Why FDI Can’t Plug Loopholes In India’s Defence Strategy

Posted on August 8, 2014 in Specials

By Mayank Jain:

It is finally established that the government’s proposed solution to all our problems across the spectrum that starts from jobs and spreads till technology, is FDI. It is imperative in this aggressive, almost hurried push to ‘open up the country’ to take a step back and ponder if FDI is really the panacea that it is made out to be.

Indian military spending since 1991 has continuously grown by leaps and bounds. Yet, the deficiency in country’s preparedness for a conflict is highlighted time and again in the parliament and during defence budgeting. The chart below is a good way to put things in perspective on the amount we spend every year just to secure the country and even then, instances of terrorism or border conflict haven’t stopped. We have ourselves been forced to accept that Indian defence capabilities are far from satisfactory.

Source of data: http://milexdata.sipri.org/

FDI stands for Foreign Direct Investment and more often than not, ends up bringing Foreign Direct Instructions to the said industry and binds it to the whims and fancies of those multi-billion dollar corporations which work with the sole aim of making money. ‘Self-reliance’ for our equipment needs is the argument for increasing the cap of FDI in defence from 26% to 49%. And it is a rather half-baked reason for inviting arms manufacturers to set up shops in the country when the control of their companies will be in Indian hands. The only reason for a foreign manufacturer to come and set up the shop, hence, could be cheaper manufacturing opportunities which aren’t as lucrative with our past record of retrospective taxing and dubious investment laws that backfire at any random point in a company’s life cycle.

The market for defence equipment doesn’t come with an elasticity of demand either, where these enterprises can manufacture cheaper goods and their sales will soar. The appetite of a normal country to spend on conflict preparedness when it faces much graver internal issues like poverty and illiteracy is quite limited. Are we naively expecting the multinational defence manufacturers to solve the problems of our own leniency in procuring equipment in time and focusing on phased up-gradation?

The myth of technology transfer is certainly a big lie that we have all been made to believe when it comes to FDI and needs to be broken. Areas like defence equipment manufacture are those of customized production rather than standardized assemblies.

Most of the defence equipments are made up of multiple parts which are manufactured across the world and then, finally engineered to suit the requirements of a certain contract. India might become a stop in the chain but the idea should be to build the chain in the country itself.

Indian T-90 tanks

Foreign corporations, if they choose to take up 49% of a joint venture, might never let their technologies come out from their bases and India will only be the recipient of final product. It will be cheaper than buying in the international market but it won’t be worth the effort of putting our defence sector in the hands of a few billionaires who would rather sell their equipment to us for decades before we figure out how to do it on our own.

Different studies all over the world have pointed out the hazards of letting a dominative military industrial complex breed in the country which results in bureaucracy and lobbying by the biggest manufacturers to vouch for contracts and ends up hurting the finances. A mad race for manufacturing arms at any cost ensues and the funds are continuously diverged from the state’s budget to fulfil the defence requirements of other countries as it recently happened in the United States.

Another concern about letting defence manufacturers stay in the country to manufacture defence equipment is their profitability. The profit is only during the war times or when conflict ensues with rivals or neighbours. Boeing, Lockheed Martin and all other monopolistic manufacturers have been blamed of pushing their agendas in the lobbies and implanting conflicts where they don’t even exist. The ways to do this are multiple and the easiest one is selling the same equipment to a rival of the country and letting the rumors of a possible ‘war’ flow and work their way up to the ears of the government.

There’s no denying in the fact that our defence sector needs a big boost but it should come from indigenous manufacturing rather than buying stuff from outside where companies dominate their pricing and we end up paying a bomb for a rather common equipment. However, expecting foreign money to plug Indian holes is hopeless optimism at best and naivety at worst.

India’s role in the south Asian peninsula is of a peace leader than an aggressive paranoid state which should be hoarding arms for peace, a rather dangerous oxymoron. The strategy should be of rejuvenating defence diplomacy instead of defence spending and building a secure country, south Asia and subsequently the Indo-Pacific region instead of going on an arms shopping spree. The overuse of ‘hard power’ ostentation which military equipments lend us proves the lack of depth in our military focus.

FDI might have been a good move to boost existing industries, but we can’t substitute hard work at home by shifting to an expensive school. It is a historically proven fact that it is always a better strategy to spend on peace rather than on wars.