With its vision to transform from a regional power to a global power, India is giving greater importance to its defence sector in the country’s long term strategic planning. It is well known that India plans to spend over 10 years on defense modernization. With the growing power, India enjoys higher purchasing power which is evident in its several high-end defence deals either in the pipeline or being envisioned to strengthen India’s force structure. Estimates reveal . As an emerging economic superpower, India’s spending on defence is on an accelerated mode and this has been necessitated because of its emerging rivalry with China, the traditional rivalry with Pakistan and the internal security issues.

The two biggest agendas that have been taken up by Indian establishment in boosting their defence capabilities are Indigenization and Modernization. During last 6 months, some bold steps have been initiated towards both these agendas. Two noteworthy policy shifts that Indian Government have announced for Defence sector off-late are as follows –

  1. Significantly higher budget allocation for Defence
  2. Liberalization of the sector and promotion of Make in India

Higher Budget Allocation for Defence

In Majority of this amount has been allotted on the capital account for the acquisition of modern weapon systems, including initial payments for 126 multi-mission, medium-range combat aircraft, 197 light helicopters and 145 Ultra-light Howitzers, among others.

The defence budget spotlight is on manufacturing best designed technologies in India. India is ambitious in its military build-up plans and has clearly outlined its key strategic priorities to drive the country’s military expansion. Apache helicopters, Chinook helicopters, light utility helicopters, lightweight howitzers, submarines and multirole helicopters are all part of its costly investment plans.

India is one of the largest global military spenders too.  According to a report by Strategic Defence Intelligence (SDI), India's defence spending is expected to grow at a CAGR of 6.65% in the next five years to reach $55.4bn by 2021. The report, titled ‘Future of the Indian Defence Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2021’ noted that the Indian defense budget has witnessed the CAGR of 3.41% during 2012-2016, while defence capital expenditure is expected to be $21.2bn in 2021, due to the procurement of multi-role aircraft, corvettes, surface-to-air missiles, and frigates. The Indian Air Force (IAF) has been allocated a 25.9% share, the second biggest allocation. Moreover, the expenditure on air force is expected to be as high as $14.1bn by 2021 and the modernisation of the air force to counter the potential threats from its neighbours is anticipated to drive the expenditure.

100% FDI allowed in Defence

In June 2016, . Indigenization and Modernization are at the heart of this breakthrough announcement. Commenting on this policy announcement, Union Minister Rao Inderjit Singh said that this inflow of FDI is supposed to help Indian defence forces become independent by acquiring state-of-the-art technology and indigenous manufacturing of defence equipment. What India has been missing are capabilities in design and development while country has had manufacturing capacity at its disposal. Country’s armed forces have for long raised concerns on the absence of essential equipments and technologies and the government realizes that the defense requirements should be fulfilled and the process of acquisition has to be expedited. Rao further added that if anyone sets up an industry and provides employment, the government would clear it. This would be a great boost to the country’s economy as well as its Make in India Programme.

Local Manufacturing and Technology Development for Defence

Focus on promoting defence equipment locally in India has been another agenda which is being pushed vigorously by the government. The Indian government is very clear and focused in its vision for its defence sector - indigenization of the industry and acquiring advanced technologies which will in turn help to reduce dependence on imports from other countries around the world.

India has the third largest armed force in the world. It spends 40% of its total defence budget on capital acquisitions and about 60% of its defence requirements are met through imports. The Indian Armed Forces are currently the world's largest arms and ammunitions importer, with Russia, Israel, and to some extent, France and United States being the primary foreign suppliers of military equipment. PM Narendra Modi has emphasized on indigenous manufacturing to help reduce the defence budget by 50% within a decade. He stressed on the need for innovation in the defence manufacturing sector with increased focus on defence R&D and prepare a human resource development pool which will help in making equipment cheaper to the extent that outside importers can use this talent for manufacturing.

India’s strength of defence equipments with regards to ‘State of the Art’, ‘Matured’ and ‘Obsolescent’ equipment is 15, 35 and 50 percent respectively. This suggests that the Government would have to make serious efforts towards upgrading its defence resources either by developing or procuring defence equipment and systems. Moreover, modernization, up-gradation and maintenance of the existing equipment would also provide immense opportunities to the industry.

Indian Government seems to be very clear about implementing its agenda of enabling technological advancement for the armed forces and with enhanced budget allocations and FDI liberalization, India seems to be on course to acquire these capabilities for its defence sector. While this big focus on technology might not yield immediate results in the short term, it surely is a long term bet that the government has envisioned with an eye on strengthening its position as a regional and global power.

Shailja Kaushik | Blogger - Arsha Consulting

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