Foreign direct investment (FDI) in defence has received much attention in the run up to the budget announcements. The announcement to increase FDI in defence from 26% to 49% may not be attractive enough for foreign players, who were hoping for a minimum 51%. While the enhancement of FDI limits may enable the local defence industry to collaborate with foreign weapons manufacturers, the Indian government’s position on technology transfer and local hiring will be most important. The new government needs to take a firm position on these issues, which will equip India with the necessary capabilities for indigenous defence production.
On the topic of military modernisation, there has been a lot of rhetoric in the budget. The announcement to allocate Rs. 5000 crore extra from the interim budget may be enough for ongoing acquisitions, but not for future ones such as the multi-role naval helicopter deal which carries an estimated cost of Rs. 6000 crore.
The Finance Minister expressed that a comprehensive policy will be announced to promote the Indian shipbuilding industry. This policy will hopefully consider the aspect of scaling up the involvement of local private shipyards which have played a small but impressive role in increasing our naval capabilities. Easier credit access and tax holidays for local R&D efforts are measures that will enable the local shipyards to commit more funds.
Arun Jaitley also announced a ‘Technology Development Fund’ to enhance R&D in defence technology. However, it is not clear if there will be a private sector participation, which has proved useful in integrating advanced technology in the locally manufactured weapons platforms, such as the nuclear submarine project
(Sameer Patil is an Associate National Security Fellow at Gateway House)