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More bang with foreign bucks

More bang with foreign bucks
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First Published: Mon, Mar 29 2010. 08 29 PM IST
Updated: Mon, Mar 29 2010. 08 29 PM IST
Anybody who finds himself running a race one day wishes he had gotten in shape for it the day before. Countries are no different.
This weekend, Pakistan indicated that it’s looking to buy 14 more F-16 fighters from the US, in addition to the 18 the US will anyway deliver this year. Already concerned about this noticeable tilt towards Pakistan, India hinted last week that the US sale of aircraft to Pakistan could affect bids offered by US firms for India’s 126 multi-role jets. But, as Pakistan milks its patron to strengthen its arsenal, does India have a broader response than threatening to turn away foreign contractors?
If anything, we need more foreign involvement in defence. That seems to be the intent behind a ministry of commerce proposal, reported by The Hindu last week, to raise the foreign direct investment (FDI) cap in defence from 26% to 100%.
This move will allow firms such as Lockheed Martin to set up manufacturing facilities here. First, India—certainly not self-sufficient—needs to tap foreign technology to develop its own know-how. The government has been trying to get the Lockheeds of the world to share technology for some time. Hence, its 2006 policy of “offsets”, where foreign vendors who win contracts above Rs300 crore invest a minimum 30% of that locally. Foreign investors who would have been wary of this policy—Why would Lockheed share its proprietary technology with an Indian public sector unit?—have less cause for wariness if they can own equity here.
Second, India could access a steady supply of foreign-built arms at home. Countries have made it hard for India to access foreign arms in the past and New Delhi can’t rule out such a time in the future. This won’t happen if Lockheed happens to be developing its latest fighter in India.
Such leverage can, third, be applied more broadly too. Nations supplying arms to India have less incentive to bully us if there are well-built commercial ties. Boosting FDI, then, gives defence relationships as strong a commercial angle as a strategic one.
Yes, this kind of commerce may prompt strategic or other security concerns—some reports suggest the ministry of defence is against this move—but strong rules and regulations can surely assuage these. If India is about to find itself in the midst of a new arms race, there’s no shame asking for a little outside help to get into shape.
Should India allow more foreign investment in defence? Tell us at views@livemint.com
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First Published: Mon, Mar 29 2010. 08 29 PM IST