The million-dollar question is that have we facilitated FDI as to attract foreign firms in our defence sector? Ironically, the reply is a big NO. We have just raised the FDI in defence from 26 per cent to 49 per cent.

The title of this article may cause critics to sit up questioning how can foreign investment be the route to indigenisation? The answer is pretty simple. When you have a glut in technology including specific voids, then you need to get it from overseas, implying foreign direct investment (FDI).

The next question would be, who in the hell will give you state-of-the-art technology? Valid point, but the answer is that someone just might, if they find it suiting their own national interest given the rapidly changing geopolitical scene. Heading the US side during the launch of the US-India Defence Technology and Trade Initiative (DTTI) in New Delhi in September 2013, the US Deputy Secretary of Defense Ashton B. Carter (now replaced by Frank Kendall) had said that US technology and exports control areas were being looked at so that India has the same status as the ‘closest allies’ of US, for the US system to operate on a timescale consistent with the needs for the Indian side to make decisions, the aim being to take the Indo-US defence relationship to the next level and help India raise the indigenisation of its defence systems.

Then we have strategic partnership with many other countries as well. However, even in the instance where we do not get top-of-the-line technology, we still can get the next best. Therefore a joint venture (JV) with transfer of technology (ToT) is the route to indigenisation. Of course countries like China and her two nuclear talons (Pakistan and North Korea) excel in reverse engineering and exploit dual use technology in order to leapfrog technology without inhibitions of intellectual property rights and global norms.

With reference to India’s defence equipment, our Ministry of Commerce and Industry states that the defence equipment currently held by us is 50 per cent obsolete. The proportion of state-of-the-art equipment also needs to grow from its current level of 15 per cent to 30 per cent, and the current cycle including acquisitions drafted under the long-term integrated perspective plan (LTIPP), is expected to include procurements worth $100 billion by 2022. So the picture is not very rosy.

Interestingly, the Ministry website also says that as per a survey undertaken by the Defence Division of the Confederation of Indian Industry (CII) conducted by KPMG, approximately 62 per cent of the companies believe that the Indian market is an attractive proposition for foreign defence companies owing to India’s large procurement plans. This is hardly surprising. In fact, the surprise should be why only 62 per cent and not more number of companies want to invest in the defence sector in India? However, this notwithstanding the point to note is that these 62 per cent companies are interested on the basis of India’s ‘large procurement plans’.

But the million-dollar question is that have we facilitated FDI as to attract foreign firms in our defence sector? Ironically, the reply is a big NO. We have just raised the FDI in defence from 26 per cent to 49 per cent. It is not clear whether we incisively analysed what were the reasons that with 26 per cent FDI in defence in the last 14 years, we could attract just less than $5 million (just 4.34 per cent). Had we done this analysis, it would have probably indicated as to what should be the level of FDI that would make the defence sector lucrative to foreign companies.

The 49 per cent hike in FDI was announced by the Finance-cum-Defence Minister while presenting the union budget in the Parliament amongst thunderous clapping but ironically the very next day Ulrich Grillo, President, Federation of German Industries met the Defence Minister and later told reporters that German Industries would not like to invest in India since with 49 per cent FDI they would not have control over selling the products. That is the harsh truth applicable across the board as far as the defence sector is concerned.

The fact is that while the FDI Confidence Index of the country per se has been very high, in the defence sector it has been extremely low, and in the current context is likely to remain so despite the Prime Minister’s call of ‘Make in India, Sell Anywhere’.

One wonders if the arms import mafia, with its tentacles in the Ministry of Defence and Defence Research and Development Organisation (DRDO), that has impeded indigenisation in defence all these years, is silently at work to continue with defence imports.

Will global military aircraft manufacturing firms go for JVs in India with only 49 per cent FDI? A quick survey should tell us they will not. It is not without reason that the Department of Industrial Policy and Promotion (DIPP) of the Ministry of Commerce and Industry has been recommending 74 per cent FDI in case of ToT and 100 per cent FDI in case of the investing foreign partner willing to make available state-of-the-art technology. After all these recommendations must have been made with due deliberations and need to be taken seriously considering the Ministry of Commerce and Industry would logically have much more expertise in the issue compared to the Ministry of Defence (MoD), and more significantly being outside the influence of the arms mafia that works against the vital need of indigenisation.

Acknowledging that we have already lost many years, government needs to take a call on this urgently. A symbiotic problem is the Defence Procurement Procedure (DPP) which in its present shape is not attractive enough for private industry and more importantly ‘cannot’ absorb foreign technology. This is despite the yearly propaganda of having ‘simplified’ the DPP, done in-house in MoD. Agreeably, some steps have been taken but the question is, are these enough, how many years did it take for these steps and are these enough to meet our needs of indigenisation?

A dispassionate analysis would indicate a dismal picture. Whether this has been happening by design (courtesy arms mafia) or default is difficult to gauge but the definitive atmosphere of total unaccountability and unconcern points to the former. FDI and DPP are inter-related. Raising limit of FDI to 49 per cent, which in any case is grossly inadequate, without a DPP to facilitate absorption of foreign technology is enforcing the status quo in terms of arms export, playing into the hands of the arms mafia. Instead of making some more cosmetic changes to the DPP, it would be prudent to review the DPP by an independent body (preferably non-government aided think tank) integrating representatives from military (users), MoD, DRDO, DPSUs, OF, private industry (both Indian and foreign) in 30-45 days.