In all the talk of “deliverables” that might come out of US President Barack Obama’s trip to India which began on Sunday, two areas seem like no-brainers. Both countries stand to benefit greatly from greater cooperation in civil nuclear power and defence technology, unlike other areas where very real conflicts remain. The US is home to manufacturers of cutting-edge nuclear technology and military equipment, which are eager for new markets abroad. India is starved for power and almost entirely dependent on imports for military equipment. It’s desperate for quality suppliers.

Between them, India’s needs are greater. When he meets with Indian Prime Minister Narendra Modi, Obama will press for concessions that would open the door for US companies. Modi should grant them.

Unquestionably, the biggest breakthrough in US-India ties in recent history was the signing of a civil nuclear agreement in 2005 under which India agreed to separate its military and civil nuclear programmes and to put the latter under the supervision of the International Atomic Energy Agency. Significantly, the deal permitted India de facto entry into the exclusive club of nuclear-armed nations — much more in its interest than America’s — and allowed the US to sell India the technology for civil nuclear plants. The latter should in theory have benefited both.

Unfortunately, a controversial liability law passed by the Indian Parliament in 2010 ended up stalling any prospect of investment. The bone of contention lies in two particular clauses. One of these places the liability for any accident caused by faulty or defective equipment on the supplier rather than the operator of the plant, which in this case would be the state-owned Nuclear Power Corporation of India.

This clause in the law is tougher than — and indeed, violates — the Convention on Supplementary Compensation for Nuclear Damage, which makes only operators liable for accidents. The second clause leaves liability unlimited, which is unusual by international standards. That means that no US nuclear energy company can get insurance to supply equipment to India.

The stakes are much higher for India than for the US. India’s total power supply currently falls at least 10 per cent below its peak demand. Nuclear meets only 3 per cent of its power needs; the government wants to quadruple the amount of power generated by nuclear plants over the next five years. Given fluctuations in the price of coal — which currently contributes over 60 per cent of India’s power — as well as the impact on climate change and environmental costs of coal mining, the country has no option but to invest more in nuclear.

Ideally, Modi, whose party was in opposition when the liability law was passed, would move to abolish both controversial clauses. As a stopgap, Indian and US negotiators are hard at work in London to see if an insurance pool can be set up by Indian companies to offset the extra financial burden put on US suppliers. But Modi needs to make the case for changing the law in the public interest — at least to put a time limit on the first clause and introduce limited liability into the second. The prime minister hasn’t hesitated to initiate other reforms through executive action. He could do the same in this case while awaiting parliamentary approval.

Defence sales should be more straightforward. The US is already the biggest supplier of arms to India, overtaking France and Russia in 2013. It’s clearly in India’s interests to reduce its dependence on imports, which currently account for over 80 per cent of its arms purchases. To do so, it needs to make it easier for US manufacturers to invest in India. Modi’s government has raised limits on foreign ownership in the defence sector from from 26 per cent to 49 per cent. But without management control, few companies are likely to invest in such a high-technology industry.

The government should seriously consider raising the limit on foreign investment to at least 74 per cent. India must also abandon longstanding political hangups about using the same US weaponry as archrival Pakistan. The fact is that US defence technology far surpasses that of Russian or European suppliers. Given India’s hostile security environment, with nuclear powers Pakistan and China on either border, its armed forces need to buy the best.

Modi has shown he’s not afraid of taking risks: Simply inviting a US president to be the guest of honour at Republic Day was too difficult for any other prime minister to attempt earlier. Now’s the time for Modi to take more chances — for India’s sake.

–Washington Post

Dhiraj Nayyar is a journalist in New Delhi.