Chanakyaa
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India, along with China, is an emerging world power. For a long time India was more inward-looking and fixed on the conflict with Pakistan about Kashmir. As an emerging world power, India has its vital interests.
The protection of the supply flow of oil and gas from far away regions is one of India’s most significant vital interests. Securing this supply is the aim and objective of political, diplomatic, economic and military actions. In the strategic triangle – China, India and the United States – hard power is an important currency in combination with elements of soft power. Concerning soft power India has a comparative advantage – e.g. its status as a democracy – in comparison to China. But India recognizes that it has to improve its hard power capabilities.
India’s defense purchases should be seen as an essential part of the overall security environment that hinges on relations with Pakistan, China and America. The country is slated to spend US$100 billion in modernizing its defense forces over the next decade, with air power being a major component. Since 1999, India’s military purchases have been worth US$25 billion; the country is likely to spend another $30 billion by 2012, making it one of the biggest military buyers amongst developing countries.
In the last couple of years India, as the new US strategic partner in Asia to dilute the growing influence of China has been sensitive to US urgings. One critical issue has been relations with Iran, with New Delhi taking a stand against Tehran at international forums. Awash with its new stature as “America’s friend,’’ New Delhi has been accused of deliberately delaying the US$7.5 billion, 1600 mile-long Iran-Pakistan-India (IPI) gas pipeline to keep Washington happy.
However, in the recent past the Congress Party-led New Delhi government headed by Prime Minister Manmohan Singh has stood up to the US on Iran, making an effort to emphasize an independent foreign policy not influenced by Washington’s ideas.
Earlier this year in May, India hosted for a few hours President Mahmoud Ahmadinejad, the first Iranian head of state to visit India in five years. Although Ahmadinejad’s Indian stopover was short on time, it was very high in its symbolic content and laid bare some of New Delhi’s strategic thinking. While energy issues remained the main focus of the visit, attention was as much on perceptions of Washington, which has a major problem with Iran’s independent nuclear program and has been urging nations, including India, not to deal with Tehran.
Indeed, the reasons for India’s new approach (standing up to America and appearing neutral in its foreign policy and strategic dealings) are many: Firstly, India desperately needs energy sources, with competitor China equally keen to tap Iran’s rich hydrocarbon fields. China has expressed the willingness to join a truncated India-Pakistan-Iran (IPI) pipeline project should India keep away from it. Pakistan has been irked by Washington’s pro-India tilt and would be happy to accommodate China. Pakistan’s foreign office spokesperson has been quoted to have said that “If there are prospects of China joining the IPI project with or without India, we will welcome it. Pakistan is committed to the pipeline because of its desire to achieve energy security.’’
Keen to obtain new gas, India has formally joined the Asian Development Bank-sponsored and US-backed Turkmenistan-Afghanistan-Pakistan (TAP) pipeline project that has now been officially renamed as the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline.
Secondly, domestic Indian politics play a major role. Political parties will look to label New Delhi as a “US stooge’’ in the general elections due in the summer next year. There is fear of a backlash from Indian-Muslim voters who constitute a sizable constituency and despise America due to its attack on Iraq and the problems with Iran.
Thirdly, there is also a growing view that New Delhi has to learn how to deal and balance its various national interests in order to sustain a fast-growing Indian economy that is in need of new markets for both export and import. India’s gross domestic product (GDP) has been growing at 8-9% per annum over the past few years. A tilt towards the US and an economy heading towards recession will not help matters when business is of concern. Such an approach can have its dividends and result in win-win situations.
India’s business in aviation – civil and military
Aerospace, both civil and military, is an area of maximum activity in India that is an emerging destination for outsourcing development work and manufacturing aircrafts, including fighter jets. India’s transition as a major hub for aviation - civil and defense - is a subject that has been talked about for a while.
Replicating the success in cars, with the south-Indian city Chennai referred to as the “Detroit of India,” the country is looking to emerge as a production hub for aircraft as well. The combined reading of both civilian and defense aviation sectors is important as the global players, whether European Aeronautic Defense and Space (EADS), Boeing or Lockheed Martin, overlap.
According to the American Aerospace Industries Association, the bulk of US aerospace contractors are looking to shift business to India. “Apart from global requirements, the firms are keen to tap domestic Indian demand, given the rapidly rising civil aviation sector and air defense efforts.” There is a growing base for manufacturing several aircraft components and software with firms such as Hindustan Aeronautics Limited, Tatas (tied to Boeing and Israel Aerospace Industries), Wipro (tied to Lockheed), already involved. Except for software, Boeing and EADS source various components, including aircraft doors, landing gears, window glass and cables for top plane-makers from India.
Domestic offset norms require that foreign defense contractors invest in India’s defense industry. The bulk of the military hardware or software is going to be imported given the incipient status of India’s indigenous defense industry.
Air Power
The US President George W. Bush and India's Prime Minister Manmohan Singh: "The Indo-US nuclear deal has recently been approved by the US Congress and has been signed by US President"
Chicago-based Boeing, Pentagon’s number two defense supplier has said that it plans to bid for US$15 billion of military orders in India over the next 10 years. Boeing is negotiating for the $2 billion P-8i long-range maritime reconnaissance aircrafts for the Indian Navy. Meanwhile, competitor Lockheed Martin has broken into the Indian defense market with a billion dollar deal to sell six Super Hercules aircrafts, the biggest ever Indo-US defense contract.
Competition and lobbying is also going to be intense for the US$11 billion 126 multi-role combat aircraft (MRCA) deal, with a 50% offset clause that India is likely to sign a couple of years from now, for which both Boeing and Lockheed are bidding, apart from others.
Indeed, given the lethargy with which the Indian bureaucracy moves it is due to the almost obsolete state of India’s arsenal and enormous pressure from the armed forces that matters are looking up. The Indian Air force (IAF) has begun replacing its Soviet-era MiGs, used for training pilots, with Hawk trainer jets from BAE Systems. In addition to the 66 Advanced Jet Trainers (US$1.45 billion deal signed in 2004), the IAF has sought 40 more.
New Delhi has invited global tenders for 312 light military helicopters to replace the vintage French and Russian fleet procured in the 1960s. Aviation firms in France, Italy, Russia and the US have been approached about the proposal. The IAF and Army have combined their respective orders, following the cancellation of the French Eurocopter deal. India has issued a request for global bids for a $1.5 billion upgrade for its 30 military airports; India and Russia have managed to clear the upgrade of 67 IAF MiG-29 fighter jets.
Aviation Scene
EADS
According to reliable media reports, New Delhi is seriously looking at offset options due to purchases from Boeing and EADS, the parent of Airbus and Eurocopter.
Government-run air carriers (Air India and Indian airlines that are now merged) have placed orders of around US$8 billion and more purchases are on the horizon. Indian Airlines had placed an order for 43 aircraft from Airbus (a division of EADS) worth US$2 billion, which carries an offset clause.
EADS has thus proposed Indian investments of 2 billion euros over 15 years. Offsets will also arise out of the $11 billion MRCA deal. One way to use up the investment requirement is to set up assembly units for medium-size civil transport aircraft. This could begin with 70-seater ATRs. According to reports, EADS is looking to closely engage with New Delhi and is open to a “mutually beneficial” arrangement that could also reassess a helicopter contract with Eurocopter for the defense forces. The deal was cancelled due to allegations of discrepancies in field trials, though pressure from the US to re-negotiate the contract played a role. A senior government official was recently quoted to have said that: “To begin with, we are looking to set up an assembly unit for turboprop aircraft with a capacity of 25 to 60 seats. Regional air-connectivity will grow to create adequate demand for any plane-maker to set up a unit.”
High growth is expected in India’s civil aviation sector despite the recent slow down and losses due to high crude oil prices. According to a recent survey by Airports Council International, the Indian civil aviation industry has grown twofold in the past four years and by 2010 the figures will double again. India’s Federal Civil Aviation Minister Praful Patel said that India's air travel industry will need US$50 billion in investment in its infrastructure over the next decade. Patel said the sector, which has seen almost frenzied plane buying and airline launches in the past 4-5 years, would grow by 25-30 % in the near future. Indian aircraft carriers, both private and state owned, are expected to buy nearly 300 new planes by 2010, valued at US$15 billion, and spend another US$15 billion in the following decade.
Boeing
Boeing has said that India’s Tata Group will supply parts for its 787 Dreamliner, which has been declared a “turning point” for the Indian aerospace business. A Boeing and Tata joint venture (JV) intends to produce defense-related aerospace components in India, with expected exports of US$500 million initially.
In December last year, Boeing and state-owned Hindustan Aeronautics Limited (HAL) signed a deal to transfer more than US$1 billion of aerospace manufacturing work to India. There have also been discussions between the Tata Group and Microbiotics, a US aerospace company, to work out new opportunities in instrumentation and navigation systems. Not to be undone, US defense giant Lockheed has teamed up with top Indian software firm Wipro to produce electronic warfare systems, radars and flight simulators.
Tata Group
Recently, the Tata Group and European aerospace giant EADS agreed to jointly bid for a US$1-billion deal to supply tactical communication systems to the Indian Army. “The teaming arrangement would ensure that the solution proposed is cutting edge and meets all the requirements of the Army,” said Tata Group chairman Ratan Tata.
The Tata Group has also signed an agreement with Israel Aerospace Industries for manufacturing a full swathe of defense products, including missiles, unmanned aerial vehicles, radars, electronic warfare and security systems.
Tata is also tying up with US helicopter producer Sikorsky to set up a manufacturing unit in India.
Others
US-based aerospace solutions provider Rockwell Collins (turnover close to US$4.5 billion) is setting up an engineering center at India’s technology hub Hyderabad. This is the first such center outside Rockwell’s headquarters. Rockwell supplies solutions to private Indian airline carriers, including IndiGo and Jetlite.
India’s largest construction firm Larsen & Toubro (L&T) has also signed agreements with Boeing and EADS for joint exploration of businesses in India. Others such as BAE Systems, Bombardier and SAAB are planning forays.
MRCA Deal
Quite a bit of the interest of aviation majors in India has to do with the MRCA deal and the consequent offset norms that will require mandatory investments in India’s defense sector of over US$5 billion.
The acquisition of the jet fighters is a crucial cog in India’s defense modernization efforts. In April this year, the six contenders for this mega contract submitted their bids to the federal defense ministry, each offering “strategic and unequivocal partnerships” including joint production, government support and advanced jets at the cheapest cost. The request for proposal (RFP) for the deal was issued in August 2007 after delays that span over a decade and a half.
The fighters in the fray are the American Boeing’s F/A-18 Super Hornet, Lockheed Martin’s F-16 Falcon, Russian MiG-35, Swedish Saab’s Gripen, French Dassault Rafale and the Eurofighter Typhoon by the consortium EADS. “We will now seriously examine all the bids and shortlist the companies in due course to two or three, before taking a final decision,” a defense ministry spokesperson said. “Even if everything does work out smoothly, we don't expect the first batch of fighters in India before 2011.”
Around 20 fighters will be bought off-the-shelf and the remaining ones will be produced in India under a Transfer-of-Technology (ToT) agreement. New Delhi has said in the past that it will ultimately settle for a single fighter jet platform instead of multiple sources. Many defense analysts say that Lockheed and Boeing are front runners to win the jet contract, but the race is far from over, given domestic Indian politics that oppose any US “hegemony” in any sphere, whether actual or apparent, apart from the technical considerations. The delayed Indo-US defense deal is one example.
"The protection of the supply flow of oil and gas from far away regions is one of India’s most significant vital interests."
Conclusions and Recommendations
There is no doubt that India’s foreign and external security policy is showing signs of maturity. Balancing business interests between America and Europe and with other important players such as Israel is tricky. While it is not easy to fend off the immense lobbying powers of US companies, New Delhi has realized from past experience that relying on a sole partner/supplier is always fraught with risk. Many countries, including India, have faced the brunt of the sanctions-ridden American foreign policy.
Recommendations
1) New Delhi should look to strike a synthesis between private, foreign and public industry and smoothen several irritants in Indian defense dealings.
2) India could do well to amend its foreign direct investment (FDI) norms in the defense sector to enable foreign partnerships to be more effective.
3) New Delhi should relax rules on arms imports to ensure a smooth ride for foreign majors and rule out the involvement of middlemen in defense deals. In this, foreign defense majors and Indian private players are pitted against each other, so the going has not been easy.
4) US and European industry should push for FDI limits to be raised to 49% from the existing 26%.
5) Foreign firms could ask for more flexibility in finance, profit repatriation and technology transfers to build India as a manufacturing base. Many companies should look at this as an essential process to meet the 30-50% defense offset norms. The arguments could also center round the need for free competition as opposed to protection and artificial barriers to ensure the best products.
6) On the other hand Indian firms, supported by state-run units could push the government not to raise the 26% FDI limit for fear of being swamped by the superior technology and expertise of foreign players. They could argue that years of efforts to develop indigenous technologies would go to waste as new players piggy-back on foreign firms. Aggressive local campaigners include big players such as L&T and Kirloskars that can lobby the defense ministry.
Thus, the federal government has relaxed the FDI norms on a case-to-case basis. The process has received support due to the success of Brahmos cruise missiles, an Indo-Russian 50-50 JV.
7) The defense ministry should clear more JVs with Israel and Russia. However, a piecemeal approach cannot be an efficient system as the volume of new defense contracts with offset requirements gather steam. So far the government has not firmly indicated its stand on the issue which will have to be resolved into a policy framework.
8) In this context, India should also emphasize the transfer of technology in its defense deals so that indigenous firms develop the capability to produce defense wares over a period of time.
9) India has to move away from excessive dependence on imports which is a drain on the country’s foreign exchange coffers and makes it vulnerable to various arm-twisting tactics that are not very healthy in a strategic arena such as defense.
The protection of the supply flow of oil and gas from far away regions is one of India’s most significant vital interests. Securing this supply is the aim and objective of political, diplomatic, economic and military actions. In the strategic triangle – China, India and the United States – hard power is an important currency in combination with elements of soft power. Concerning soft power India has a comparative advantage – e.g. its status as a democracy – in comparison to China. But India recognizes that it has to improve its hard power capabilities.
India’s defense purchases should be seen as an essential part of the overall security environment that hinges on relations with Pakistan, China and America. The country is slated to spend US$100 billion in modernizing its defense forces over the next decade, with air power being a major component. Since 1999, India’s military purchases have been worth US$25 billion; the country is likely to spend another $30 billion by 2012, making it one of the biggest military buyers amongst developing countries.
In the last couple of years India, as the new US strategic partner in Asia to dilute the growing influence of China has been sensitive to US urgings. One critical issue has been relations with Iran, with New Delhi taking a stand against Tehran at international forums. Awash with its new stature as “America’s friend,’’ New Delhi has been accused of deliberately delaying the US$7.5 billion, 1600 mile-long Iran-Pakistan-India (IPI) gas pipeline to keep Washington happy.
However, in the recent past the Congress Party-led New Delhi government headed by Prime Minister Manmohan Singh has stood up to the US on Iran, making an effort to emphasize an independent foreign policy not influenced by Washington’s ideas.
Earlier this year in May, India hosted for a few hours President Mahmoud Ahmadinejad, the first Iranian head of state to visit India in five years. Although Ahmadinejad’s Indian stopover was short on time, it was very high in its symbolic content and laid bare some of New Delhi’s strategic thinking. While energy issues remained the main focus of the visit, attention was as much on perceptions of Washington, which has a major problem with Iran’s independent nuclear program and has been urging nations, including India, not to deal with Tehran.
Indeed, the reasons for India’s new approach (standing up to America and appearing neutral in its foreign policy and strategic dealings) are many: Firstly, India desperately needs energy sources, with competitor China equally keen to tap Iran’s rich hydrocarbon fields. China has expressed the willingness to join a truncated India-Pakistan-Iran (IPI) pipeline project should India keep away from it. Pakistan has been irked by Washington’s pro-India tilt and would be happy to accommodate China. Pakistan’s foreign office spokesperson has been quoted to have said that “If there are prospects of China joining the IPI project with or without India, we will welcome it. Pakistan is committed to the pipeline because of its desire to achieve energy security.’’
Keen to obtain new gas, India has formally joined the Asian Development Bank-sponsored and US-backed Turkmenistan-Afghanistan-Pakistan (TAP) pipeline project that has now been officially renamed as the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline.
Secondly, domestic Indian politics play a major role. Political parties will look to label New Delhi as a “US stooge’’ in the general elections due in the summer next year. There is fear of a backlash from Indian-Muslim voters who constitute a sizable constituency and despise America due to its attack on Iraq and the problems with Iran.
Thirdly, there is also a growing view that New Delhi has to learn how to deal and balance its various national interests in order to sustain a fast-growing Indian economy that is in need of new markets for both export and import. India’s gross domestic product (GDP) has been growing at 8-9% per annum over the past few years. A tilt towards the US and an economy heading towards recession will not help matters when business is of concern. Such an approach can have its dividends and result in win-win situations.
India’s business in aviation – civil and military
Aerospace, both civil and military, is an area of maximum activity in India that is an emerging destination for outsourcing development work and manufacturing aircrafts, including fighter jets. India’s transition as a major hub for aviation - civil and defense - is a subject that has been talked about for a while.
Replicating the success in cars, with the south-Indian city Chennai referred to as the “Detroit of India,” the country is looking to emerge as a production hub for aircraft as well. The combined reading of both civilian and defense aviation sectors is important as the global players, whether European Aeronautic Defense and Space (EADS), Boeing or Lockheed Martin, overlap.
According to the American Aerospace Industries Association, the bulk of US aerospace contractors are looking to shift business to India. “Apart from global requirements, the firms are keen to tap domestic Indian demand, given the rapidly rising civil aviation sector and air defense efforts.” There is a growing base for manufacturing several aircraft components and software with firms such as Hindustan Aeronautics Limited, Tatas (tied to Boeing and Israel Aerospace Industries), Wipro (tied to Lockheed), already involved. Except for software, Boeing and EADS source various components, including aircraft doors, landing gears, window glass and cables for top plane-makers from India.
Domestic offset norms require that foreign defense contractors invest in India’s defense industry. The bulk of the military hardware or software is going to be imported given the incipient status of India’s indigenous defense industry.
Air Power
The US President George W. Bush and India's Prime Minister Manmohan Singh: "The Indo-US nuclear deal has recently been approved by the US Congress and has been signed by US President"
Chicago-based Boeing, Pentagon’s number two defense supplier has said that it plans to bid for US$15 billion of military orders in India over the next 10 years. Boeing is negotiating for the $2 billion P-8i long-range maritime reconnaissance aircrafts for the Indian Navy. Meanwhile, competitor Lockheed Martin has broken into the Indian defense market with a billion dollar deal to sell six Super Hercules aircrafts, the biggest ever Indo-US defense contract.
Competition and lobbying is also going to be intense for the US$11 billion 126 multi-role combat aircraft (MRCA) deal, with a 50% offset clause that India is likely to sign a couple of years from now, for which both Boeing and Lockheed are bidding, apart from others.
Indeed, given the lethargy with which the Indian bureaucracy moves it is due to the almost obsolete state of India’s arsenal and enormous pressure from the armed forces that matters are looking up. The Indian Air force (IAF) has begun replacing its Soviet-era MiGs, used for training pilots, with Hawk trainer jets from BAE Systems. In addition to the 66 Advanced Jet Trainers (US$1.45 billion deal signed in 2004), the IAF has sought 40 more.
New Delhi has invited global tenders for 312 light military helicopters to replace the vintage French and Russian fleet procured in the 1960s. Aviation firms in France, Italy, Russia and the US have been approached about the proposal. The IAF and Army have combined their respective orders, following the cancellation of the French Eurocopter deal. India has issued a request for global bids for a $1.5 billion upgrade for its 30 military airports; India and Russia have managed to clear the upgrade of 67 IAF MiG-29 fighter jets.
Aviation Scene
EADS
According to reliable media reports, New Delhi is seriously looking at offset options due to purchases from Boeing and EADS, the parent of Airbus and Eurocopter.
Government-run air carriers (Air India and Indian airlines that are now merged) have placed orders of around US$8 billion and more purchases are on the horizon. Indian Airlines had placed an order for 43 aircraft from Airbus (a division of EADS) worth US$2 billion, which carries an offset clause.
EADS has thus proposed Indian investments of 2 billion euros over 15 years. Offsets will also arise out of the $11 billion MRCA deal. One way to use up the investment requirement is to set up assembly units for medium-size civil transport aircraft. This could begin with 70-seater ATRs. According to reports, EADS is looking to closely engage with New Delhi and is open to a “mutually beneficial” arrangement that could also reassess a helicopter contract with Eurocopter for the defense forces. The deal was cancelled due to allegations of discrepancies in field trials, though pressure from the US to re-negotiate the contract played a role. A senior government official was recently quoted to have said that: “To begin with, we are looking to set up an assembly unit for turboprop aircraft with a capacity of 25 to 60 seats. Regional air-connectivity will grow to create adequate demand for any plane-maker to set up a unit.”
High growth is expected in India’s civil aviation sector despite the recent slow down and losses due to high crude oil prices. According to a recent survey by Airports Council International, the Indian civil aviation industry has grown twofold in the past four years and by 2010 the figures will double again. India’s Federal Civil Aviation Minister Praful Patel said that India's air travel industry will need US$50 billion in investment in its infrastructure over the next decade. Patel said the sector, which has seen almost frenzied plane buying and airline launches in the past 4-5 years, would grow by 25-30 % in the near future. Indian aircraft carriers, both private and state owned, are expected to buy nearly 300 new planes by 2010, valued at US$15 billion, and spend another US$15 billion in the following decade.
Boeing
Boeing has said that India’s Tata Group will supply parts for its 787 Dreamliner, which has been declared a “turning point” for the Indian aerospace business. A Boeing and Tata joint venture (JV) intends to produce defense-related aerospace components in India, with expected exports of US$500 million initially.
In December last year, Boeing and state-owned Hindustan Aeronautics Limited (HAL) signed a deal to transfer more than US$1 billion of aerospace manufacturing work to India. There have also been discussions between the Tata Group and Microbiotics, a US aerospace company, to work out new opportunities in instrumentation and navigation systems. Not to be undone, US defense giant Lockheed has teamed up with top Indian software firm Wipro to produce electronic warfare systems, radars and flight simulators.
Tata Group
Recently, the Tata Group and European aerospace giant EADS agreed to jointly bid for a US$1-billion deal to supply tactical communication systems to the Indian Army. “The teaming arrangement would ensure that the solution proposed is cutting edge and meets all the requirements of the Army,” said Tata Group chairman Ratan Tata.
The Tata Group has also signed an agreement with Israel Aerospace Industries for manufacturing a full swathe of defense products, including missiles, unmanned aerial vehicles, radars, electronic warfare and security systems.
Tata is also tying up with US helicopter producer Sikorsky to set up a manufacturing unit in India.
Others
US-based aerospace solutions provider Rockwell Collins (turnover close to US$4.5 billion) is setting up an engineering center at India’s technology hub Hyderabad. This is the first such center outside Rockwell’s headquarters. Rockwell supplies solutions to private Indian airline carriers, including IndiGo and Jetlite.
India’s largest construction firm Larsen & Toubro (L&T) has also signed agreements with Boeing and EADS for joint exploration of businesses in India. Others such as BAE Systems, Bombardier and SAAB are planning forays.
MRCA Deal
Quite a bit of the interest of aviation majors in India has to do with the MRCA deal and the consequent offset norms that will require mandatory investments in India’s defense sector of over US$5 billion.
The acquisition of the jet fighters is a crucial cog in India’s defense modernization efforts. In April this year, the six contenders for this mega contract submitted their bids to the federal defense ministry, each offering “strategic and unequivocal partnerships” including joint production, government support and advanced jets at the cheapest cost. The request for proposal (RFP) for the deal was issued in August 2007 after delays that span over a decade and a half.
The fighters in the fray are the American Boeing’s F/A-18 Super Hornet, Lockheed Martin’s F-16 Falcon, Russian MiG-35, Swedish Saab’s Gripen, French Dassault Rafale and the Eurofighter Typhoon by the consortium EADS. “We will now seriously examine all the bids and shortlist the companies in due course to two or three, before taking a final decision,” a defense ministry spokesperson said. “Even if everything does work out smoothly, we don't expect the first batch of fighters in India before 2011.”
Around 20 fighters will be bought off-the-shelf and the remaining ones will be produced in India under a Transfer-of-Technology (ToT) agreement. New Delhi has said in the past that it will ultimately settle for a single fighter jet platform instead of multiple sources. Many defense analysts say that Lockheed and Boeing are front runners to win the jet contract, but the race is far from over, given domestic Indian politics that oppose any US “hegemony” in any sphere, whether actual or apparent, apart from the technical considerations. The delayed Indo-US defense deal is one example.
"The protection of the supply flow of oil and gas from far away regions is one of India’s most significant vital interests."
Conclusions and Recommendations
There is no doubt that India’s foreign and external security policy is showing signs of maturity. Balancing business interests between America and Europe and with other important players such as Israel is tricky. While it is not easy to fend off the immense lobbying powers of US companies, New Delhi has realized from past experience that relying on a sole partner/supplier is always fraught with risk. Many countries, including India, have faced the brunt of the sanctions-ridden American foreign policy.
Recommendations
1) New Delhi should look to strike a synthesis between private, foreign and public industry and smoothen several irritants in Indian defense dealings.
2) India could do well to amend its foreign direct investment (FDI) norms in the defense sector to enable foreign partnerships to be more effective.
3) New Delhi should relax rules on arms imports to ensure a smooth ride for foreign majors and rule out the involvement of middlemen in defense deals. In this, foreign defense majors and Indian private players are pitted against each other, so the going has not been easy.
4) US and European industry should push for FDI limits to be raised to 49% from the existing 26%.
5) Foreign firms could ask for more flexibility in finance, profit repatriation and technology transfers to build India as a manufacturing base. Many companies should look at this as an essential process to meet the 30-50% defense offset norms. The arguments could also center round the need for free competition as opposed to protection and artificial barriers to ensure the best products.
6) On the other hand Indian firms, supported by state-run units could push the government not to raise the 26% FDI limit for fear of being swamped by the superior technology and expertise of foreign players. They could argue that years of efforts to develop indigenous technologies would go to waste as new players piggy-back on foreign firms. Aggressive local campaigners include big players such as L&T and Kirloskars that can lobby the defense ministry.
Thus, the federal government has relaxed the FDI norms on a case-to-case basis. The process has received support due to the success of Brahmos cruise missiles, an Indo-Russian 50-50 JV.
7) The defense ministry should clear more JVs with Israel and Russia. However, a piecemeal approach cannot be an efficient system as the volume of new defense contracts with offset requirements gather steam. So far the government has not firmly indicated its stand on the issue which will have to be resolved into a policy framework.
8) In this context, India should also emphasize the transfer of technology in its defense deals so that indigenous firms develop the capability to produce defense wares over a period of time.
9) India has to move away from excessive dependence on imports which is a drain on the country’s foreign exchange coffers and makes it vulnerable to various arm-twisting tactics that are not very healthy in a strategic arena such as defense.
