I was delighted to read that the government has already moved to allow 100% FDI in the defense sector, and I hope the measure passes, and doesn’t get stalled like multi brand FDI.
Currently, India allows 26% FDI in defense but the policy is so restrictive and unfriendly to investors that hardly any FDI has been received in the sector at all.
A few years ago India was reported to become the biggest arms importer in the world, and that trend has continued since then, and India was still estimated to be the biggest arms importer in 2013. In fact it is estimated that India imported 14% of the global arms between 2009 – 2013 and among the top ten countries that import weapons, India’s domestic production is the second lowest trailing only to Saudi Arabia. Last year India became the top importer of arms from the US estimated to be $1.9 billion, and the total defense imports were estimated at $5.9 billion.
Given India’s geography, and relations with neighbors, there is no chance that the need and spending on defense reduces any time in the near future. India’s defense budget was hiked by 10% last year and Rs. 2,24,000 crores are expected to be spent in defense services this financial year, and World Bank estimates put India’s military spending at 2.4% to the GDP.
All of this simply points to the fact that India has traditionally, and will continue to spend a lot on defense, and a lot of that money goes abroad since the country simply doesn’t have the knowhow to produce most of this arms and equipment domestically.
It is a no brainer to create conditions that allow India to procure more of its weapons domestically instead of sourcing it internationally, as not only does it save on the imports bill it gives a much needed boost to manufacturing as well, which will of course spur employment and boost the economy. India has opened up to foreign companies in several fields so far and hasn’t experienced any downside in any of those fields, and if you look at the consumer goods in your own house, you will see that the normal customer has benefitted from the presence of international companies in India tremendously.
When the multi brand FDI proposal was introduced there was a lot of discussion about what it would mean for Indian traders and customers, and not enough on whether it was attractive enough for foreign companies to even contemplate investing in that area. This proposal might be similar in that there are so many safeguards, and conditions built in that the deal is no longer attractive to an investor and that’s something to be wary of or at least keep in mind so that further amendments can be made to make it attractive and tenable for both parties.