Chanakya IAS Academy Blog


The article talks about the policy of allowing 100% FDI in defence sector and what is the actual need of this sector.

  • The successful induction of the first two Tejas light combat aircraft (LCA) on July 1 into the IAF, pending final operational clearance, provides the appropriate backdrop to the recent announcement of the government to allow 100 per cent FDI in the defence sector.
  • This policy announcement is being heralded as the fillip that India’s moribund military indigenisation effort needs and that very soon Make in India will gain robust traction.
  • However, India’s many institutional deficiencies and distinctive cultural DNA traits may make this highly desirable goal more elusive than imagined.
  • The 100 per cent ceiling was present since UPA government’s time but many caveats and procedural constraints ensured that the initiative was not very successful in attracting foreign capital.
  • The Tejas success, which is to be commended, is illustrative of the mindset that has crippled India’s indigenous defence industry for decades.
  • The LCA programme wherein India would design and build its own combat aircraft took 31 years for the first two aircraft to be inducted, albeit in a sub-optimal manner, and it merits notice that both the engine and the primary radar are imported.
  • The LCA apart, two other recent revelations provide the context for the FDI challenge.
    • The Indian Army is the second largest in the world and yet for decades on end, India has been less than successful in designing and manufacturing its own rifle.
    • Currently, the army is reportedly facing a massive shortage, including that of ammunition and bullet-proof vests.
    • Consequently, India is one of the largest importers of military inventory. Over the next decade, India will allocate over $ 200 billion towards acquisition and modernisation.
    • A truly competent and nimble policy making body would be able to prioritise and attracting investment.
    • But the sad reality is that the Indian defence leadership is clueless about how best to invest such a large sum of money over a decade with foreign participation and add tangible capacity to the military in a sustainable manner.
  • what is missing is the holistic institutional integrity and multi-ministry competence that can envisage a national systems-engineering equivalent.
  • Thus, the 100 per cent FDI ceiling in defence, while being welcome, will have to be preceded by some very rigorous introspection about existing inadequacies.
  • The holy grail of indigenisation can be attained only if the vast resources of the Defence Research and Development Organisation and Defence PSUs are dis-aggregated and re-cast on the lines of successful models that exist in countries such as Israel.
  • A DRDO-centred, incremental approach will not succeed.
  • PM Modi needs to mobilise young entrepreneurial Indians to undertake cutting-edge defence research.
  • Concurrently, with defence budgets likely to shrink in real terms, there is an urgent need to create a cadre, within the ministry of defence, equipped for such onerous responsibilities.

The government has recently removed the caveats imposed over 100% FDI in defence sector in order to push Make in India in this sector. But what is missing is the holistic institutional integrity and multi-ministry competence that can envisage a national systems-engineering equivalent. Discuss.

Suggested approach:

  • The problem with the DRDO centred incremental approach.
  • Lack of coordination between different ministries.
  • The way ahead.


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Read 1255 times Last modified on Thursday, 07 July 2016 14:52

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