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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2678

New FDI For Defence

By Eklavya* - Syndicate Features

As the Jailey’s maiden budget cleared the decks for 49 per cent FDI in defence, it is pertinent to point out that Indian is currently the importer of the largest value of weapons by any country. According to the Stockholm International Peace Research Institute (SIPRI) India takes in 12 per cent of the global arms imports.

This has happened even though the Foreign Direct Investment by military majors was set by the outgoing Congress led UPA government at 26 per cent which everybody seems to agree is insufficient to attract foreign arms manufacturers in areas where India needs state-of-the art technologies to boost its yesteryears Soviet designed weapons platforms to the fifth generation level..

The implication of a higher Foreign Direct Investment is an expectation that the foreign investor will bring in the desired technology and thus boost the local capability to regenerate itself and be able to modernise as years go by; it remains to be seen whether the desire produces the desired results.

For most of its existence India was a victim of the Cold War and were it not for the Soviet perception that this country had natural affinities with the Communist countries, India would have long been overrun and ravaged by Pakistan as had happened over the centuries before both countries attained independence from British colonialism. By choosing Non-alignment India inherited the legacy of threats and coercion and infusion of the most modern weaponry into the region to stoke rivalries that should best have been left untouched. Pakistan was armed to the gills with the most modern of weapons which encouraged it to provoke India into wars that sapped its economy and all but derailed it from its chosen path of economic development.

It was only after the Chinese aggression of 1962 that Prime Minister Jawaharlal Nehru began to give a fillip to the Indian ordnance factories that were a relic of the British colonialism and laid the foundations of the military industrial complex through the creation of a research and development base and a contiguous Defence Public Sector Undertaking to productionise what was created in the DRDO laboratories. Thus tanks, aircraft, light field guns of 105 mm calibre and a new generation of 5.4 mm calibre small arms replaced the cumbersome .303 rifle. The private sector was not encouraged to participate nor was it overly interested in investing so heavily on creating infrastructure for a private sector military production facility.

The failure of the Congress prescribed 26 per cent FDI scheme has much to do with the private sector’s lack of experience in running a military industrial complex not to mention the desire on the part of the foreign partner to maximise profits and exploit technology generated by years of research and development effort to the full. That applies to arms manufacturers of all nationalities. It is only the perceived self-interest of the Russian Federation that it has taken over where the Soviet Union left off in 1990 when it collapsed. It left a legacy of nearly 80 per cent of dependency by India for its military wherewithal for its defence.

In the meantime a few of the projects initiated soon after the Chinese aggression bore fruit. The Vijayanta tank, the Indian field gun, the missiles under the Integrated Guided Missile Programme, the stretched Leander class frigates, and a host of other building blocks for better equipment began to flow out of the laboratories. However, the inordinate delay in the creation of the Arjun tank and the light combat aircraft (LCA) forced India to continue to depend on foreign sources. The budgets allocated for the armed forces were largely returned unutilised in the Capital account because (1) the indigenous product was not available and (2) there was not enough time to negotiate and complete the process of procurement without falling into the trap of single vendor situation. Over the past decade India has had to blacklist dozens of foreign arms manufacturers for violating the clause not to use middlemen to secure contracts or pay kickbacks to Indians.

In the mid-90s the Parliamentary Committee on Defence had recommended that the Government progressively rise the outlay for defence research and development to 3 per cent of the GDP or 10 per cent of the defence budget whichever was more. Due to a variety of reasons the figure has rarely been able to touch 2 per cent of the GDP. Yet in moments of crisis like the Kargil invasion money was found for the unbudgeted acquisitions running into crores of rupees for equipment that arrived too late to be used in Kargil. Every so often a Chief of Army Staff sounds a warning that reserves of ammunition and other equipment are dangerously low. Kargil proved such warnings to be justified given the manner that the government of the day – a BJP led coalition – had to run abroad to acquire the needed weaponry.

Yet it is not that India was able to secure what it wanted from off the shelf because of restrictive international regimes like the CoCom during the days of the Soviet Union and the renamed Wassaanar Arrangement as also the Missile Technology Control Regime. These blocks were designed to prevent weapons and sensors falling into hands of nations that did not sign the discriminatory Nuclear Non-Proliferation Treaty (NPT) and the Comprehensive Test Ban Treaty (CTBT). Both treaties were aimed at closing the doors to non-signatories from acquiring nuclear or other weapons of mass destruction. All these restrictive regimes exist even today and India has had to negotiate with the Suppliers’ Group for access to nuclear fuel for its safeguarded reactors. Much haggling has yet to be done.

Thus, it is for these reasons that one wonders about the efficacy of the Indian offer of the new FDI cap. Indian negotiators are painfully aware that even as close a collaborator in defence contracts as Israel is sometimes chary about sharing technology incorporated in state-of-the-art military equipment. If a nation or its arms manufacturer does not agree to share the technology of a certain component of equipment, it makes no sense in buying that equipment.

Some nations, the US in particular, insists on intrusive periodic inspections of their equipment to check if the buyer has not tampered with it or tried to replicate it. India has objected to such intrusive inspections. Will this policy change? This is an issue involved in the Poseidon maritime reconnaissance aircraft that India has purchased from the US.

Several other equipments are out of India’s reach because of the embargos placed on their delivery to any foreign nation without a clear licence from the US government.

Then again there is the issue of blacklisting by the Congress-led government of firms involved in corruption and illegal trade practices. Will the BJP absolve these firms after winning a massive majority largely on the corruption issue?

*The author is Delhi based security analyst

- Asian Tribune -

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