India’s defence gambit

Plans by the Narendra Modi government to ramp up foreign direct investment (FDI) in the country’s nascent defence sector -- from the current 26 to 51 per cent -- has triggered an intense debate about the merits and demerits of such a deregulation.

Though the issue has always been a fraught one in India, there are fresh concerns that the proposed liberalisation – ostensibly aimed at accelerating the modernisation of the armed forces -- could hurt indigenous defence production, and may even compromise national security. Erstwhile defence minister A.K. Antony, of the Congress regime, has dubbed the proposal “suicidal”.

However, supporters weigh in by saying that such a deregulation can not only help bolster India’s defence preparedness, but may even transform the country into a global manufacturing hub for defence equipment, earning billions of dollars in foreign exchange.

India has permitted FDI in defence since 2001 when participation in defence production was thrown open to private players. Through an augmented FDI limit, Modi intends to strengthen India’s military capabilities and gradually transform the world’s largest arms importer into a heavyweight manufacturer — a goal that none of the governments have been able to accomplish since independence in 1947. Also playing on New Delhi’s mind are security threats from a volatile neighbourhood.

Liberalisation will also encourage the flow of new players and small and medium entrepreneurs into the sector. This will have a multiplier effect – an upward spiral in the number of manufacturers with the benefit of competition trickling down to augment quality and cost-effectiveness of equipment.

Policy-makers have long been keen on allowing FDI in the sector to whittle down the country’s dependence on imports. A key government panel last year suggested a framework to shore up foreign participation in the defence sector in its report on overall FDI policy. But the defence ministry nixed the proposal over security concerns.

Partly due to its notorious bureaucratese, India remains the world’s biggest buyer of arms, importing nearly three times as many weapons as its nearest competitors China and Pakistan. Last year, Delhi shelled out some $6 billion on weapons imports while making few of its own. The total volume of arms sales spiraled up 14 per cent between 2009-13 compared to the previous five years, according to the Stockholm International Peace Research Institute.

China, which until 2006 was the largest importer of defence goods, is today the fifth largest defence equipment exporter. How did Beijing achieve this distinction? This is a topic Delhi should ponder over. Paradoxically, India, which boasts of a huge pool of technically qualified, globally competitive manpower ranks as the largest importer! Even a tiny country like Israel, which gained independence at almost the same time as India and with a population less than one per cent of India’s, today accounts for 10 per cent of total global defence exports.

Analysts say that if India ups its game in defence production, the geopolitical dynamics of the entire region will change. In a highly restive security environment, it is imperative for India — Asia’s third largest economy with a formidable capability -- to maximise indigenisation and self-reliance in defence equipment. A credible defence capability achieved through self-reliance and strategic independence will also help New Delhi play a more enhanced role in Asia.

Not only that. With its impressive indigenous defence manufacturing infrastructure – a network of defence and research labs, ordnance factories, highly reputed educational institutions, private industries as well as skilled young manpower — India possesses the right ingredients to become a major hub for defence equipment production.

As India’s outreach to its neighbours increases under Modi’s ‘neighbor’s first’ policy, the country will need to be seen as a confident power capable of not only guarding its own borders but its neighbourhood as well. A vibrant defence sector will help Delhi achieve that aim.

Neeta Lal is a Delhi-based journalist