Experts have said that voices opposing 100% FDI in the defence sector are unfounded. They have hailed the Centre’s decision to allow foreign companies to own as much as 100% equity in the local defence sector, asserting this move will put India on the “path of growth trajectory in terms of economic as well as strategic self-reliance”.
Strategic analyst Prabir Chakravorty, who retired as a Major General and Additional Director General Artillery of the Indian Army, said the opposition is engaging in double-speak on the FDI initiative as the previous UPA government itself was in its favour. “Under the Congress led UPA regime, India was the biggest importer of arms and equipment in the country. So the Congress government was itself the biggest importer. They had prevented our own R&D from developing. There is no scope for improvement without foreign assistance as far as technology is concerned. Either you can start from scratch or you can ‘catch up’. And when you catch up, you would need foreign help,” he told this newspaper. China and Israel are successful examples of countries that advanced their defence capabilities by “catching up”.
The Congress had, however, denounced the policy saying it would mean throwing the defence sector into the hands of American companies. It had also alleged that the Prime Minister was working under pressure from the US. “The Congress government had allowed FDI in defence with a pre-condition that it would be for state-of-the-art-technology but the present government has eased the conditions. The Prime Minister is working under pressure from the United States. This is not in the country’s interest and Congress would oppose it in Parliament,” senior Congress leader Anand Sharma had told the media.
But Chakravorty pointed out that even in the previous UPA government, there was a growing chorus to increase the FDI limit but the then Defence Minister resisted the move. He added: “The Prime Minister has no pressure from anybody. He’s taking decisions based on logic.”
On Monday, India eased the norms for foreign companies eager to extend technology and goods in the defence sector, allowing them to own 100% stakes where the government deemed this would help India access modern technology. “Foreign investment beyond 49% has now been permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded. The condition of access to ‘state-of-art’ technology in the country has been done away with,” a statement issued by the government said.
The amendment has, however, made some quarters apprehensive that OEMs (original equipment manufacturers), who were earlier expected to collaborate with Indian companies, may choose to enter the market on their own. The new rules have eased the norms that required foreign OEMs to plan and implement operations in India only in collaboration with domestic firms. But experts contended that no foreign firm can come over without assistance from the MSMEs (medium, small and micro enterprises) and hence, local businesses will not be killed.
Former Additional Secretary at Cabinet Secretary of India, Jayadeva Ranade said domestic sectors will, in fact, benefit from the “spin off”. “There will be tremendous spin-off effects. A lot of the auxiliaries that service such an industry will also come up thereby benefiting a lot of people in India. That will slowly translate into our acquiring the technology,” he told The Sunday Guardian.
Chakravorty seconded the view. “No defence product is made by a single industry. A missile, for example, will have as many as 216 industries catering for it. An aircraft would require 100 to 150 industries. This will mean more jobs,” he said, asserting that the foreign firms would build infrastructure and utilise local talent who have no capital. The latter will thereby gain the know-how and expertise of these manufacturing bases, he added.
Another concern arising from the revised policy is that it has done away with much of the regulatory precautions by relieving OEMs from proving that the technology/product sought to be manufactured was state-of-the-art. Senior defence analyst Rahul Bedi said that although “state-of-the-art technology” has been replaced by the term “modern technology”, it has not been defined. “The term modern technology has not been defined, so the efficiency of this scheme will depend strictly on how it is implemented and how it is interpreted. It’s a very tricky situation as to how the government seeks to interpret this,” he told this correspondent.
But Jayadeva Ranade contended: “The burden of proof earlier was on the entity that was coming in here. Now it will be the government which will decide whether it wants that product here or not. If the government is alert enough and is wise enough, it will allow only modern technology to come in, it will only allow products, which we need, to come in. There’s no question of our becoming a workshop for third rate goods.”
On the question that India is moving away from its traditional policy of non-alignment and is increasingly being perceived as tilting towards the US, experts said it is imperative to “tailor foreign policy to suit our requirements”. “We are a growing power; we were not at this level many years ago. So, we had a different policy. Now, we are in a different world. We have got an unfriendly, huge neighbour in China and another unfriendly neighbour in Pakistan. It is a deft management of international relations,” Ranade said, hailing PM Narendra Modi’s initiative as a “long, overdue initiative”.