By Eetika Kapoor
In a much-awaited decision, the Indian government has breathed life to the Make in India campaign at the 9th Convocation of Defence Institute for Advanced Technology, Girinagar near Pune. The decision opened a battlefield for the private defence companies across the globe fighting to manufacture on Indian soil. India is the largest importer of arms and ammunitions amounting to 60% in totality. India spends 31.1% of its annual budget on defence.
It seems only natural if it invites private companies from all over the world to compete for stakes and invest their technologies for better results to the Make in India campaign. The Indian government will now prepare a list of foreign Original Equipment Manufacturers (OEMs) for investing with a strategic partner which cannot be more than 49% of Foreign Direct Investment (FDI). This poses a number of challenges for the Indian defence stakeholders as well as the foreign OEMs.
Economic opportunities and global impact
The idea is not new and was introduced almost a decade back by a committee headed by Vijay Kelkar, an Indian economist. The committee suggested the inclusion of certain firms with major financial strengths for circulating tenders. However, the UPA led government in power was not keen on preferring certain companies just because they had a financial backing to them and wanted to be impartial. With stock markets booming and the Indian economy open with experiments like demonetization and GST, indigenization of defence companies is a welcome change. The boost to Make in India would provide some respite from the increasing population of youth and the faltering rate of unemployment. The increase in job opportunities through this would earn the Modi government some brownie points for the upcoming national elections in 2019.
The Defence Ministry led by Arun Jaitley is starkly clear about the global impact that the decision seeks to portray. With China and India locked in the Doklam crisis since June, this decision could prevent the rise of insurgency and war. The tactic has been used by governments across the globe to prevent a full fledged war and practice deterrence instead. Both India and China are booming economies with bold armies. Recklessness and impulsiveness would pose a huge and irreparable setback to the development both the countries have achieved in the past decade.
Interests of foreign and domestic countries
In light of the expertise and understanding of the Indian companies of the domestic market, they might have an upper hand. With the Tata group of defence already in the race, market giants like Reliance and the Adani Defence group have made the competition even more formidable. The Tata group has already helped develop India’s first amphibious infantry combat vehicle, Kestrel. Tata Advanced Systems (TAS) is working on projects, including missiles, radars, aerospace and unmanned aerial vehicles.
India’s defence expenditure is expected to swell to 620 billion dollars by 2022. 130 billion dollars of defence contracts are open for negotiation. Companies like Europe’s Airbus group are striving to sell their Panther helicopters and are glad for the flexibilities being provided by India. Germany’s ThyssenKrupp Marine Systems and France’s Naval Group are eager to compete for a contract of up to $10 billion to build submarines in the South Asian country. The competing space and the funds allocated for it might give the Indian economy the much-needed alleviation.
Risks to the endeavour of ammunitions
While the present consequences are exciting and appear fruitful, the execution might not be a smooth and hurdle free ride. The FDI allows a 49% of ownership amongst strategic (probably Indian) partner and the foreign OME. Both the parties would fight for a greater ownership. The government of the foreign OMEs might be reluctant to provide their technologies where their ownership is not that deeply rooted. Moreover, even the Indians are sceptical because the capital provided by them for defence manufacturing would be huge and without an established control, the results might go haywire.
Mentioning that the endeavour is a much needed private sector prerogative, Jaitley remarked that “The new India is confident and not defensive. It is willing to globally integrate, share knowledge and also get it from outside, to improve upon itself, from within”. Taking a jibe at China he further reiterated, “We are destined to have neighbours as permanent. We can’t change them. And that neighbourhood itself has thrown up an important challenge of national security”. It is a long road to see visible results but if managed efficiently, the decision could bring out better prospects for the Indian economy.
Featured Image Source: Flickr