by Titli Basu

Defence Minister Nirmala Sitharaman invited Japan to participate in the two defence industrial production corridors in Tamil Nadu and Uttar Pradesh during the Annual Defence Ministerial Dialogue held in August 2018. These corridors are aimed at boosting the defence ecosystem and reinforcing Prime Minister Narendra Modi’s signature Make in India initiative. The Make in India campaign intersects with the unfolding reorientation in Japan’s post-war security posture and its easing of the arms export policy exemplified by Prime Minister Shinzo Abe’s outlining of the Three Principles on Transfer of Defence Equipment and Technology in April 2014. Since then, India and Japan have engaged in complex deliberations on the prospects of sourcing Japanese defence technology, joint development and production of defence equipment.

Within the framework of India-Japan Vision 2025, the political leadership has designed an “action-oriented partnership”, which, among other things, urged defence technology cooperation including co-development and co-production. India’s objective is to benefit from Japan’s technological prowess in its pursuit of defence modernisation and diversifying its sources of acquisition. And Japan’s goal is to revive its waning defence industry as it comes out of the decades-old export ban by participating in international joint development and production projects. It is crucial for Japan to participate in international joint development projects, which is key to sustaining its own defence production and technology base as outlined in the June 2014 Strategy on Defence Production and Technological Bases. In this regard, the Strategy refers to fostering cooperation with India as well as with the US, European countries including UK and France, Australia and Southeast Asian nations.

Accordingly, defence and security cooperation has been identified as the foremost out of five priority areas for conceiving “new signature projects”. Japan has been acknowledged as a “privileged partner” in the Make in India drive and the leadership of the two countries has professed defence technology cooperation as having the potential to “emerge as a key pillar of bilateral defence relations”. The Agreement Concerning Transfer of Defence Equipment and Technology Cooperation and the Agreement Concerning Security Measures for the Protection of Classified Military Information were signed in December 2015, redefining the latitude for defence cooperation and paving the way for joint research, development and/or production projects.

Defence and security cooperation constitutes a core component of the India-Japan Special Strategic Partnership. Since the 2008 Joint Declaration on Security Cooperation, bilateral cooperation has revolved around high level defence exchanges and the expanding scope and complexity of joint exercises including anti-submarine warfare, mine counter-measures, counter-terrorism, and so on. While robust maritime cooperation constitutes the mainstay of India-Japan security cooperation in bilateral, trilateral and multilateral frameworks, trade in defence equipment and technology by way of joint research, co-development and co-production is a relatively new area. With the aim of supporting equipment collaboration with defence and dual-use technologies between the governments and defence industries as well as between businesses, the India-Japan Defence Industry Forum was instituted in 2017, drawing upon the efforts of Japan’s Acquisition, Technology and Logistical Agency (ATLA) and India’s Department of Defence Production (DDP). Demonstrating bilateral commitment, India and Japan unveiled a new chapter in defence cooperation with their maiden project -- Cooperative Research in the Area of Unmanned Ground Vehicle (UGV)/Robotics -- agreed to by the two defence ministries in July 2018. Following the bilateral agreement on defence equipment and technology, technical discussion involving ATLA and the Defence Research and Development Organisation (DRDO) intensified and culminated in the first cooperative research project on the Visual Simultaneous Localisation and Mapping (SLAM) Based Global Navigation Satellite System (GNSS) Augmentation Technology for UGV/robotics.

In the run up to the Defence Ministerial Dialogue held earlier this month, the fourth Joint Working Group on Defence Equipment and Technology Cooperation (JWG-DETC) was hosted in July with the goal of identifying particular items and areas for cooperation in joint development and production. The JWG-DETC was instituted in February 2015, following the landmark shift in Japan’s arms export policy referred to earlier. Prime Minister Modi has encouraged Japan to participate in Project 75(I) which seeks to collaboratively build six diesel-electric submarines with air-independent propulsion (AIP) capability for the Indian Navy. The Navy issued a request-for-information (RFI) in July 2017 to Mitsubishi Heavy Industries and Kawasaki Heavy Industries, manufacturers of the ultra-quiet Soryu class submarine, as well as to other foreign manufacturers including ThyssenKrupp Marine Systems, Naval Group, Navantia, Saab and Rubin Design Bureau-Amur Shipyard. However, these two Japanese companies have refrained from responding to the RFI perhaps because of Japan’s experience with the long and difficult negotiations concerning the state-of-the-art Utility Seaplane Mark 2 (US-2) amphibian aircraft, manufactured by ShinMaywa Industries.

Thus, while broad agreement at the political leadership level has been easier to achieve, negotiations relating to defence equipment and technology cooperation have proved to be rather difficult, shaped as these are by a complex interplay of critical variables like cost-competitiveness, technology transfer and domestic politics. India’s quest of defence modernisation and diversifying its acquisition sources present opportunities for Japanese defence industry, which, prior to 2014, focused solely on the domestic market given the value of tsutsushimu, entailing restrictions on arms transfers which barred Japan from entering the international defence market and participating in joint development and production of arms. But navigating India’s opaque defence procurement and offset policies is a colossal challenge for Japan, which is relatively new to the fiercely competitive international defence market. Further, in cost-sensitive markets like India, policymakers are guided by variables such as cost-competitiveness, technology transfer, setting up of a manufacturing base in the country, and job creation. But these determinants are not unique to India. Japan’s attempt to sell its 4,000-ton Soryu-class diesel-electric attack stealth submarine to Australia, despite Abe’s determined diplomatic campaign, also failed because of some of these variables in addition to Canberra’s technical and military priorities. Even after Tony Abbott’s departure and his successor’s decision to open up the deal for bidding, Japan refused to compete because of its hesitation to share technology and aversion to build the submarines in Adelaide.

India is indeed interested in sourcing the US-2 amphibian aircraft, which would be useful for patrolling the Andaman and Nicobar Islands and for conducting search and rescue operations in the Indian Ocean. But concluding the first defence equipment cooperation with Japan under the Make in India initiative through government to government route has proved difficult due to the complexities of pricing, offset clause and technology transfer. Thus, despite the MoU signed between Mahindra Defence and Shinmaywa Industries in April 2018, the press statement issued after the latest meeting between Defence Minister Sitharaman and her Japanese counterpart Itsunori Onodera refrained from updating the status of the imminent deal.

Meanwhile, the business lobbies in both countries have argued in favour of fostering high-technology cooperation. SIPRI data reflects that India has emerged as the largest importer of major arms between 2012 and 2016, accounting for 13 per cent of the global total. The India-Japan Business Leaders Forum has frequently underscored the need for robust engagement in “high-technology areas in the defence and security sectors”. And, the Japan Business Federation or Keidanren has prioritised India, besides the US, Europe and Southeast Asia, while enunciating the importance of promoting equipment and technology cooperation with foreign countries. Japanese defence enterprises visited India in August 2018 following up on the maiden India-Japan Defence Industry Forum hosted in Tokyo last September to pursue cooperation in high-technology items.

Japan has projected success stories for Make in India in other sectors with the Suzuki-Toshiba-Denso joint venture for automotive lithium-ion battery packs aimed at the domestic and global markets and Made-in-India Suzuki Baleno export to the international market. But in the defence sector foreign companies will have to be incentivised to set up defence manufacturing bases in India. India is doing business with the US, Russia, Israel and others for a while but Japan is a relatively new partner. Both sides need to invest more energy in developing a robust understanding about each other’s defence sector, and grasp the cultural differences and explore prospects for future cooperation. Cultural sensitivities are important while dealing with Japan. For Japan, defence equipment and technology cooperation is more than just arms trade. It is a very important component in Prime Minister Abe’s larger security conceptualisation of Japan’s Proactive Contribution to Peace.

It is also important to note that a revised arms export policy in itself is not sufficient to promote defence cooperation. Despite a robust civilian manufacturing base and being a repository of dual-use technology, cost-competitiveness and relative inexperience in global arms market are a fundamental challenge confronting the Japanese defence industry. The issue of cost-competitiveness can be traced back to the structural constrains imposed on the Japanese defence industry owing to the prohibition of arms exports, making it very different from its US and European counterparts. To remain competitive, US and European companies have restructured with mergers and acquisitions as well as joint ventures aimed at achieving improved efficiency. In contrast, for the Japanese defence industry, the Self-Defence Forces were the sole consumer for decades. And since the quantum of the defence ministry’s procurement level is small, the cost of producing the equipment becomes high and translates into low profits for the contractors. Limitations on arms export have curtailed the prospects of achieving more favourable economies of scale.

The 2015 Agreement on Defence Equipment and Technology Cooperation elevated the strategic partnership to newer heights as India and Japan began technical discussions on the prospects of equipment and technology cooperation. Japan has reportedly reduced the price from US$ 133 million to 113 per US-2 following intense negotiations. Moving ahead cost-competitiveness will be key for Japan as it targets markets like Southeast Asia and India. The focus in the immediate term is likely to be on international joint development and production, and export of small items instead of big ticket items like submarines. In this regard, India should consider Japanese surveillance radars, communications, and electronic warfare technologies, etc. While India traverses the challenges linked with indigenous production, refining the investment setting, enabling defence manufacturers to absorb technology transfer through offsets, Japan faces the litmus test of making its defence industry competitive and globalised.