India Aims to Boost Share in Global Arms Market
by Anjana Pasricha February 20, 2015
As it seeks to ramp up domestic defense production, India has called on global arms makers eyeing the country's large arms market to share technology with Indian companies. But New Delhi faces many challenges in its efforts to build a credible defense industry.
The message to more than 300 foreign firms from over 30 countries which lined up to take part in the Aero India show in Bangalore was clear: they must manufacture in India with local partners to win defense contracts that could add up to $250 billion over the next decade.
Saying that India wants to slash defense imports from 60 percent at present to 30 percent, Prime Minster Narendra Modi called on foreign companies to turn from "sellers to strategic partners."
"We have the reputation as the largest importer of defense equipment in the world. That may be music to the ears of some of you here, but this is one area where we would not like to be number one," said Modi.
In the last 14 years, foreign investment in the defense sector has been paltry - less than $5 million.
'Made in India'
But as "Made in India" becomes the country's new slogan, many foreign companies wanting a slice of the world's largest arms market are looking at increasing their investments.
At the Aero India Show, companies from Sweden to Israel and France to the United States have scouted for local partners as they explore deals to build helicopters, warships, radars, artillery and air defense systems.
With the government defense sector hopelessly outdated, India is turning to private companies, which have been small players so far.
Retired Air Vice Marshal Manmohan Bahadur with the Center for Air Power Studies in New Delhi says private firms will play a larger role in defense manufacturing.
"We do not have a widespread defense manufacturing base and many systems and sub systems would have to start afresh, from absolutely the base. But we have got the Tatas, the Mahindras, and some more which can absorb the high-tech that is on offer. If defense indigenization has to happen, the private industry has to come in in a big way," says Bahadur.
However, analysts warn that it will not be easy for India to reduce its reliance on arms imports. Many foreign companies say India's low technological base could make it difficult to transfer technology for building sophisticated weapons systems. Lack of skilled manpower is also a challenge.
And although India has increased the limit for foreign investment in the defense sector from 26 to 49 percent, lack of management control could pose a hurdle for many companies.
Rahul Bedi at IHS Jane's Defense Weekly in New Delhi says building a domestic defense industry could take many years.
"It's a long haul. One of the bigger problems which no one is really looking at is that of intellectual property rights. No company anywhere in the world is willing to transfer technology without protecting its intellectual property rights. And with India having an investment [cap] of only 49 per cent for outsiders, few people would be willing to come in where the control would lie with India," says Badi.
Despite the challenges, analysts call the effort to ramp up domestic defense production a "step in the right direction". They say making the armed forces more self-reliant for equipment is critical for a country seeking to play a larger strategic role.
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