India-US Strategic And Defence Co-Operation Likely To Increase.

Although the India-US Civil Nuclear Agreement, which set up the bilateral framework for investment in India's nuclear energy sector, was ratified by both countries in 2008, US companies have so far been hesitant to commit to any investments.

India-US Strategic And Defence Co-Operation Likely To Increase.

India's Civil Liability for Nuclear Damage Act 2010 was intended to allay concerns about supplier liability, with US companies wanting operators to take full legal responsibility, and with it the obligation to pay compensation in case of an accident at a plant. However, in clause 17, the law also allows operators to seek financial recourse from suppliers after paying compensation for "patent or latent defects or sub-standard services". 

With supplier liability concerns persisting because of the clause, the Modi government has now agreed to establish a USD245-million India Nuclear Insurance Pool in part through state-owned companies. But more importantly, it has agreed to issue a memorandum of law - effectively an executive order approved by the attorney general - that limits operators from seeking redress under clause 17 of the 2010 act from foreign courts. In exchange, it appears that India has given concessions on monitoring of its nuclear sites to comply with US laws.

Official details of the agreement have still not been released, but there appears to be potential for legal ambiguity pitting the statute against the memorandum of law. Any discrepancy is likely to face intense scrutiny and criticism from the opposition and civil society in India. The current ruling party, the Bharatiya Janata Party (BJP), was deeply critical of the 2010 act while in opposition, accusing it of being drafted under US pressure. Moreover, the Bhopal gas tragedy in 1984, in which more than 3,000 people were killed, and the more recent Fukushima disaster in Japan in 2011, will ensure that resistance from locals and civil society will be likely in the event that any nuclear project is undertaken. Along with the broader challenges of doing business in India (inefficient bureaucracy, corruption, and extensive red tape), this will probably mean that further legal clarification will be needed for US companies to commit to investments.

As part of its broader plan to boost economic growth and develop India's military capability, the Modi government has relaxed restrictions on investment in India's defence sector, increasing foreign-investment caps in the defence sector from 26% to 49%. 

Although corruption and red-tape risks continue to persist, this will make India's defence sector more attractive to US companies. However, further co-operation is likely to be centred on India's objective of developing its own defence industry and transfer of technology. India already requires foreign suppliers to reinvest 30% of defence sales over USD55-million into Indian defence companies.India has sought to diversify its defence procurement away from a reliance on Russian equipment. In this context, US defence sales to India have increased markedly since 2008, reaching USD9 billion in 2014. Both countries are likely to work on developing defence ties further. During Obama's trip, New Delhi and Washington also revealed the details of enhanced defence co-operation under the Defence Technology and Trade Initiative (DTTI). The two governments will undertake four "pathfinder" projects, including the development of intelligence-gathering and reconnaissance modules for Indian C-130J Super Hercules aircraft purchased from the US in 2007 as well as RQ-11 Raven unmanned aerial vehicles (UAVs). The plans involve the US government and private US companies.