For the first time, India can afford (politically and financially) to purchase front line US equipment. They recognize the quality of US systems and have been astounded by the mission capable rates quoted for US aircraft compared to their older Russian inventory.

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E.O. 12958: DECL: 10/29/2019

TAGS: PRELP, PGOV, MAPP, MASS, IN

SUBJECT: SCENESETTER FOR USD(P) FLOURNOY,S VISIT TO INDIA

Classified By: Ambassador Timothy J. Roemer for reasons 1.4(B,D)

1. (SBU) Under Secretary Flournoy:

Mission India warmly welcomes you to New Delhi as we begin the final stages of preparation for Prime Minister Singh's November 22-26 visit to Washington. Since the Secretary of State's July visit, the Embassy has been hard at work with our counterparts in Washington and in the Indian government to ensure the PM visit strengthens and deepens the bilateral strategic partnership according to the Administration's priorities. You will be the most senior defense visitor since the election of new governments in both countries. For the first time since the US-India strategic relationship was established, there is an Indian government with a clear mandate not beholden to coalition partners. Prime Minister Manmohan Singh has made clear that he wants to improve and expand the defense relationship between our two nations.

Strategic Dialogue Deliverables

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2. (SBU) In the broader relationship, we have made progress across all five pillars and 18 sub-dialogues of the US-India Strategic Dialogue. Working with colleagues in Washington and the GOI, the Embassy has identified one major deliverable from each of the five pillars that will further the Administration's vision of a broader bilateral partnership. Our proposed deliverables include:

-- Strategic Cooperation: Law Enforcement and Security Cooperation Initiative (aka: Counterterrorism MOU);

-- Energy and Climate Change: Green Technology/Green Investment/Green Revolution;

-- Education and Development: Obama-Singh Education Fund;

-- Economics, Trade, and Agriculture: next gathering of the CEO Forum; and

-- Science, Technology, Health and Innovation: Global Disease Detection (GDD) Center.

3. (SBU) It is recognized there will be no large deliverables coming out of the DPG due to the maturation of the relationship and already robust exchange programs ranging from the agreement to purchase C130J and P-8I aircraft to cooperation on recovering the remains of WWII airmen in Northeast India. At the same time, the Indians have pressed us to include a strong statement on the defense relationship focusing on a commitment to military sales and technology transfer.

Other Upcoming Visits

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4. (SBU) During your visit, Under Secretary of State Maria Otero will lead the next Global Issues Forum with Foreign Secretary Rao in New Delhi on November 5. The Indian government remains interested in the outcome of the ongoing USG review of export control policies with regard to India.

5. (S//NF) We are also expecting visits from the Chairman of the Joint Chiefs of Staff, Director of the FBI and Under Secretary of State for Arms Control and International Security Ellen Tauscher among others in November, prior to the Prime Minister's trip to the US.

The Defense Relationship

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6. (SBU) The US-India relationship has progressed rapidly since sanctions were removed in 2000 following India's 1998 nuclear test. Today's relationship is focused on bilateral exercises, Subject Matter Expert Exchanges (SMEEs), and personal exchanges at schools, conferences and seminars. Defense sales are a growing component and a superb opportunity to expand the relationship.

7. (SBU) Exercises are the most visible of the activities between our two militaries. In October, the Army completed its most ambitious exercise with the deployment of 17 Strykers to India for a two week exercise which included live firing of a combined mechanized task force for the first time. Simultaneously, the Air Force had five transport aircraft participating in exercise COPE INDIA held in Agra that included a Special Forces component.

8. (SBU) The Navy conducts an annual exercise, Malabar, that has been done both bilaterally and multilaterally. Malabar is the only large scale multi-lateral exercise currently conducted in India. In addition, the Navy has been able to plan some opportunity events such as PASSEX (Passing Exercise) as ships pass through Indian waters as well as ship visits to major ports in India.

9. (SBU) The Marines hold an annual exercise with the Indian Army, Shatrujeet, which focuses on amphibious operations.

10. (SBU) Exercise Habu Nag, our only joint exercise, is usually conducted as a tabletop or Command Post Exercise (CPX) and was cancelled this year at the last minute. However, this exercise may provide the platform for a Joint Chiefs of Staff funded combined and joint exercise in the future.

11. (SBU) The Indians have been cooperating with the Joint POW/MIA Accountability Command for recovery of remains in the politically sensitive state of Arunachel Pradesh. To date, we are still working on obtaining permission to repatriate all of the remains so as to properly identify and recover lost Airmen.

Where Do We Go from Here

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12. (C//NF) We must continue the current level of interaction with the knowledge that we are making a difference and that our relationship with India is more robust than that of any other country India partners with, while at the same time nudging India to expand their commitments by signing the foundational agreements and by moving forward with military sales. Military Sales will provide opportunities for a sustained relationship far more robust than exercises and exchanges. If we can continue our trend of major military sales, we will cement a relationship for the next several decades with the most stable country in South Asia.

13. (S//NF) All of the PACOM theater security cooperation objectives can be implemented only with the acquiescence of the civilian leadership which, at times, appears to be at odds with the services' mil-to-mil desires. Specific examples include Minister of Defense Antony's rejection of the multilateral Malabar exercises despite the Indian Navy's preference for them. Additionally, though the US and India have conducted numerous Disaster Response / Humanitarian Assistance exercises and Subject Matter Expert Exchanges (SMEE) since 2000, the two nations have never implemented coalition operations in an actual disaster situation. During the last disaster in Myanmar in 2008, each Indian service

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deferred our requests for a joint US-Indian response to the Ministry of External Affairs, which delayed a formal response until it became moot. In the current context, the civilian leadership continues to defer on key foundational documents necessary to move the US-India mil-to-mil relationship closer. With regard to the proposed CISMOA, NGA BECA and LSA, USDAO New Delhi believes the delay is caused by fundamental misunderstandings on the Indian side of what commitments would be required. We recently dissuaded senior IAF leadership of the idea that signing the CISMOA would enable the US to electronically access India's classified command and control systems. We have also read editorials claiming that an LSA would guarantee the United States access to Indian facilities in times of conflict even over Indian opposition. In addition, for the last year, we have been trying to secure a National Geospatial-Intelligence Agency Basic Exchange and Cooperation Agreement (BECA) to facilitate transfer of mapping and geospatial information used on US equipment (C-130-J and P-8I). The Indian Integrated Defense Staff has been unable to provide a response, forcing US Defense companies to develop non-interoperable alternative solutions for India's mapping needs. It also appears the GOI is avoiding decisions on these Agreements for fear that the political opposition would seize on it to further their often repeated claims that India is sub-serving its foreign policy to that of the US.

14. (S//NF) In July 2008, the GOI declined to continue the bilateral MORNING DEW intelligence exchange agreement. While not very productive for the US in terms of the intelligence India provided, it did lay the foundation for regular intelligence exchanges and we hoped to develop the Indian intelligence capability and capacity over time. Since then, the Indian services have been seeking ""Information Exchanges"" that would not require senior GOI scrutiny. The reality is that military intel exchanges have generally ceased. We request that you re-engage your interlocutors on this subject as it is a key objective of the 2005 Framework Agreement.

Challenges

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15. (C//NF) We are still plagued by a lack of bureaucratic capacity within the services and the ministry which has too often resulted in late notice cancellations of events and visits. The Foreign Secretary and the Ministry of External Affairs are now paying closer attention to this aspect and have been helpful with encouraging the Ministry of Defense to honor its commitments. DASD Scher was assured by the Additional Secretary of the Ministry of Defense that there was no message intended in these cancellations. However, the services and the Ministries must understand the implications on our resources used when they fail to follow through on commitments.

16. (C//NF) Following the July 2009 agreement on End Use Monitoring (EUM) language, we need to move forward with implementation of Enhanced EUM (EEUM) on NVDs in possession of the Indian Navy. An EEUM Compliance Plan will be briefed during the DPPG and we hope to establish a way forward on this issue then. In the event EEUM compliance remains unresolved for the DPG, we ask that you consider raising the issue as an impediment to further defense sales - in particular the Indian Air Force requests for NVGs and Harpoon Missiles - both EEUM items.

Defense Sales Represent a Growing Opportunity

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17. (C//NF) Defense Sales are growing quickly from roughly one billion USD in 2008, to over two billion so far this year. There is good potential for over four billion next

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year. For the first time, India can afford (politically and financially) to purchase front line US equipment. They recognize the quality of US systems and have been astounded by the mission capable rates quoted for US aircraft compared to their older Russian inventory. They are becoming increasingly sophisticated in their analysis of costs and now use life-cycle cost instead of cost on delivery for some purchases giving US products an opportunity to beat cheaply made competitors. Most important, the July 2009 agreement on EUM has opened the door for FMS sales at a time when there is growing frustration with Russia - previously India's supplier of choice. The near doubling in cost and extensive delays in delivery of the ex-Russian aircraft carrier GORSHKOV, issues with transfer of technology on the T-90 tank, and universal problems with spare parts have convinced the GOI that new sources of supply are needed to balance Russia. Given an opportunity, we ask that you endorse Indian purchases of US equipment as an important part of our defense relationship and support our ongoing sales efforts. Near term sales opportunities include:

Indian Air Force

- Sensor Fuzed Weapons (SFW) - LOA expected shortly for 510 SFW for the IAF. LOA had been on hold pending EUM resolution (FMS, 379M USD).

- Harpoon Missiles - LOA for 20 air-launched Harpoons passed to the IAF who requested the paragraph containing EEUM requirements be contained in a classified annex similar to EUM text. DSCA has accommodated the change and we expect a revised LOA shortly (FMS, 74M USD).

- C-130J - We expect the IAF to amend the existing FMS contract for C-130Js to add six additional aircraft in 2010 (FMS, 800M USD).

- C-17 - SAF/IA is actively working with the IAF to develop an LOR for 10 C-17s. We expect the LOA to be signed in 2010 (FMS, 4B USD).

- F-125IN Jet Engines - Honeywell is offering the F125IN engine as an upgrade for the IAF Jaguars. This competition for 306 engines is expected to take place in 2010 (DCS, 4.3B USD).

- GE-414 Engines - GE is offering to provide 148 engines for the indigenous Light Combat Aircraft (LCA). Competition in 2010 (DCS, 800M USD).

- Medium Multi-Role Combat Aircraft - The Boeing F-18IN and the Lockheed F-16IN are among the six competitors to produce 126 IAF fighter aircraft. Flight trials have begun and the IAF technical evaluation is due to MOD in the summer of 2010 (FMS, 10B USD).

- Heavy Lift Helicopter - The Boeing CH-47 Chinook is competing to provide the IAF 15 helicopters (DCS, 1B USD).

- Attack Helicopter - The Boeing AH-64 Apache is competing for a contract for 22 helicopters (DCS/FMS, 1B USD).

Indian Navy

- Network Centric Operations Prototype - Raytheon was the low bidder for this system, but Israeli competitors have requested a review of Raytheon's bid. Although Raytheon was some 20M USD below the next lowest bid, Raytheon is concerned the Indian Navy will be forced to reissue the RFP (DCS, 29M USD).

- Multi-Role Helicopter - Sikorsky (S-70B) and Lockheed (MH-60R) are competing to provide 16 helicopters for the

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Indian Navy. The announcement of competitors moving forward to flight trials is expected momentarily (FMS, 1B USD).

Indian Army

- M-777 Light Weight 155MM Howitzer - LOA in development for 145 M-777 155MM Howitzers (FMS, 900M USD).

- Javelin Anti-Tank Guided Missiles - The Indian Army is actively developing an LOR for 9,000 Javelin missiles. We demonstrated these missiles during exercise YUDH ABHYAS (FMS, 1.4B USD).

- Patriot PAC3 - In 2008 the Indian Army sent the Office of Defense Cooperation (ODC) an RFP for a Medium Range Surface to Air Missile modeled on the Patriot. The USG did not respond and the Indian Army cancelled the RFP because they wanted the Patriot. Currently the ENDP process is ongoing for a classified briefing requested by the Indian Army. We believe an offer to sell Patriot would be well received by the Indian Army and taken as a sign that the US has made a political decision to offer India advanced military technology (FMS, 2B USD).

Reliability Concerns and Problems with Existing Cases

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18. (C//NF) Our ability to seize the opportunities presented by this newly improved environment is limited by the commonly held view that the US will not prove to be a reliable supplier of defense equipment. Our competitors point to the imposition of sanctions following India's Pokhran II nuclear tests and our close defense relationship with Pakistan as rationale that the US should not be trusted. Although, as our overall relationship improves, the GOI seems increasingly less concerned on this point, one source told us the Indian Army will never put US equipment in Divisions facing Pakistan because they expect the US will stop military supplies in the event of Indo-Pak hostilities. Further, in the absence of a history of successful military sales, the Indian military looks to ongoing cases as models of what to expect in the future. The Indian Air Force is very pleased with management of the C-130J case and we understand this has led to a preference to purchase the C-17 via FMS rather than DCS. There are, however, several older cases that present challenges and we expect the Indian Services to raise their concerns during the DPPG and the DPG.

- Army Special Forces Equipment - LOA was signed April 2005. Delivery of M-4 Carbines and ammunition has been delayed by the failure of the GOI to employ a freight forwarder licensed to ship sensitive items. Amendment 3 offers to ship this equipment via DTS for 1.2M USD - a cost the Indians find staggering. Some off-the-shelf items (cameras, camcorders, out-board motor propellers) have not been delivered or ordered. The Indian army has been vocal in their criticism of this slow developing case, but ironically intends to increase the quantities on order.

- AN/TPQ-37 Weapons Locating Radar - These radars were advertised to work at elevations up to 10,000 ft, but due to problems with the travelling wave tubes, they are only operational to around 9,000 ft. Resolution of this technical issue is under review by Raytheon. Indian Army is dubious the Mini-Depot case supporting these radars will be delivered on time in April 2010. LOAs for Blanket Order Spares and CLSSA are being reviewed by the Indian Army with an offer expiration date of 6 NOV 09.

- Large Aircraft Infrared Countermeasures (LAIRCM) - These systems are a great concern to the Indian Air Force as they protect three Boeing VVIP configured 737s intended for NEW DELHI 00002198 006 OF 008 travel by the Head of State. Discussions are ongoing regarding IAF claims that the systems alarms on spurious signals.

- Submarine Rescue - The Indian Navy was unable to provide required technical data on Russian KILO and FOXTROT class submarines. NAVSEA efforts to perform metallurgical testing and measurements to create the necessary data has proved expensive and the case is now out of funds with only the 209 class submarines certified to mate with US rescue equipment. ODC has arranged a VTC between NAVSEA and Indian Navy SMEs to determine the way forward.

US Industry Concerns

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19. (SBU) The Ministry of Defense established India's Defense Procurement Procedures (DPP) in 2002 and has revised the DPP three times since DPP 2008 currently in force. The Defense Minister just announced that DPP 2009 will be released on 1 November. Although each revision of the DPP is generally considered a step forward from the previous version, US Industry views the progress as slow and complains that despite a growing role in the defense market, they have little influence on DPP changes. Key concerns of US Industry include:

- The standard DPP contract does not provide post for delivery limitations of liability. US Companies are concerned Indian courts may hold them liable for damages far exceeding the value of the contract, resulting from events they could not control, such as post-delivery accidents due to pilot error or improper maintenance.

- Existing Foreign Direct Investment (FDI) policy restricts foreign equity in defense sector companies to 26 percent. This low cap on FDI effectively inhibits participation of US companies in two ways. First, US companies are unlikely to transfer sophisticated technology to joint ventures where they have such limited control. Second, given the fledgling state of the Indian defense industry, large investments (mandated by offset requirements of up to 50 percent) will be very difficult to match with a corresponding investment of 74 percent from Indian industry.

- DPP 2008 calls for offsets of up to 50 percent that can only be fulfilled through investment in the defense sector. On large purchases (such as the $10B MMRCA buy) this will amount to a huge investment that is beyond the capacity of the Indian defense sector - particularly given the 26 percent cap on foreign equity. Expanding the sectors eligible to include related industries (commercial aircraft or power for example) will provide greater flexibility for US industry to invest.

- Offset credits can be banked for only two years under DPP 2008 while five to ten years is common in other countries. The short duration of credits makes it difficult for contractors to match investments with unpredictable timelines for government purchases.

Domestic Politics

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20. (C) The strong performance by the Congress Party and its United Progressive Alliance (UPA) allies in India's national elections has provided the Congress Party with a mandate to govern, after years of battling communists and regional coalition ""partners"" over issues including a closer relationship with the United States. Despite the strong endorsement by the electorate and a floundering opposition,

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the UPA government has gotten off the blocks somewhat slowly. The honeymoon period was cut short when fallout over a joint statement that came out of Singh's July 16 Sharm el-Sheikh meeting with Pakistani PM Gilani proved a headache for his government and an opportunity for Singh's political opponents. Even more significantly, Singh's position at Sharm met with significant dissent from within his own ruling coalition, including heavyweights like Finance Minister Mukherjee. The opposition BJP seized upon the Sharm el-Sheikh issue, looking to rebound from the party's poor showing in the national elections. This move won temporary political points for the BJP, but the party's steady summer implosion involving vicious factionalism and the high-profile expulsion of former party leader Jaswant Singh facilitated the UPA government's rebound from Sharm. The UPA government has also moved much slower than was hoped on long-awaited financial sector liberalization, including insurance, banking and pension bills that did not get introduced as expected during the last session of Parliament that ended in August. There is still optimism that there may be progress at least on the insurance and banking bills in the November-December session. Minister for Human Resources Development Kapil Sibal remains committed to education reform, including legislation permitting the entry of foreign educational providers into the Indian market.

Indian Views on Pakistan and Afghanistan

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21. (C) Pursuant to a July agreement between the Indian and Pakistani Prime Ministers, top diplomats from both countries met on the sidelines of UNGA last month. The Indians report that while the tone was constructive, the talks failed to break any new ground and that they are waiting for Pakistan to demonstrate good faith in acting against terror directed at India before agreeing to re-engage in a ""Composite Dialogue"" that was suspended after the Mumbai attacks last November. GOI officials have been reluctant to spell out concrete measures that would constitute Pakistani good faith, though they are clearly looking for the arrest, conviction, and incarceration of Lashkar-e-Taiba leader Hafez Saeed for the Mumbai attacks, a dismantlement of Lashkar-e-Taiba infrastructure, and a halt in cross-border infiltration. GOI must also factor lingering public and political class anger over Mumbai into its Composite Dialogue resumption calculus, as most observers believed PM Singh strayed too far out in front of the p ublic and his own coalition by agreeing to the July accord with his Pakistani counterpart. The prevailing Indian assumption is that Pakistan lurks behind the October 8 bombing of the Indian Embassy in Kabul, and this perception will give the GOI less room to move forward in resuming the Composite Dialogue. You can also expect questions from your GOI interlocutors, particularly NSA Narayanan, on US assistance to Pakistan and how this might be diverted against India.

22. (C) The October Indian Embassy bombing has prompted India to reaffirm its commitment to rebuilding Afghanistan. India points with pride to its ongoing ""development partnership"" with post-Taliban Afghanistan that began in late 2001, with pledged GOI assistance to date totaling some USD 1.3 billion. India has refrained from public comment on the outcome of Afghanistan's elections, though it is clear that the GOI has a good rapport with Hamid Karzai and his rival Abdullah Abdullah.

Your Meetings

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23. (SBU) The Indian government is eager to receive you and

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finalize plans and deliverables for the PM's November visit. The MEA and MOD have told us that most if not all of the seniorofficials we have requested will be available to meet with you: National Security Advisor Narayanan, Defense Minister Antony, Foreign Secretary Rao and Chairman of Chiefs of Staff Committee General Kapoor.

ROEMER