The proposed hike in FDI from the existing level of only 26 per cent also makes sense since the latter has failed to attract any foreign arms manufacturing company worth the name to invest in sophisticated defence production in India. If manufacturers of fizzy drinks Coke and Pepsi and potato chips Lays are allowed to have 100 per cent FDI, it is simply illogical - ridiculous, as well — to set entry-level restriction of 26 per cent FDI for global arms manufacturers. Suffice it to say that technology for top-of-the-order combat weapons is well-guarded by its owners. It would be foolish to expect the manufacturers give away such know-how to a growing economic and military power such as India, having indigenous nuclear and ballistic missile capabilities and satellite launchers, for a song.

Local private manufacturers such as the Tatas, Larsen & Toubro and Mahindra Defence Systems favour 49 per cent FDI in defence so that they are in control of the business and imported technology. Global giants are not interested in parting with their technology with such novices in the business to help them get converted into their competitors, some day. The FDI in defence production amounted to a measely US$1.50 lakh between April, 2000 and February, 2010, clearly indicating that the government policy has failed. In fact, there is a case for 100 per cent FDI in defence which may be gradually reduced to 66 per cent through public offering within a period of, say, 10 years. If there is a need for minority joint venture partners in high-tech defence production, the government itself may offer to be one. China, one of the world's largest exporters and importers of armaments, has done it with great benefit to the nation. However, Indian companies should have no restriction to rope in foreign equity and technology partners for defence production on mutually agreed terms.

The defence shopping list even for conventional items is pretty large and wide. It includes tanks, self-propelled guns, artillery, armoured vehicles, surface combatants, both major and minor, such as aircraft carriers, destroyers, frigates, mine sweepers, submarines, sub-chasers, torpedo boats, petrol boats, missiles of all kinds and supersonic combat aircraft. Apart from weapon systems and arms, the defence gear market is also large. Bullet proof vests, head gear, snow boots, glasses, powerful binoculars, personal telecommunication equipment are mostly imported by India. In fact, 70 per cent of all of India's defence needs are imported. Non-arms defence imports are equally substantial. Support services such as telecommunications, satellite phones, advance warning systems, high-efficiency radars, etc., form some of the other areas of defence requirement. The FDI in defence could vary from 74 per cent to 100 per cent in high-tech defence hardware and 49 per cent in soft areas of military production and critical spares and parts.

According to the most reliable Grimmett report and the Swedish defence think-tank Stockholm International Peace Research Institute, the size of the annual global military spending was over US$1 trillion at the end of 2008. Last year, international arms imports amounted to US$ 55 billion. Among the world's top ten arms importers between 2005 and 2009 are India, Saudi Arabia, China, UAE, Pakistan, South Korea and Singapore, all Asian countries. It makes sense for some of the big global arms manufacturers to use India as a production hub to serve at least the Asian region where arms race is projected to further intensify in the coming years. India's strongly rooted democratic system provides the best security and business environment to global arms manufacturers to set up production facilities here. While the country itself provides a large ready market to such foreign defence production units, the latter should be asked to take an export obligation for the benefit of both the parties. India's 2010-11 defence expenditure is budgeted at Rs. 1,47,344 crore (US$ 32 billion). It is among the top ten countries in the world in terms of military spend.

Traditionally, Russia, the world's second largest military hardware manufacturer and exporter, has been India's number one trading partner in defence equipment - from guns to aircraft carriers, submarines and combat aircraft. The biggest Russian arms manufacturing group, Almaz-Antey, may be persuaded to set up a manufacturing base in India. Lately, India has also been increasingly importing from other countries, especially from the US, the UK, France, Germany, Italy and Israel. Almost all major arms manufacturers, including BAE Systems plc of the UK, Boeing, Lockheed Martin, Northrop Grumman, General Dynamics, Raytheon of the US, the European combine EADs, Italian group Finmeccanica, French L-3 Comms and Thales, ThyssenKrupp AG of Germany and Israel Weapons Ltd, are all doing business with India's defence services. Some of them may also be directly approached by the government to set up manufacturing facilities in India.

There are many advantages to India if international arms manufacturers set up production base in the country. It will indirectly act as a deterrent to illegal arms smuggling into the country by terrorist and separatist groups. The manufacturers will have more up to date commercially competitive information about entry and movement of illegal arms into the country. They may share the information with the government. The industry will create a huge employment. Ancillaries and modern foundries will come up. From a large importer of arms and weapons systems, India will also emerge as a major exporter of arsenal and combat gears. Anand Sharma, the UPA minister and the author of the 'discussion paper' on FDI in defence, deserves full support from all concerned, within the government and outside. If China and Brazil can have strong footprints in the global arms export market, there is no reason why India should ever be so heavily dependent on foreign supplies of military equipment and spare parts.

But, Anand Sharma may not find it easy to push through his ambitious plan too soon. The industry ministry proposal is certain to meet resistance from India's strong and powerful arms import lobby, comprising agents, mostly NRIs, politicians, bureaucrats and military brass among others, who are currently raking in millions of dollars annually in commissions and kick-backs. It is an open secret that the arms trade is extremely corrupt - regarded as one of the world's three most corrupt businesses. According to Transparency International, a 10 per cent bribe by suppliers is 'normal'.

Hopefully, the minister is not alone to press for the cause of 74 per cent FDI in defence production. The strategic move may already have the blessings of Prime Minister Manmohan Singh, Defence Minister A.K. Anthony, Finance Minister Pranab Mukherjee , Congress president Sonia Gandhi and Congress general secretary Rahul Gandhi, whose late father had to fight a good part of his public life a combined opposition tirade against his unsubstantiated role in the Bofors gun kick-back case in the late 1980s. It is to be remembered that the passage of a new FDI policy in defence alone may not help generate the desired result. The government will have to do some real hard selling to get companies such as Boeing, BAE Systems, EADs, Lockheed Martin, General Dynamics and Almaz-Antey to seriously look at India as the next best viable business destination. (IPA Service)