April 22, 2021
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BJP decision for 100 % FDI in defence can create 55,000 jobs in 2 years

The BJP government’s decision to remove hurdles in defence production by lifting the Foreign Direct Investment (FDI) limit to 100 per cent could create over 55,000 jobs domestically in two years time, if more such steps are taken to make India an attractive destination.

According to a Stratcore India report, the proposal to hike FDI cap in defence sector may create 5 lakh jobs in 10 years time if manufacturing can be managed according to a plan and the government can facilitate collaborations among foreign companies and their Indian counterparts.

On the top of it, the public sector defence undertakings (DPSUs) should also join the move and get free from government control at least in areas of operations where there should be level playing field for all in equal terms for promoting healthy competition to enhance manufacturing.

If the government remains protective about the future of DPSUs, as practiced by the UPA-II before, then the policy of 100 per cent FDI may not yield desired results given the control and traditional way of looking at defence manufacturing in India by some groups.

The Stracore India report says that India should have been by now a leading defence hardware exporting country in the world instead the nation has become second largest defence hardware importer at a global level, spending a huge amount of precious forex reserve.

This is a great cause of India’s forex loss and leading to huge current account deficit as well. To overcome such a scenario, India should embark on a long term course of small and medium defence hardware manufacturing capability initially.

For this effort to succeed, the government, mainly the MoD, should be proactive and bring more cohesion among various departments and service headquarters together to identify the needs and prioritize the requirement at various levels.

The real challenge before the government may come in the form of creating confidence among industry players who feel it is a welcome step but more such steps should be taken to make India an attractive destination for defence R&D.

Thus, India should look at small and medium term business and go for SME related defence manufacturing to bolster domestic strength. Since India has a massive industrial strength in civilian manufacturing it will take some time for the country to put its act together.

The FDI limit enhancement should also be taken further to open new avenues in defence manufacturing where India is looking at a short term and medium term production capacity building.

On the top of it, the government should also facilitate strong IPR and related investment protection guarantee for foreign investors who will bring their money and technology to a country which is not known for favorable towards them in the past.

This is the minimum which India should do if it wants to make defence manufacturing its top most priority. The defence manufacturing can create a huge potentiality for young graduates to pursue a career in hitech sectors.

Now, the Indian private companies and DPSUs should also boost component sourcing capability to impress the foreign investors and the MoD needs to provide special incentives to foreign technology leaders to come and set up their ventures in India.

The FDI is only one of the five components necessary for establishing a successful defence industrial complex and modern manufacturing base.

At the same time, India needs to strengthen its priority areas and identify its immediate strength where it can succeed easily. For example, India can go for building hitech drones both for reconnaissance and armed attack purpose without much problems.

This could be one area in which foreign investors can easily come into the market and set up their base in India provided the government spells out how many drones it will need in five years, ten years and next 15 years.

Now, this is the way to go for manufacturing as the investor would like to know the needs of an armed force or a country where he should focus or how much investment it should bring in if the order books are made known to them in advance. The volume will determine the business and ensure technology flow.