Establishing a sound defence manufacturing sector with the help of foreign investors could also lead the country to finally get into the global export market as well

There is no immediate need to raise the upper limit on foreign direct investment (FDI) in military hardware production. These words came from none other than the Defence Minister A.K. Antony himself. Expressing his views on the Commerce Ministry’s paper to the journalists, on the sidelines of the recently held Naval Commanders’ Conference in New Delhi, Antony emphasised, “At the moment, it is 26 per cent. Our defence production policy is evolving over the years, but at the moment we feel the Indian defence sector is not mature enough to absorb more FDI. We feel the time is not right to further expand it.”

The archaic defence sensitiveness is still rooted deeply in the minds of the country’s defence planners, who since more than half-a-century have continued to follow the Nehruvian policies on India’s defence production, being solely in the government-controlled public sector domain. Antony might have been echoing the collective thoughts of his Ministry’s pundits who may have found the very idea of increasing the FDI in defence production not only repugnant but most preposterous at this stage. It is a fact that in the name of somewhat misplaced national security concerns, for over 50 years since independence, India strictly adhered to an industrial policy that facilitated only the public sector in defence production.

However, the policy of keeping private players out of meaningful defence production proved highly detrimental to the development of a viable and vibrant defence industrial base within the country. The role of private players was restricted to serve only as suppliers of raw materials and semi-finished products to public sector defence production units, ordnance factories and base repair depots of the armed forces. The inevitable result of this skewed policy was over dependence on foreign countries for supply of critical military requirements.

Though India created a vast defence industrial network, which included 51 defence R&D labs, eight defence public sector underatkings (DPSUs) and 39 ordnance factories (OFs), it was plagued by all the ills of the public sector such as poor work ethos, lack of competition, zero innovativeness, no accountability, over-staffing and unhealthy unionism, etc resulting in its contribution never rising more than 30 per cent to India’s armed forces’ total hardware requirements.

While direct import of ready-made defence equipment is the easiest way to meet the military’s requirements, no selfrespecting country and especially a large country like India, with aspirations to play the role of a regional power would like to remain perennially dependent on foreign supplies for all its military requirements. The import of capital-intensive defence equipment not only takes a heavy toll of the hard-earned foreign exchange reserves of a country, but also keeps its military tied down to foreign manufacturers for spares/maintenance support, etc.

The supplier nations can also resort to bullying tactics/sanctions at the time of their choosing, like it happened following the 1998 nuclear tests by India or more recently, in the case of Admiral Gorshkov (INS Vikramaditya) aircraft carrier deal. Becoming increasingly aware of the fact that there was no substitute to self-reliance, the Indian government understood the need to indigenise defence production as the key to a long-term solution. Here, because of an inconsistent and largely incompetent and indifferent defence industry in the public sector nurtured over 50 years by protectionist policies, it became abundantly clear that it would be necessary to bring in the private sector to play a much greater role for achieving self-sufficiency in defence production. It was with this view that India opened up its defence industry for the first time in 2001. However, while the government showed boldness by allowing up to 100 per cent Indian private sector participation, it limited the foreign companies’ participation to only 26 per cent through FDI.