April 13, 2015

It's time to shed fears attached to India's defence sector


The mega deal with Rafale is the first landmark in the Make In India plan for the defence sector, and promises to put into throttle investments and expansion of small and large industry to produce parts and tech that needs to go with it. It's a contract for 36 ready-to-fly fourth generation aircraft and 90 that will be built in India.
What it will bring with it is technology transfer, research and development and a new skill building opportunities. 36 ready planes make for two squadrons of the Indian Air Force and can boost its otherwise weakening and aging fleet of aircraft. On a commercial note this $20 billion deal will mean $10 billion opportunity in manufacturing offsets in India.
What's unique and progressive about this deal is that Rafael may be working with a private Indian company to build 90 planes. Rafael project was earlier stuck because of the manufacturer Dassualt's reluctance to bank on a PSU's competence as it was being forced to work with Hindustan Aeronautics Limited. Now with the new deal (and the new government) the contract will go to a private defence manufacturer. The Indian government under UPA was insistent that the french manufacturer guarantee the timely deliverance and quality of the plane by the Bengaluru-based PSU, something the company was not willing to do. Finally, the deal is set to take off with these issues out of the way.
We in India have been obsessed and concerned with the FDI in defence debate although most of our military capacity has always been supported by foreign equipment and planes. Deals like these may showcase that foreign tech and investment in India military aviation can grow its strategic capability and it's a good time to shed the fears attached to FDI in the sector too.
History is replete with examples that India's experiments with indigenisation have, at best, been tardy. Homegrown companies can continue researching with grants and doles but that could take a while before we achieve anything. According to a paper published by the institute for defence studies and Analyses (idsA) even if India increases its R&D efforts in a big way, the benefits, in terms of equipping the armed forces with proven technologies, will not accrue in the near future.
In the 65 years since independence, we should have been able to absorb technology and understand it. All these years we left things to the defence Research & development Organisation (dRdO) and look where we stand today. The Light Combat Aircraft (LCA) took 25 years to make and is still to get inducted in the fleet. The Arjun Battle Tank was also delayed. When India bought the Sukhoi su-30 from Russia, it was decided that eventually they would transfer technology and equipment, and we would put them together here in our factories but even there our figures went beyond the cost of importing it.
Eventually we will need foreign investment in domestic companies. Worries of sabotage and blackmail can be addressed by putting in appropriate riders in any agreement with such company. The solution doesn't lie with the government either; instead, the concern of strategic and security interest should allow for domestic private sector to be preferred to foreign firms.
India even lags the nations in its own neighbourhood. China, for instance, has reduced dependence on imports, created its own industry and has begun exporting indigenously developed military equip- ments. In 1947 China's defence was near nothing but today it may be the second largest. The fact is, India's defence sector needs modernisation as nearly half its equipment is obsolete. Scams and corruption scandals have not made things easier.
The defence market is lumpy and the procedures opaque, such challenges make it harder for companies to enter the sector. Opening up the defence sector, going through with big deals will lead to higher investments and also increase the country's ability to understand and grow with next generation tech. Most importantly it will put emphasis on making in India.


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