While indicating his country’s eagerness to step up defence cooperation, visiting U.S. Deputy Secretary of Defence Department Dr. Ashton B. Carter on Monday said if India raised its Foreign Direct Investment (FDI) ceiling in defence to international standards, it would increase commercial incentives to invest.

In an interactive session on “U.S.-India Defence Cooperation: The Way Forward,” organised by the Confederation of Indian Industry (CII), he also referred to India’s policy of offsets which, he said, could be helpful to growing industry capabilities – if there were the right companies, and the right absorptive capacity.

“If offsets are calibrated correctly, it works. But if offset requirements are too onerous or too narrow, they deter a company’s interest. For companies to participate, our arrangements must make good economic sense as well as good strategic sense,” Dr. Carter said.

His visit comes less than a month of U.S. Defence Secretary Leon Panetta’s to New Delhi.

India had introduced the offset policy in 2005 and the first offset contract was signed in 2007. Defence Minister A.K. Antony had told Parliament in May that the country had already attracted over $4.27 billion through defence “offsets” through arms contracts inked since October 2007.

The defence procurement policy specified that a foreign armament company, which bagged an arms deal over Rs. 300 crore, must plough back at least 30 per cent of the contract value back into India as offsets.

On the amount spent on capital acquisitions from foreign sources, Mr. Antony had said that Rs. 15,443 crore was spent in 2010-11, while the figure for 2009-10 stood at Rs. 13,411 crore. India still imports almost 70 per cent of its defence requirements because the DRDO and defence PSUs have got their act together and the private sector has also not made major foray into the defence arena. India allows 26 per cent FDI in the sector.

Terming the U.S.-India relationship as “global” in scope, Dr. Carter said that defence interests of the two countries also converge in maritime security and on broader regional issues. “I like to think of India and the United States as kindred souls. We share common values as well as common interests, and we share strong bonds in trade and technology, as well as security,” he said.

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