US embassy cable - 05NEWDELHI2299

C O N F I D E N T I A L NEW DELHI 002299 
 
SIPDIS 
 
FOR DEPUTY SECRETARY ZOELLICK FROM AMBASSADOR MULFORD; 
WHITE HOUSE FOR NEC DIRECTOR AL HUBBARD; 
SECDEF WASHINGTON DC//USDP:DSCA// 
 
E.O. 12958: DECL: 03/28/2015 
TAGS: PGOV, PARM, ECON, EFIN, AA, NSSP 
SUBJECT: DEFENSE SALES TO INDIA: THE ECONOMIC DIMENSION 
 
Classified By: AMBASSADOR DAVID C MULFORD FOR REASONS 1.4 (B,D) 
 
1. (C) Secretary Rice's visit to India, the announcement that 
U.S. companies will enter the competition to supply 
multi-role combat aircraft to India, and India's already 
articulated interest in P-3C aircraft, have raised the 
economic dimension of our defense relationship with India to 
a new level.  (Historically, the U.S. has been a minor 
defense equipment supplier to India, the world's third 
largest market, which imports approximately 3 billion USD 
annually.)  At this juncture, it is critical that we devise a 
strategy to strengthen appreciation in the Indian bureaucracy 
of the economic benefits derived from a long-term strategic 
partnership with the U.S.   Our strongest advocates will be 
the economists who are running the government, not the 
traditional military establishment. Our message is simple: 
the U.S. is a reliable strategic partner for defense 
co-production, technology sharing, and joint research.  Using 
military sales as the platform for cooperation will catalyze 
development of India's defense sector, spin off new 
industries, catalyze economic growth, and create jobs.  The 
U.S. is an essential partner in India's economic 
transformation that will, in turn, enable India to achieve 
its aspiration of greater strategic autonomy and a larger 
space in the region. 
 
2. (C) I believe the best way to reinforce the economic 
dimension of our emerging strategic defense relationship is 
by creating a Defense Production Cooperation Group (DPCG) 
under the U.S.-India Economic Dialogue.  This new working 
group could potentially subsume under it the defense industry 
dialogue now under the High Technology Cooperation Group and 
the Senior Technology Security Group (STSG).  The DPCG would 
be convened by NEC Director Al Hubbard and Deputy Planning 
Commissioner Montek Ahluwalia.  This would assure that our 
discussion of defense sales and the crafting of joint 
programs would feed the aspiration India's economic 
leadership to make defense cooperation in armaments a driving 
force behind our broader economic partnership.  The potential 
for mutual benefit is huge if the Indian bureaucracy and 
quasi-independent agencies such as ISRO, DRDO, Ordnance 
Factories, and Defense Public Sector Undertakings (HAL, BEL, 
etc.) are able to jettison the political baggage they carry 
from the past and transcend narrow industrial agendas to 
enable real long-term cooperation.  Success would drive down 
costs of production, catalyze technical innovation, and allow 
economic specialization on both sides. 
 
3. (C) In order to achieve this win-win outcome, we will need 
to bring to bear a level of political oversight on each side 
that breaks down political barriers, removes bureaucratic 
speed bumps, and facilitates maximum private sector 
involvement.  This is precisely what we have agreed should be 
the guiding principals of the Economic Dialogue.  Defense 
cooperation should be treated as a vital element of our 
economic relationship that requires special  attention at the 
political level to catalyze rapid evolution. 
 
4. (C) I recommend that Secretary Rice propose during FM 
Singh's expected visit to Washington in April or May the 
establishment of a Defense Production Cooperation Group under 
the Economic Dialogue to be chaired by our respective 
Coordinators and Deputy Coordinators and supported on each 
side at the Deputy Secretary level in defense.  This should 
lay the foundation for direct interaction among Indian and 
U.S. business leaders aimed at creating corporate structures 
as the basis for defense cooperation, beginning with a few 
discreet projects. 
MULFORD