‘From small steps to faster pace, key to developing India’s defence industry’
India steps into a new era with a new government, new agenda and the opportunity to make fresh beginnings. Over the years, the Indian defence industry has been taking small steps towards becoming a modern, globally competitive defence development and production base. It is apparent that the ingredients for moving forward at a much faster pace and taking giant strides are present. All that is needed is determined action.
India is today a hub for many global defence companies for high-end development work. Indian engineers are working – both in India and abroad – on cutting-edge defence systems. The private sector has also spent long years getting their bearings in the sector and some of them have made impressive investments. India has shown remarkable capacity for absorbing technology: the Indian armed forces have earned a reputation of being users with high technical acumen and ability to extract superior standards of performance from their equipment.
Given all these, the time is ripe to act on policies that have been in the making for a while.
India’s drive towards indigenous defence capability requires partners with state-of-the-art technology that can be transferred to India with the support of their respective governments. More importantly, such companies should be driven by self-interest to carry out real transfer of technology and have a real interest in joint development of new generations of products.
The challenge is to build domestic capability without foregoing cutting-edge systems. The process requires Indian public and private sector defence companies to leapfrog technologies and start designing, developing and producing state-of-the-art systems in the immediate future and not through protracted development programmes.
The only way to do so in a rapid way is to make use of technology developed by companies outside India.
Thus far, India has tried to tackle this challenge through strong offset provisions in procurement programmes. While offsets do meet the requirement of a return on expenditure, it has not proven to be adequate for developing an industrial base.
The end result should be the creation of a defence industrial base that will ensure that the country does not need to look externally for most of its future defence requirements. In addition, such programmes should have significant spillover of technology to nondefence sectors.
The entry of highly technologically advanced Indian private sector companies, which today design and engineer world-class products ranging from automobiles to pharmaceuticals, tells much about the inherent potential to rapidly build an indigenous defence production capability.
However, most Indian companies are unwilling to commit to large-scale investments without a contract in place. The belief is that there is not sufficient business basis for them to take the required risks and initiative. Investments in the defence sector are further slowed down by the equity ceiling of 26 per cent for FDI in defence. In the absence of the necessary capital investments in the private sector and the overburdened state of the public sector, it is apparent that the fundamental business drivers for a healthy indigenous defence industry are missing.
For companies to make meaningful investments and bring in cutting edge technology to India, a much higher FDI provision than 26 per cent is essential. In many countries, including my own, there is no limitation for FDI in the defence sector at all. As a first step, an increase of the threshold to 51 per cent is urgently called for.
A stronger status for FDI in defence will enable Indian companies to find meaningful partners who are interested in their own survival by investing and building profitable businesses in India.
Saab is a trusted supplier to the Indian armed forces for over three decades and we bring to India world leading products, services and solutions ranging from military defence to civil security.
We are teaming up with Indian public and private companies and leveraging their engineering and manufacturing strengths to meet the needs of India as well as for exports of defence systems to world markets. Saab is committed to true transfer of technology and investing in the future of Indian defence industry. We are here to stay for the long haul to build an indigenous defence industry in India.