In the last twenty-five-year history of India’s economic liberalization only few steps were as big as the permission of 100% FDI in defence. On Monday, when government opened the defence sector allowing foreign companies to start fully owned plants, it makes the foreign military firms thinking. The welcome given by the largest defence importer in the world is not small for them, especially when every big market is indigenized.  

The new policy has opened the door fully to foreign players. Government approval will be made on a case by case mode where modern technology is accompanying. Manufacturing of small arms and ammunitions are also covered under the new policy.

Now, who will be coming to India? The Europeans, Americans, Russians…the list is not lengthy. Defence investment is not like the conventional type of investment decision making. Several factors beyond economics and finance becomes decisive here.

There is no question that the European military hardware industry is not going to establish its foot in India as it likes to produce at home; by protecting technology. Russians are more reserved. Hence the court is free for American firms as there is a fresh and deep warmth in the relationship between India and the US in recent times.

In the most important products like aircrafts, long term strategic collaboration at the government level is a necessity for foreign companies to start production in India.

Strategic outcome of the new defence FDI policy

The defence policy will bring radical changes in India’s strategic relationship as well. Former Defence Minister A.K. Antony puts his opinion with a warning: “Allowing 100% FDI in the defence sector means India’s defence sector is thrown mostly into the hands of Nato-American defence manufacturers.”

He observes that if Nato-American defence manufacturers came into India, then it would “affect India’s independent foreign policy too.” Antony has the opinion that it may threaten the country’s national security.

FDI policy and US collaborations

Big and quick developments are taking place in the Indo-US relationship. India has nearly emerged as a military partner of the US. All these indicate that given the government level synergy, the new defence FDI policy is more opened to the US firms. And most importantly, all these developments took place after PM Modi’s US visit.

The immediate outcome of the FDI policy will be on Rafale negotiations. Europeans especially the French doesn’t like to share employment or production benefit with the buyer. Defence offset policy goals are difficult to be realized in critical hardware like aircraft with Rafale. But given the policy shift, India can search for more options.

If one set aside the suitability of Rafale to India’s requirements, the new policy may help us to find more desirable options. Specifically, to look for producers who can make their production in India.

In an interview to The Hindu last month, Defence Minister Manohar Parrikar indicated that India was looking at getting a foreign military firm to manufacture its fighter in India. “I am not looking for assembly at all. I am looking for a company to join with an Indian partner and to start manufacturing here by Transfer of Technology (ToT) in most of the items. I know that 100 per cent ToT may not be possible and 100 per cent indigenisation is not possible. Even with so many efforts, LCA has only around 40 per cent indigenisation,”

Here comes the case of Lockheed and Martin-producers of F-16. In the US, F-16’s production is almost halted. In a historic turnaround, the Air Force has given license to Northrop Grumman Corp in 2015 to produce new long-range bomber under the name B-21. Lockheed and Boing have lost the bid. Hence, the company should search for alternative markets. India is a right opportunity for it to survive.

Lockheed and Martin is active in Indian entry discussions and has hinted about establishing Indian production presence earlier. But one question again arises – does the forty-two-year-old aircraft fit to India’s requirements?

According to the Chairman of HAL -Suvarna Raju, the F-16 doesn’t meet the features of medium multirole combat aircraft that India needs.

But still what makes many admiring about F -16 is its ability to compete with several new generation fighters. The B – 35 was defeated several times in mock dogfight by the F -16. What is wonderful about F -16 is its continuous upgradation.

The F -16, born in 1974, has been continuously upgraded by incorporating new technologies into the cockpit, avionics, sensors and weapons and thus the aircraft remains reliable.

The Hindu has quoted a government official about the recent aircraft negotiations and he observed that discussions with the French government on Rafale fighters haven’t succeeded in securing a competitive price. “Lockheed Martin, on the other hand, is keen to close down its F16 production facility in the U.S. Talks are on to invite the company to shift its F16 production line, lock, stock and barrel, to India.”

Defence FDI policy doesn’t fly alone; rather it should be accompanied by strategic alliance formations. Given this, the new FDI policy sets path for the US biggies to come to India. Realizing the best for the country need several efforts on different fronts. The new FDI policy opens several opportunities; maneuvering them is vital for the interest of the country as the largest import dependent military force in the world.


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