Friends with Benefits

Kanwal Sibal 

(Member, VIF Advisory Board)

The back-to-back visits of the president of France, Francois Hollande, and the Prime Minister of Britain, David Cameron, last month have put the spotlight on India’s relationship with Europe. Some belittle the importance of this relationship as Europe is seen as economically crisis-ridden, lacking in dynamism, to be declining militarily and too prone to act as a super NGO in propagating its values. The belief that economic, political and even military power is shifting towards Asia underlies this depreciation of our partnership with Europe. While the relative decline of the United States of America is recognized, its recovery is considered more certain than that of Europe. The high growth rates in India in recent years, the projection that India will become the third largest economic power by 2030 and the bracketing of India with China has also inflated our sense of self-importance vis-à-vis Europe.

Some pundits have the gumption to say, without being too self-conscious of India’s own glaring governance failures that allow abysmal levels of poverty to persist, that if France is to become a partner more in sync with a new post-liberalization India, the key would be to make itself meaner and leaner at home. This refers to the hard decisions France needs to take on welfare costs and government-spending. The United Kingdom, which is financial-services reliant, is scoffed at as a serious economic partner in view of its eviscerated manufacturing sector and the economic crisis afflicting it, a reality seen to limit the scope of any substantial UK investment in India’s infrastructure. The non-committal language of the India-UK joint statement on British participation in a possible Mumbai-Bangalore industrial corridor reflects this.

Yet, the European Union is India’s biggest trade and investment partner. India weathered well the US financial crisis, but the Eurozone turmoil has affected it appreciably. India and the EU are negotiating a free trade agreement in which both France and Britain have an important say. France and the UK, as the fifth and sixth largest economies in the world respectively, are all-important partners for a rising India. France has great strengths in the nuclear, space and defence sectors, and these, along with urban development and infrastructure areas got highlighted during Hollande’s visit. The UK too has several advanced defence technologies to offer and its strengths — healthcare, education and other services — came under focus during Cameron’s visit. Both, as permanent members of the United Nations Security Council, weigh critically on international security issues. Both engage with India within the G-20. In the World Trade Organization and climate change negotiations, India has to contend with European positions determined with French and British participation.

Some argue that France is not as much a diplomatic and strategic asset for India as before because the US is setting the pace for global accommodation of India, and Paris and London now follow in Washington’s wake. But this argument exaggerates both the degree of strategic convergence between India and the US and the degree of US hegemony over Europe. Such thinking implies that we should simply adjust ourselves to US’s strategic priorities and the vagaries of its political processes and moods. Such strategic over-reliance on any one country is hardly compatible with India’s global ambitions. Partnership with a country like France, still attached to its independence in decision-making, helps India to maintain its strategic autonomy.

Despite a remarkable improvement in India-US ties, our respective views differ on, for instance, handling Pakistan, its role in terrorism and its nuclear activity supported by China, the end-game in Afghanistan and overtures to the Taliban. Views are also different on the sanctions on Iran and military threats against it that have squeezed India’s oil trade and potentially imperil its interests in the Gulf, the bombing of Libya, the regime-change being promoted in Syria and the willingness to accommodate extremist religious forces in the Arab world. On some of these issues, as for example, seeking accommodation with the Taliban and the responsiveness to Pakistani ambitions in Afghanistan, Britain is ahead of the Americans and India needs to press it to be more transparent with it on British diplomacy in the region. France is with the US on Iran and Syria, but it has ceased supplying advanced or new military platforms to Pakistan in deference to India’s sensitivities, which the US disregards. With both countries, strengthened counter-terrorism cooperation is an asset for combating a threat to which India is especially vulnerable because its epicentre lies in Pakistan next door.

Britain and France are allies of the US and therefore on political and security issues, though not on economic issues, their policies have considerable convergence. But the edgy competitiveness between France and the Anglo-Saxon world for political space should not be underestimated either, not to mention their clashing versions of capitalism, with the French welfare model with strong unions and labour laws inviting relentless American and British broadsides. All three compete quite ferociously with each other in India, as the 126 fighter aircraft contract demonstrated. The US felt mortified at the loss of the contract to the Europeans, and the British continue to question India’s wisdom in choosing the Rafale over the Eurofighter and still hope the deal to get somehow unravelled to their advantage. Hollande’s visit, however, saw both sides noting the progress of ongoing negotiations on the medium multi-role combat aircraft programme and looking forward to their conclusion. This was, no doubt, much to the discomfiture of the British. As compared to the highly legalistic, intellectual property rights ridden US approach to technology transfers, the French are much easier partners in this regard. All in all, France is way ahead of the US in meeting India’s defence needs in terms of aircraft, submarines, missiles and so on. France is negotiating a major project of joint development and manufacturing of a short range surface-to-air missile with India’s Defence Research and Development Organization, which, until President Barack Obama’s India visit, was under US sanctions. Cameron supports greater cooperation between DRDO and the UK Defence Science and Technology Laboratory. French and British supplies of defence equipment are, furthermore, not accompanied by intrusive end-use monitoring requirements, as is the case with US supplies.

France has much more advanced nuclear reactors to offer India than the US. Its civilian nuclear deal with India excludes many controversial provisions of the India-US deal and provides for “full civilian nuclear cooperation”— a code word for the transfer of enrichment and reprocessing technologies, which the US has excluded from the purview of its cooperation with India. France is ready to work with India within the framework of the rules of our Nuclear Liability Act, which the US companies refuse to do. As agreed during Cameron’s visit, India and the UK will now begin negotiations on a civil nuclear cooperation agreement. Indo-French cooperation in space has been intensive, with Arianespace launching India’s INSAT satellites, the launching of jointly-developed satellites on Indian launchers — the SARAL being the second — and France using the PSLV to launch its SPOT 6 satellite in September last year. The two countries are drawing up a long-term plan of cooperation in satellite technology, an area that remains outside the scope of India-US cooperation. The UK is not India’s partner in space.

Both Hollande and Cameron manifestly want deeper ties with India. We have an opening to build stronger partnerships with both.

Arms and The Country

Kanwal Sibal
Member Advisory Board, VIF

European nations compete for defence ties with India

When listing India’s defence partners Europe is mentioned, but it would be more accurate to speak of individual European countries as partners. Europe is unified economically but not in the defence domain. Unlike on economic issues, on defence issues India deals with individual capitals and not Brussels.

Some points are pertinent to our defence ties with European countries. One, these countries compete even more intensely with one another for defence contracts abroad than they do for commercial ones, as the former are fewer in number, the margins are bigger and the supply of spare parts and periodic upgrades provide large long-term returns. European countries compete with one another as zealously in India as they do with Russia, Israel or the United States of America, our other major defence partners.

Two, defence ties have a much more pronounced political element than commercial exchanges. Countries with serious political differences can have extensive economic ties, as is the case of the US and Japan with China. However, for defence ties, some geo-political understanding has to exist. The country supplying arms acquires a degree of political leverage over the recipient country. At critical moments, spare parts or ordnance could be denied because of sanctions. These considerations are important for India because of our past experience and potential concerns for the future. In this respect, France is considered more reliable than other European countries because it has eschewed sanctions on India, even for our 1998 decision to go nuclear. The United Kingdom’s record is tainted while Germany has been squeamish about defence trade for humanitarian or conflict-prevention reasons. The sanctions issue has, however, lost its previous edge because of the lifting of nuclear sanctions on India by the US and the Nuclear Suppliers Group, the deterioration of US/Nato-Pakistan relations and the receding of the Kashmir issue from the forefront of Western concerns.

Ultra Light Howitzers

Three, defence manufacturing is a high-cost industry as very advanced technologies and huge outlays on research and development are required. Exports help to achieve economies of scale and amortize development costs. European countries are maintaining large defence industries in spite of the absence of any real external military threat and dwindling domestic orders because of reduced defence budgets. Exports therefore become vital. We have so far failed to extract the maximum advantage for ourselves from this compulsion they have by way of obtaining genuine transfers of technology. This is in large part because all European countries adhere rather strictly to technology denial regimes individually, and some intra-European coordination exists on this score. In general, on issues of technology transfer, all of them are restrictive, with the latest generation technologies made almost impossible of access. We have also not used our bargaining power effectively enough because of systemic deficiencies which prevent us from integrating the opportunities we provide to European countries in diverse domains with a view to wresting concessions through cross-bargaining.

Four, the bigger European entities are habituated to wielding power internationally — such has been their domination of world affairs in previous centuries. Their big power status is intimately linked to the possession of a large defence industry. Its existence enables them to discharge their dominant role in maintaining international peace and security, whether through the Security Council, the North Atlantic Treaty Organization or a “coalition of the willing”. In the race for technological innovation, the civilian off-shoots of defence technologies are an important factor too, for retaining a large defence manufacturing base. This may not be a material factor in bilateral defence ties, but is relevant in the larger context of global power equations.

Five, rivalry with the US, which is both an ally and a competitor, is a powerful reason for major European countries to maintain a sizable, independent defence manufacturing base. This allows a degree of independence in foreign policy making and avoids complete subservience to the US. This rivalry with the US is being sharpened in relation to India because of improving India-US defence ties and the US success in bagging major defence contracts. In fact, the foreign military sales route is giving the US an edge as it excludes middlemen and, consequently, the problem of allegations of corruption that hobble acquisition decisions is avoided.

Six, it is important to note the increasingly ‘multinational’ nature of the European defence industry resulting from its consolidation through mergers and acquisitions on account of high costs of production, reduced domestic orders, the need for economies of scale and international competition. Various European countries have been forced to pool defence requirements and jointly fund production programmes. It is not only that complex defence products are now seldom purely ‘national’, but also that European products are likely to contain even US-made components.

Of European companies active in India, the European Aeronautics, Defence and Space company, for instance, combines some leading French, German and Spanish companies. Its missile branch was merged with the UK’s BAE systems and Italy’s Finmeccanica to form the MBDA. The Eurofighter is jointly produced by Germany, Britain, Italy and Spain. Dassault, whose Rafale has been selected in preference to the Eurofighter, is owned by the Dassault Group (50.55 per cent) and the EADS (46.33 per cent), the manufacturer of the Eurofighter. Thales, another French company involved in major Indian defence programmes, is tied up with the US’s Raytheon and the UK’s BAE which, in turn, is the manufacturer of the Hawk trainer aircraft sold to India and will supply Ultra Light Howitzers to India through the FMS route on account of its several American acquisitions. In view of these links between European defence companies — and this sector has been largely privatized — the reality of dealing with ‘individual’ European countries gets diluted, although at the political level the commitment of individual governments to forging defence ties with India in depth can be differentiated.

That India should be the world’s largest importer of arms is a serious indictment of the state of indigenous defence manufacturing. India should have built domestic capability on an accelerated basis in view of the enduring combined threat from China and Pakistan and Western technology denial regimes applied to us. India cannot have genuine strategic autonomy without possessing an independent defence production base. We have, unfortunately, not been able to leverage our large-scale imports for obtaining the level of transfers of technology needed by us. Fortunately, the size of the Indian market has persuaded countries like France and Germany to reduce their defence supplies to Pakistan.

With the lifting of the nuclear sanctions on us and Western support for our membership of key technology denial regimes, meaningful technology transfers to us are now more possible in principle. The offsets policy can enlarge our domestic manufacturing base with participation by European companies, but unless the present 26 per cent ceiling on foreign direct investment is increased to at least 49 per cent, it would be on a sub-contractual basis, with serious technology transfers remaining elusive.