two concerns which need to be addressed to make SPs contribute in a meaningful and time-bound manner. The first and foremost concern is the lack of institutional capacity and ability to guide the new process to its logical conclusion. In the past, several promising measures, especially those connected with the ‘Make’ and ‘Buy and Make (Indian)’ procedures, have failed to yield the desired results because of these shortcomings. Although the new Chapter VII of DPP talks of “an appropriate institutional and administrative mechanism” besides “adequate expertise in relevant fields like procurement, contract law and ToT [Transfer of Technology] arrangements”, much would depend on how they unfold. Needless to say, it is the lack of reforms in the structures and decision-making processes surrounding procurement and production that have inhibited the development of a strong defence industry.
There is also a concern regarding the long-term viability of SPs largely due to the privileged position enjoyed by public sector entities. Time and again, the MoD has deviated from its own promise of fair play in award of contracts and handed over large orders to DPSUs and OFs on nomination. It would be futile to expect SPs to make major investments if the government does not provide a level-playing filed to the private sector.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
There seems to be no clear advantage of giving an overarching role to the Ministry of Home Affairs as regards formulation of policy or grant of industrial licence for manufacture or export of defence items.
The notification issued by the Ministry of Home Affairs (MHA) on May 19, 20171 delegating the power to issue licences for the manufacture and sale etc. of arms and ammunition to the Secretary, Department of Industrial Policy and Promotion (DIPP) raises more questions than it provides answers.
The powers and functions delegated through this notification are the ones that are exercisable by the MHA under the following provisions of the MHA-administered Arms Act, 1959: sub-section (1) of section 5 (dealing with licences for manufacture, sale, etc. of arms and ammunition), clauses (b) and (c); section 7 (dealing with prohibition of acquisition or possession, or of manufacture or sale, of prohibited arms or prohibited ammunition); and, Chapter III (containing provisions relating to licenses).
The notification also says that the delegated powers are to be exercised in respect of the category of arms and ammunition and defence items specified in the schedule that forms a part of the notification. This would have been alright but for the fact that the items mentioned in this schedule are actually defence items that were notified by the DIPP vide Press Note 3 of 2014 series 2 with a view to bringing about absolute clarity about the defence items that require industrial licence under the provisions of the DIPP-administered Industrial (Development and Regulation) Act, 1951.
Between January 2001 (when the defence sector was opened to private sector participation) and June 2016, as many as 342 licenses were issued by DIPP for manufacture of items by the defence industry.3 There has never been any doubt about the DIPP’s authority to issue these licences. But the notification of the Arms Rules, 2016 on July 15, 20164 seems to have created a logjam. Unbeknown to many, an important note on the official G2B ebiz portal took away the licensing powers from DIPP.5 The note, which is yet to be modified after the May 19, 2017 notification, reads as follows:
[Important Note – “Subsequent to the notification of Arms Rule 2016, items configured for Military use have come under purview of Arms Rules 2016. Hence, No further processing of Industrial License application pertaining to Defence Sector will be considered in Department of Industrial Policy & Promotion. The applicants may apply directly to Ministry of Home Affairs (Arms Section), IS-II Division, NDCC Building, Jai Singh Road, Connaught Place, New Delhi under Arms Rules 2016 for obtaining manufacturing licenses for Defence Items.”]
This note made it unambiguously clear that industrial licence would be required for manufacturing “items configured for military use”, which is not the same as saying that licence would be required for the specific items notified just two years earlier vide DIPP’s Press Note 3 of 2014 series. It also gave the impression that licence was required under the provisions of the Arms Act, 1959/Arms Rules 2016 without making it clear whether this requirement was in lieu of, or in addition to, the requirement of obtaining an industrial licence under Industrial (Development and Regulation) Act, 1951. There was no proper explanation as to why DIPP had been divested of the function it had been discharging all along.
It was a strange decision for it passed on control over the defence industry to the MHA, which is neither concerned with external defence nor with industrial development. The objective of the MHA-administered Arms Act, 1959 and DIPP-administered Industrial (Development and Regulation) Act, 1951 are different. While the former seeks to strike a balance between the right of the citizens to possess arms and ammunition for self-defence and the need for maintaining law and order as also to prevent such arms and ammunition from falling into the hands of undesirable elements, the latter’s objective is to develop and regulate important industries, including the defence industry, that affect the country as a whole.
Just because ‘arms and ammunition’ happen to be common to both these Acts was no reason to disturb the status quo. Instead of restoring the status quo, the May 19, 2017 notification has raised new issues.
First, is industrial licence required to be obtained for the manufacture of defence items notified vide Press Note 3 of 2014, and now also incorporated in the May 19 notification, under the Arms Act, 1959 or the Industrial (Development and Regulation) Act, 1951, or both? Since the Industrial (Development and Regulation) Act, 1951 continues to be in operation and has not been repealed, it appears that DIPP will need to issue separate licences under both these Acts. It is difficult to visualise what purpose will be served by this.
Second, the list of defence items notified vide Press Note 3 of 2014 series and the items mentioned in the schedule of the May 19, 2017 notification overlap to a large extent, although these are not exactly the same. There are at least three points of difference:
Third, the power delegated by the May 19 notification to the Secretary, DIPP is subject to the conditions that s/he will be subject to the supervision and control of the MHA in regard to exercise of the delegated power and that s/he will observe the policies and instructions laid down by MHA and “not enunciate any new policy or issue instructions in relation thereto without” its prior consent. The notification also says that the central government may revoke the delegation of power if such a course of action becomes necessary in the public interest.
This adds another angle to decision-making in regard to grant of licence for the defence industry, which presently has to contend with the Department of Defence Production and DIPP. There seems to be no clear advantage of giving an overarching role to the MHA as regards formulation of policy or grant of industrial licence for manufacture of defence items for the armed and paramilitary forces as well as for export.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
President Trump’s victory and his subsequent actions after assuming the presidency seem to indicate the US withdrawal from a leadership role towards a degree of insulation from world affairs.
A large number of us in India had the perception that the US democratic system, having evolved over almost two centuries, was a better organised and almost corruption free system providing for better governance and rule of law. That perception had been laid to rest by the time Donald Trump got elected as President after a campaign involving a lot of mudslinging. However, a rapid succession of hiring and firing of top executives as well as a barrage of happenings within the administration emerging on a daily basis since the commencement of the Trump presidency is indeed alarming.
Of course, none of this would have mattered to the rest of the world if the consequences of these events were limited to the US alone. But the fact that the USA has been the undisputed leader of the world since the end of the Second World War and has been instrumental in shaping global economic and strategic policies for the past 70 years means that there are global consequences of domestic events in that country. While the Cold War may have ended, the European Union may have become broader and deeper, and China may have been rising for the last three decades, the pre-eminence of the US as the leading power in shaping global policies was never in doubt.
Trump has risen to the presidency on the premise of ‘America for Americans’. The reality of present day Americans being the immigrants of yesteryears has been conveniently cast aside because Americans today feel threatened by the influx of new immigrants. They feel that their job security and financial survival is at stake unless the outsourcing of jobs, import of cheaper labour and threat of terrorism are minimised by limiting immigration. However, migrations from overpopulated backward regions to less populated advanced countries where opportunities abound are a fact of history that would keep repeating itself at periodic intervals.
President Trump’s victory and his subsequent actions after assuming the presidency seem to indicate the US withdrawal from a leadership role towards a degree of insulation from world affairs, somewhat akin to the policy of ‘splendid isolation’ followed by it prior to World War I. Giving up membership of the Trans Pacific Partnership (TPP), revisiting the Paris climate deal, and insistence on NATO partners spending at least two per cent of their GDP on defence are initial indicators of the Trump administration’s approach to global affairs that project a sense of withdrawal. Of course, it may be early days to form a definitive opinion but the trends do suggest it.
The institutional and bureaucratic set up in the USA, having matured over a long period, is indeed very strong. It has survived the idiosyncrasies and nuances of a series of past presidents with forceful personalities and minds of their own. Whether Trump’s actions bring an early end to his presidency or the institutional mechanisms reassert their supremacy is still in the realm of conjecture. Notwithstanding this, the possibility that the Trump presidency may veer too much towards abdication of the traditional US leadership role in global affairs exists. Therefore, it is important to look at its implications in the long run, both for the US and the world at large.
China has gradually been rising over the past few decades. While continuing to respect the established international order, it is attempting to break free of the constraints that come in the way of its expansionism. In doing so, it has shifted from a policy of greater assertiveness to aggressiveness in bolstering its claims. Its stances in the South China Sea (SCS), East China Sea (ECS), towards Taiwan, and on the boundary issue with India are all clearly indicative of this approach. Any withdrawal of the US from the Asian arena would give China a free hand in going ahead with enhancing its claims and influence worldwide. The recently concluded Belt and Road Initiative (BRI) summit on May 14-15 is a clear indicator of the Chinese designs. Xi Jinping’s pronouncement that China is prepared to step in and assume a leadership role wherever required further confirms it. This has major implications for the smaller nations of the Asia Pacific region which cannot match China’s aggressive designs with force.
Secondly, the currently international order is based on the policies shaped by the US and the West for the past 70 years. Both the security and economic architectures are creations of a dominant US in the period after the Second World War. Thus NATO, the Bretton Woods twins, Nuclear Non-Proliferation Treaty (NPT), Missile Technology Control Regime (MTCR), etc. all reflect it. A withdrawal by the US and stepping in of China and Russia to fill that void is likely to bring in its wake massive turbulence and upheaval. How well a world in which a majority of the countries are still developing will be able to absorb such changes is a question mark. India stands to lose more than most.
Thirdly, there is a need to look at how the US itself will be impacted by its withdrawal from a global role. It is an indisputable fact that technologically the US is way ahead of the rest of the world including China. However, in order to leverage the advantages of such an edge, it needs to export the products of its superior technology worldwide. To be able to gain access to and exploit global markets, the US therefore needs to continue to be a part of global economic architecture rather than insulate itself from it. China’s thrust in the form of the BRI aims specifically to address the issue of capturing world markets for Chinese goods.
There is an important link between economic prosperity and hard military power. Economic growth is possible only if it is backed by a strong military, thus ensuring stability for further growth. A strong economic power is likely to be pushed aside if it does not possess matching military clout. A rethink in Japan over developing military capabilities in view of the growing Chinese threat to the Senkaku islands is a clear example. Thus, in the final analysis, the economic and security architectures do get inextricably linked. Any attempt to insulate itself from global security issues would hurt US economic interests in the long run.
Finally, the process of globalisation and interdependence has gone too far ahead by now. In fact, it is virtually irreversible since the benefits of globalisation far outweigh any of its perceived adverse effects. The shrewd businessman that Mr. Trump is, it appears he is gradually realising how detrimental it would be for US interests if he decides to minimise its global role.
There are many in Britain today who feel that Brexit was not perhaps the right decision. Even if Brexit finally does come about, Britain would have to pay a very heavy price for it, including possibly the breakaway of Scotland and Northern Ireland from the United Kingdom. The isolationist and ‘going it alone’ winds sweeping across Europe post the Trump victory and Brexit referendum also appear to be ebbing. Geert Wilders in The Netherlands and Marine Le Pen in France have suffered major electoral defeats, and support for the continuation of the European Union is growing by the day. In Germany, there has been a stop to the waning popularity of Angela Merkel, a strong proponent of the EU, and a relative decline in support for parties like the AfD. All in all, the sentiment seems to be predominantly in favour of globalisation.
The Trump presidency has been mired in too many controversies in the short period since assuming office. Senior appointments have had to be replaced even before they had a chance to perform, either because of questionable conduct or because they had ‘lost Mr. Trump’s confidence’, a euphemism for not doing his bidding. There is an unprecedented inconsistency in the actions and words of the president of the most powerful nation on earth, leading to a degree of confusion and uncertainty across the globe. Tweets seem to be conveying much more than the more formal official channels of communication, even though the former is used to put across purely personal sentiments. In any case, Twitter is not the appropriate forum for a discussion on the dismissal of a senior official. The talk of impeachment of the president on various counts doing the rounds in the corridors of power in Washington may at times seem premature, but the fact that it is being discussed is disturbing.
The reverberations of President Trump’s actions are not only going to be felt within the US but would have effects worldwide. The realignment of the global economic and security architecture as a result would be inevitable. That, in turn, would cause destabilisation across the globe, especially to less developed and developing nations like India. How well these nations can insulate themselves from the effects of such upheavals would indicate the strength of their domestic systems.
General Deepak Kapoor is a former Chief of the Army Staff.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
Emanuel Macron is likely to set different trends with regard to policy towards the EU, the Francophone region of Africa, the UN, major powers as well as medium and pivotal countries like India and Japan.
France’s 35th president Emanuel Macron is likely to set different trends with regard to the country’s policy towards the European Union (EU), former colonies or the Francophone region of Africa, the United Nations (UN), major powers as well as medium and pivotal countries like India and Japan. The change, rather re-orientation, is expected to unfold fast, albeit in a flexible manner. And Macron’s approach is also likely to be marked by both continuity and change. The imperatives for the new president are economic stability and growth. The French economy has achieved the second largest gross domestic product of more than USD 2.6 trillion after Germany (excluding Britain) within the EU. And that is likely to help fulfil the strategic needs of the country and ensure the prevalence of a spirit of universalism and openness in the socio-political milieu – a theme of Macron’s presidential campaign. It is anticipated that Europe and EU as well as France`s strategic presence in Africa will continue to have primacy in the new French president’s foreign policy.
With respect to the EU, Macron’s approach may be more nuanced and likely to be complementary to that of German Chancellor Angela Merkel. While Macron has evinced interest in substantive reform of the EU and strengthening the Eurozone, even suggesting the need for changes in the treaties underpinning the bloc, it is likely that he will not rush towards making changes but instead adopt an accommodative stance towards reforming them. There are shades of difference in the approaches of Macron and Merkel on what should be the desirable changes in this regard. However, both seem to agree in principle that changes are unavoidable – as discernible from the outcome of their recent summit in Berlin. While Macron has been eloquent on “a more efficient Europe, a more democratic Europe and a more political Europe”, thereby implying a more economically productive, democratically vibrant and politically integrated and institutionalized Europe, he will endeavour to take Merkel along while attempting to give content to his ideas.
Macron had earlier mentioned the need to transfer the budget surpluses of EU members to southern EU countries, keeping in view fiscal imbalances and requirements of countries in the Balkans in particular. France, under President Hollande, was not on the same page as Germany’s Merkel, on such issues. Macron and Merkel will now have to resolve these issues, and the former may be in a position to better influence the latter in the present political circumstances. As Deputy Secretary General in the office of President Hollande between 2012 and 2014, Macron was earlier involved in Franco-German discussions on deeper economic institutional changes in the core of the Eurozone to foster currency stability and need-based intervention in that domain. Action towards this end may get accelerated with a more proactive involvement from Macron in his current capacity as the French president. The deep friendship between France and Germany and their present leaders will facilitate the deepening of bilateral relations and, in turn, strengthen the core of the EU and the Eurozone. Nevertheless, the relatively high rate of unemployment (nearly 10 per cent of the employable French workforce) and the consequential subsidies and social security measures, the economy’s over- dependence on the services sector, and adverse Franco-German trade balance, will all have to be resolved in their overall interest. In all probability, these issues would have been briefly contended with during the short but crucial first state visit of Macron to Germany last week.
Furthermore, an appraisal on the basics of the Franco-German relationship and the possibility of adopting a mutually reinforcing future course of action on fundamental issues of concern to both countries and to Europe in general would have been undertaken during Macron’s Berlin visit. Macron, in the course of his presidential campaign, had advocated open borders within the EU, inter-alia stating that, there is no reason to stop Africans from coming to France if they bring useful skills. This approach is to an extent similar to that of Merkel, though the latter had gone to the extent of also advocating refuge and succour to refugees from West Asia and North Africa during the height of the refugee exodus in 2016. Macron had then applauded Merkel’s border and refugee policy by declaring that they have “saved our collective dignity”. The French president and the German chancellor may now try to work out some norms in this respect, keeping in view the present political context in Europe in the backdrop of Macron and his En Marche`s substantive electoral victory against conservative forces resistant to such phenomenon.
As regards relations with Russia, notwithstanding President Putin’s congratulatory message to Macron on the latter’s assumption of office, an overhang of mistrust is likely to persist. This is especially so given the hacking of Macron`s presidential campaign establishment by alleged Russian elements as well as observations on Russian TV maligning Macron as “addicted to cocaine and involvement in money-laundering through offshore companies”. It is anticipated that both geopolitical interest and the imperative of the integrity of the EU and North Atlantic Treaty Organisation (NATO), Macron will try to more intimately align France’s policies with those of Germany on Ukraine (a NATO member) to control the Russia-aided Crimean separatists and evolve a congruent approach towards Moscow.
On NATO, President Macron and Chancellor Merkel are expected to present a joint approach to both the USA and Russia, though on different premises. Because of Franco-German convergence for the reason pertinent to Ukraine mentioned above, Putin may find Macron and Merkel more unyielding in the present scenario on Russian postures towards NATO member states in the Balkans and central Europe. As regards NATO, Macron may see no reason to accede to President Trump’s demand for re-working of the financial burden and military expenditure. France’s contribution, at 11 per cent of the NATO budget according to NATO Secretary General’s Report of 2017, and a troop contribution of more than 200,000 personnel are not inconsiderable. In any event, given renewed tensions in US-Russia relations induced by the compulsions of their respective commitments to combatants involved in the Syrian civil war, Trump may not have much scope to extract financial concessions from either Macron or Merkel in the NATO forum.
Macron has already signalled his government’s commitment to Africa during his second state visit last week to Mali, a former French colony where nearly 4000 French troops are deployed in support of President Ibrahim Boubacar Keita`s government in counterinsurgency operations against Al-Qaeda affiliated rebels (initially a home-grown rebellion by Tuaregs in northern Mali). Macron’s approach towards the African community in France has been quite distinctive and more pronounced than that of his Socialist predecessor, Francois Hollande. Macron’s presidential campaign platform `En Marche` had acknowledged African Frenchmen’s contribution to France’s polity and prosperity. Macron had struck a chord in the hearts of the people of African origin including non-radical Muslims when he described the Algerian War that France waged in the late 1950s and early `60s as a “crime against humanity”. Macron’s visit to Mali was intended to reiterate a long-standing French commitment towards that country`s stability, and signal resoluteness towards defending regimes in Africa facing subversion and armed intervention by externally-supported radical Islamic elements. The French president seemed to affirm that his government will use military power to protect or support an international political architecture free from radicalism in areas of France’s strategic interest.
Macron has explicitly indicated his government`s intention to maintain France`s military commitment to Mali. He will not only endeavour to strengthen the Multidimensional Integrated Stabilisation Mission in Mali (MINUSMA) set up under UN Security Council Resolution 2295, but is also expected to work towards augmenting the mission’s mandate which is expiring on June 30, 2017. Macron has already indicated that the French expeditionary force will remain as a back-up, while capacity building of the Malian Army will be undertaken by MINUSMA in concert with the French force. At present, the situation in Mali is far from stable, even with the presence of MINUSMA and French forces. 300 Malians and two French journalists were killed by Islamic extremists in 2016.
So far as investment and financial aid are concerned, Macron has emphasized that there will be an up-scaling of aid to African countries to at least 0.71 per cent of France’s gross national product. France, with its strength in automotive and aerospace industries, rail development and infrastructural matters, is expected to leverage these attributes for investment in the west, south and north African regions, which are areas of its historical interest. It is possible that France and China could find common ground in Africa. Over 200 Chinese companies are already operating in Africa in the infrastructure sector and ancillary industrial activities. It is to be seen how Macron manages to dovetail Chinese involvement in Africa with France`s strategic interests, particularly in the Francophone countries.
India may be at a disadvantage vis-à-vis China in such countries because its strength lies in the services sector where France already has a surfeit of expertise. Nevertheless, France under Macron and India should be able to build upon the already existing defence-based system production and technology transfer mechanism in place. Moreover, Paris and New Delhi would have enough scope to go in for co-production of telecommunication and military systems as well as engage in non-conventional energy initiatives in African countries. Reckoning the democratic ethos of both countries, the personal rapport that has existed between a succession of French and Indian leaders, the past track record of high level of cooperation and understanding on issues like UN reform, peacekeeping under UN aegis and cooperation on nuclear technology, there should be adequate opportunity to expand the Franco-Indian bilateral relationship under President Macron as well.
The author is a retired IDAS officer who has served in senior appointments with the Government of India and a State Government.
The views expressed are the author`s own.
The objective of promoting Indian industry can be achieved in a simpler manner if after selecting the platform to be inducted MoD leaves it to the foreign OEM to tie up with the Indian company of its choice.
The Defence Acquisition Council (DAC) approved the broad contours of the Strategic Partnership Model (SPM) in its meeting held on May 20, 2017 under the chairmanship of the Defence Minister. It may be recalled that this model was recommended by the MoD-appointed Committee of Experts in July 2015. It has been under consideration since then.
The press release issued by the Press Information Bureau (PIB)1 states that the policy is intended to engage the Indian private sector in the manufacture of hi-tech defence equipment in India. It also notes that the SPM envisages the ‘‘establishment of long-term strategic partnerships with qualified Indian industry majors through a transparent and competitive process wherein the Indian industry partners would tie up with global OEMs to seek technology transfers and manufacturing know-how to set up domestic manufacturing infrastructure and supply chain.”
These contours are indeed too broad to form an opinion on the workability of the SPM. One cannot help but go back in time to the year 2006 when the ‘Make’ procedure was adopted by MoD with much fanfare to promote “development of systems based on indigenous research and design” with a view to providing “the requisite framework for increased participation of Indian industry in the defence sector.”2 More than a decade later, the first design and development contract is yet to be signed. Every time an effort is made by MoD to finalise a Make contract it runs into procedural difficulties.
Attention to detail is crucial in translating good intent into a blueprint for action. Unlike the Make procedure which was probably adopted by MoD on its own, the SPM is likely to be taken to the Cabinet Committee on Security (CCS). And that means that it will first be examined by the Ministry of Finance (MoF). Given the nature of the scheme, it will not be surprising if it is also examined by the Ministry of Law (MoL) to make sure that it does not fall foul of the competition law. Such pervasive scrutiny should ensure that no loose ends are left untied but it would do no harm if MoD pay attention to the contrarian views on various aspects of the proposed scheme before forwarding the proposal for CCS approval.
Going by the press release and other stories appearing in the media, MoD will kick start the process by selecting strategic partners for four segments, namely, fighter aircraft, submarines, armoured vehicles, and helicopters (but this does not find mention in the press release). In a separate process, MoD will also select the foreign Original Equipment Manufacturers (OEM) who could supply a particular platform required by MoD with transfer of the requisite scope, range and depth of technology for its manufacture in India.
It is not clear whether it is these strategic partners who will tie up with the chosen OEMs and participate as prime vendors in the MoD tender or whether MoD would enter into a contract with the foreign OEM and nominate a pre-chosen strategic partner as the Indian Production Partner (IPP). In either case, much would depend on the process of selection. The process of selecting the platform would have to follow the same procedure as laid down in the Defence Procurement Procedure, which, among other things, entails lengthy field trials. It is doubtful if the adoption of SPM per se will lead to a hastening of this process.
What may turn out to be more problematic is the process of selection of strategic partners. It is virtually impossible to adopt unchallengeable objective criteria for selection. These problems have been faced even in the context of a few ‘Make’, which, incidentally, continue to be a work-in-progress.
At the present juncture, the SPM looks like a closed door club. Unless the scheme provides an entry route for new companies and Micro, Small and Medium Enterprises (MSME), the scheme may not be in tune with the competition law that aims to prevent practices that have an adverse effect on competition.
The issue of whether one strategic partner (including its group companies) will be eligible for only one project poses a challenge. Such a provision may not be acceptable to the private industry. Logically, a one-partner-one-project policy should also apply to the Defence Public Sector Undertakings (DPSUs) and Ordnance Factories. But such a provision may have a large impact on DPSUs, especially defence shipyards, which, having been awarded one project in a particular segment, will be ineligible for any other project in the same segment.
Price discovery is an important component of the scheme. While there may be a reasonable assurance of price discovery in the initial contract because of the competition among strategic partners or OEMs, as the case may be, the mechanism for price discovery for maintenance contracts over the life time of the platform and for upgrade projects will need to be evolved as these contracts will be negotiated with the sole strategic partner who had undertaken the initial project in an environment of a virtual monopoly. Unless MoD builds up capability in costing and audit of development projects, management of cost-plus contracts with strategic partners at a later stage for upgrades or manufacture of newer versions of the same platform could throw up an insurmountable challenge.
The presumption underlying the SPM is that the OEMs will be happy to transfer technology to Indian companies or Joint Ventures (JVs) with Foreign Direct Investment (FDI) up to 49 per cent and that they will have no problem even if they are given no choice in selecting the Indian partner with which they could tie up. These are questionable assumptions. To top it all, there is the sensitive issue of Intellectual Property Rights (IPR), which is one of the reasons why foreign OEMs are generally reluctant to transfer technologies.
There are several other issues which must be addressed before unveiling the scheme in its entirety. Some of these issues seem intractable from a distance. For example, binding a strategic partner through a long-term legal covenant lasting the entire life of a platform and its subsequent upgrade, which may spread over several decades, would be quite a challenge.
Quite frankly, the entire rigmarole seems unnecessary. The same objective of promoting the Indian industry can be achieved in a simpler manner if after selecting the platform to be inducted – a process that will have to be gone through even under the SPM – MoD leaves it to the selected foreign OEM to tie up with the Indian company of its choice. This does not require formulation of a new scheme as the enabling provision for letting OEMs decide the IPA already exists in DPP 2016.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
The new enabling provision in GFR-2017 provides the MoD a chance to amend its own procurement document and include a provision of production reservation and price preference for domestic industry.
In a significant development, the Ministry of Finance (MoF) has included a new enabling provision in the revised General Financial Rules (GFR) with the intention of favouring domestic industry over foreign companies in government procurement contracts. The new provision, under Rule 153 (Reserved Items and other Purchase/Price Preference Policy) of GFR-2017, arms the central government with the power to “provide for mandatory procurement of any goods and services from any category of bidders, or provide for preference to bidders on the grounds of promotion of locally manufactured goods or locally provided services.”1 The broad policy framework is part of the government’s ambitious Make in India initiative to accelerate the share of manufacturing in the country’s gross domestic product. While the new provision is applicable to all government procurements, one area where its implementation is likely to have a far reaching impact is defence procurement. Unlike procurement by other ministries/departments, that of the Ministry of Defence (MoD) is immune from international trade restrictions. The operationalisation of the new provision by the MoD, however, requires, a suitable tweaking of the existing procurement procedures to bridge a vital gap that exists in India’s attempt to push forward the Make in India initiative in defence manufacturing.
International Trade Norms and Protectionism
The World Trade Organisation (WTO), to which India has been a party since 1995, generally prohibits protectionism in international trade. However, it does provide several exemptions for member states with regard to various restrictive trade practices such as offsets and other forms of counter trade, preferential treatment to local industry and domestic content requirement. Two areas where the WTO is silent on restrictive practices are: arms trade, and government procurement outside the framework of the Agreement on Government Procurement (GPA) – a plurilateral agreement to which 19 out of 162 WTO members are presently party. GPA promotes free trade among member states in so far as government procurement contract is concerned. India is not yet a member of the GPA, but has had observer status since February 2010. Even within the framework of the GPA, there is a clear provision that allows member states to take measures to prohibit foreign participation in public procurement on national security grounds.
Many countries, including those party to the GPA, have exploited the above mentioned exemptions provided in the WTO, and devised suitable laws and provisions to promote their domestic industrial interests. Israel, for instance, has a law that allows a price preference of up to 15 per cent for the local industry in a government procurement tender open to non-GPA members. The price preference, in essence, artificially inflates the price bid of a foreign supplier when its bid price is found to be the lowest among all the bidders. The artificially increased price is then compared with the lowest offered price of a domestic supplier so as to find whether the said domestic supplier can match the price of the foreign supplier. In case the domestic bid price is found to be lower than or equal to the artificially increased price, then the contract is awarded to the domestic bidder. This allows the government to keep the tax payers’ money confined to the furtherance of local business and employment.
The country with the longest history of protectionism in government procurement is, however, the United States, which has a number of laws to favour American business and labour. Three specific laws that are widely used to the advantage of local industry are the Buy American Act, the Berry Amendment and the Speciality Metal Restriction. The Buy American Act is by far the oldest and best known statute that discourages procurement of foreign products in federal procurement contracts. Enacted first in 1933, the Act requires federal agencies to procure domestic end products and construction materials in contracts exceeding a certain value (usually USD 3,500). As implemented, the 84-year old Act establishes a price preference for domestic bidders. The price preference usually varies from six per cent (in case the lowest domestic bid comes from a large US company) to 12 per cent (when the US bid is from a small company) and 50 per cent (for defence procurement). The highest price preference for defence procurement is a clear indication of the importance attached to preserving the domestic defence R&D and manufacturing base.
The Berry Amendment and the Speciality Metals Restriction, whose origins also date back to the first half of the 20th century, are, on the other hand, specific to defence procurement and intended to insulate the US defence industrial base by prohibiting the procurement of certain items from foreign sources. These two laws are also intended to bridge a crucial gap in the Buy American Act, which treats a product as domestic so long as it is a commercial-off-the-shelf (COTS) item or if the cost of a product’s parts and components mined, produced or manufactured in the US is more than 50 per cent. Both also do away with any concession and require items to be fully indigenous in origin. As implemented in the public law, the Berry Amendment mandates the Department of Defence (DOD) to purchase such items as food, clothing, tents, certain fabrics and hand and measuring tools to be entirely “grown, reprocessed, reused, or produced in the United States.”2 The Speciality Materials Restriction prohibits the DOD from purchasing aircraft, missile and space systems, ships, tank and automotive items, weapon systems, ammunition or any components thereof if they contain any speciality metal that is not melted or produced in the US. It defines a metal as speciality metal if it includes “certain types of steel; certain metal alloys made of nickel, iron-nickel and cobalt; titanium and titanium alloys; and zirconium and zirconium alloys.”3
It is to be noted, however, that all the three above mentioned US laws regulating domestic content requirements have certain exemptions under which federal agencies (including the DOD) can purchase foreign products. These waivers are provided under certain conditions that include unavailability and obligation under international treaties, among others. However, obtaining an exemption is easier said than done and when it comes to defence procurement waivers are few and far between. Consequently, almost all the defence contracts issued by the DOD are bagged by US defence companies. In 2015, only a mere four per cent of all DOD procurement contracts was placed on foreign entities, with the rest being monopolised by US defence companies. It has been argued by many that these laws have been used effectively by US policy makers to nurture, preserve and develop what now exists as the most powerful defence industry in the world.
What India Can Do
The new enabling provision in GFR-2017 provides the MoD a chance to amend its own procurement document and include a provision of production reservation and price preference for domestic industry. For product reservation, the MoD may like to identify a list of items including strategic materials that would be the exclusive purview of the domestic industry and subject to maximum indigenisation. And for price preference, the MoD may like to factor it particularly in ‘Buy (Global)’ procurement contracts in which the nascent Indian private sector companies are often exposed to overwhelming competition from giant global companies. The crux of the matter is that defence industry worldwide is the most protected sector and India should not shy away from taking measures that others have adopted for long.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
It would be both graceful and fair to pay a reasonable amount that is seen as equitable compensation for infringement of the fundamental right to life or damages arising from tortious liability of the government.
In a verdict pronounced on May 2, 2017, the Delhi High Court awarded Rs 55 lakh to a serving officer of the Indian Air Force by way of compensation for ‘infraction of his fundamental right to life’ guaranteed by Article 21 of the Constitution.1 The officer had sustained injuries when the MiG 21 aircraft he was flying burst into flames soon after take-off from the Nal Air Base on January 4, 2005. The court of inquiry attributed the cause of accident to poor workmanship on the afterburner manifold at the Hindustan Aeronautics Limited (HAL) during production.
Recognising the officer’s right to seek public law remedy under Article 226 of the Constitution,2 which empowers high courts to issue orders or writs to any person or authority for enforcement of any constitutional right, the court made it clear that it was ruling on compensation that would make good the infraction of his constitutional right and not on tortious liability of the defendants.
Be that as it may, and without going into the legal aspects of the verdict, five issues arise from it which merit attention. One, this could become a landmark judgement, paving the way for more such claims being filed not only on the grounds of infringement of the fundamental right to life arising from flying accidents but on account of a wide variety of other causes. One of the observations made by the court is significant in this regard. It says:
This opens up the debate on whether the environment in which the armed forces are working, be it in regard to the personal equipment or the weapon systems they use, satisfies the test of a ‘safe environment’. For example, a bullet proof jacket that does not meet the specifications worked out by the armed forces or a rifle that jams at a critical moment could amount to infraction of the right to operate in a safe environment.
Two, fundamental rights are guaranteed by the constitution to all citizens, including the armed police, paramilitary forces and civilians. The paramilitary forces, in particular, operate in highly troublesome areas marked by the activities of left wing extremist groups and arguably without adequate training, rest and proper equipment. The high court verdict opens a vista for them as well.
Three, the High Court has given directions to the government to draw up an insurance scheme for pilots “against the special risks that they undertake in the discharge of their duties.” While there is no reason to delay it, such a scheme should cover all personnel of the armed and paramilitary forces as well as civilians engaged in high-risk jobs. It would be both graceful and fair to pay a reasonable amount that is seen as an equitable compensation for infringement of the fundamental right to life or damages arising from tortious liability of the government. The government should consider pre-empting aggrieved persons from approaching the courts through appropriate policy intervention. The insurance policy should aim at making it pointless for aggrieved parties to approach the court or creating a reasonable certainty that the courts, if approached by an aggrieved party, would consider the amount already paid to be reasonable compensation/damage. It may be a good idea to enact a law on this.
Four, the High Court verdict is premised on attributability of the accident to HAL, which, in turn, comes from the internal Court of Inquiry (CoI) conducted by the Indian Air Force. There is some indication in the judgement that HAL had not admitted its culpability. Without intending to question the impartiality of the CoI, and HAL’s non-admission notwithstanding, the fact remains that impartiality of the findings in regard to the cause of accident will assume great significance if the government is faced with more and more claims arising from a variety of real or perceived infractions. It would, therefore, be worth considering whether to create or designate independent authority(ies) to enquire into, and determine the cause of accidents, and probably also the quantum of compensation/damages.
Five, while the government as well as the state-owned HAL may pay the compensation awarded in this case without much demur, things could turn out very differently if it were to be a private sector entity that has to cough up the compensation. If anything, such a possibility will increase in future with more and more private sector entities undertaking manufacture, maintenance, repair and overhaul (MMRO) of defence equipment, weapons systems, ammunition, small arms and other platforms. This will require incorporation of suitable clauses in defence contracts.
The High Court’s judgement is bound to revive the debate on the absence of a clause on limitation of liability in defence contracts. Foreign vendors, particularly US companies, have been raising this issue for a long time. The claim for compensation on account of infraction of the fundamental right to life or damages on account of tortious liability of the seller could be raised by civilians also who may suffer such infraction or damage.
In the absence of a limitation of liability clause, sellers are presently forced to cover the risk, wherever they can, by taking insurance policies, the cost of which is ultimately borne by the government as the buyer. The highest risk-prone area, incidentally, is defence and aerospace.
There is some merit in the demand for incorporation of a limitation of liability clause in defence contracts. The matter was discussed in a seminar at the Institute for Defence Studies and Analyses sometime in 2011, which was attended by, among others, the then Director General (Acquisition). The discussion clearly established the need for a limitation of liability clause. But the clause continues to be conspicuous by omission in the standard contract template laid down by the Ministry of Defence. It is not a day too early to revive the debate on this issue.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
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