Now spring to defence

Military production should be the next front of the FDI fight

The government seems to have won its long and bruising battle to permit FDI in multi-brand retail. Given how hard it has had to fight and how much political capital it has expended, should it not have fought for a bigger, more strategic issue — the raising of the 26 per cent foreign equity cap in defence to 51 per cent or even 74 per cent?

Permitting foreign defence firms majority control of their India investments is likely to have an immeasurably superior impact on Indian technological capability, economic strength and global competitiveness than permitting Walmart, Tesco and Carrefour to give us a bigger, better version of what lndian entrepreneurs have already built since 1991: larger, better-lit shops; a wider (not necessarily cheaper) array of international offerings; more cold chain and storage facilities; and better-paid and better-dressed shop assistants. Multi-brand retail can bring no transformational benefits to farmers in the absence of reform in the laws on the marketing of agricultural produce. Also, it might not bring in the billions of FDI dollars envisaged. Trading has brought in just $3.6 billion of the $272 billion in FDI that India received from 2000-2012.

If the government had to contest an FDI taboo, perhaps it should have marshalled the energy and internal consensus to fight the big FDI fight on defence. Across political parties, there is near-unanimity that our public-sector defence complex is too slow and out of date, and that we must quickly bring in more effective players. By the defence ministry's own account, half of all existing defence equipment is obsolete.

Rising consternation about defence preparedness apart, there is also an economic urgency to this issue. Presently, India, the world's seventh-largest defence market, is also its largest arms importer. In continuing to buy arms from overseas, we are in effect remitting all this money to developed economies that need these jobs and income far less than we do.

... contd.

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