FDI IN DEFENCE - VIDESHI WHEN SWADESHI DOES NOT MEASURE UP

By Ruma Dubey

The very big debate raging right now is –should India allow 100% FDI in defence?

The moment, we say the word, ‘defence’, it conveys something very high priority, patriotism and almost something which is sacred – there to protect all but not so easy to get – something almost like God!

Easing FDI in defence was one of the first things which the Modi govt announced as soon as it come to power. The Finance Minister has hinted that 100% FDI in defence will be allowed where there is transfer of technology and cap of 49% where there is no technology transfer. The present cap for the sector for FDI is at 26% and getting that go-ahead for even 26% is like pulling out water from the arid desert – the agency which gives the nod, affirmative or negative, the Cabinet Committee on Security has red tape which could be twined around the entire earth!

There are many, especially the domestic arms manufacturers who have voiced displeasure in allowing 100% FDI in defence. While on the other hand, there are many others from the industry who have welcomes this move but with caveats like sourcing from local agencies.  The most confusing case is of CII, which first welcomed the move but soon put out a note, opposing 100% FDI. So lets take a look at the ‘why’ for those for and against.

Those saying, “Nay”

• It will compromise India’s defence capabilities when foreigners make our arms and ammunitions – we are putting the country’s safety and security at risk.
• Information sharing on designs and codes will damage India’s national interest.
• It will stifle the domestic manufacturers, especially PSUs who might not be able to face the competition from foreign manufacturers.
• CII - FDI beyond 49% should only be permitted on a case-to-case basis
• But most voices of dissent, saying almost similar things is from the very domestic arms makers and they voicing displeasure is understandable – threat of loss of business.

Those saying, “Aye”

• Transfer of technology will boost our capabilities and make us more competitive
• Manufacturing in India is a necessity, given our huge imports of arms – last year India was the largest importer in the world.
• Dependence on supply of arms on foreign country, is a bigger security threat as supply could be stopped at times of war or prices could be jacked up to make the most of the ‘opportunity’.
• India needs to become self reliant when it comes to defence.
• Sensitive designs or equipments – like submarine can be fully nationally made, keeping intact security of sensitive areas.
• Will create employment opportunities.

Blocking 100% FDI in defence which brings in technology is pseudo-nationalism under the pretext of protecting domestic industries. Insurance was opened up to foreigners, still LIC rules and so does SBI in banking.

Yes, we do need to take care to whom we give this 100% FDI. Case-to-case basis is not wrong – how can we allow China to set up a defence shop here in India when it is itself a threat? We cannot become a mere supply chain in foreign hands thus there would be nothing wrong to validate and scrutinize every deal, in fact it should be a pre-requisite.  But at the same time, we should bring in FDI first for technology transfer as the kind of arms we have today cannot even kill a rodent. We need to take advantage of the technology advancement and hopefully, the companies will provide human resource training too – all with legislative and regulatory safeguards.

Many are saying that Modi might sign a few deals for India when he goes to USA in September. This opening up of the defence sector, USA will be the biggest beneficiary. Starting from zero in 2001, the USA is now India's largest defense supplier. The top 15 arms companies, at least, are American, led by Lockheed Martin, with other like Boeing, Northrop, General Dynamics, Raytheon and many more. UK’s BAE Systems is also amongst the top three in the world. Thankfully, China has no rankings in this one sector.

And what threat to national security are we really talking about? We are buying arms and ammunition from foreigners- isn’t that in itself a threat to security? Instead when companies invest huge amounts of money in India, manufacture here, won’t the risk actually come down? The Govt will naturally, have to put out clauses wherein under extraordinary circumstances, India will have the right to take over the licensed facility. Most nations include such an enabling provision.

Stifling domestic industry? What domestic industry are we really talking about? Defence Research and Development Organisation (DRDO) and PSUs? None of them till date have inspired any confidence in their manufacturing capability. Every single product, indigenous, which is usually a copy of an imported arm is of mediocre quality. In that sense really, aren’t we compromising our security and the lives of our soldiers with these substandard arms and ammunitions?  Private sector companies are slightly better off but how can they make state-of-the-art equipments without high-end technology?  Thus if protection of domestic industries is required, JVs with equity participation from foreigners is a must.

India’s defence technology needs serious upgradation; we are behind time by around 20 years. We should bring in foreign technology and then use it as a spring board to develop indigenously.  Where technology is stable and can be got from various sources, 49% FDI can be allowed where domestic companies rule the roost, exclusive technology can be allowed 74% while rare technologies should be given 100% FDI.

There is no doubt – India’s defence needs FDI and hope the Govt fortifies our national security with discretion.