If reports about the diversion of INR 13,000 crore from the capital segment of the defence budget to the revenue heads are true, it is an indication of the growing strain on the revenue budget.
It is difficult to visualise how the Russian offer to make LUH in India could be actualised unless the government invokes ‘strategic considerations’ for making it in India or signs an inter-governmental agreement for that purpose.
What the Strategy for Defence Export tries to achieve is to create institutional mechanisms and establish clear-cut procedures within the overall ambit of the Foreign Trade Export for facilitating arms exports through export promotion/facilitation and export regulation.
Under the earlier policy, the foreign portfolio investment in Indian defence industry was either banned, or capped at an arbitrary level for certain companies, causing a lot of dissatisfaction among several listed Indian companies which had pleaded their genuine helplessness in controlling such investments given their nature of flow.
There now seems to be greater recognition of India’s concerns on transfer of technology and not just about co-production but also co-development of next generation weapons. The larger objective for India, however, must be to reduce its dependence on import of foreign equipment and modernize its armed forces in the quickest possible timeframe.
The Guidelines of 2012 have been under review for some time. While a drastic shift in the policy is unlikely, some changes in the policy, clarity about some of the existing provisions and simplification of the procedure seem necessary to make the policy work better.
There are speculations whether the present budget is sufficient to meet expenditure on big ticket items but one has to bear in mind that it is only the advance payment – generally 15% of the contract value – that becomes payable on signing of a new contract. Even if new contracts are signed for say INR 50,000 crore, MoD will require just about INR 7,500 crore for those schemes.
The Defence Minister made two significant points: one, the need for making a significant amount of the nation’s resources available for defence and two, he talked about the slow pace of acquisition of defence equipment as the key concern. These are unexceptional statements of intent and the challenge would be to meet these objectives.
The proposal to relax the present cap on FDI in defence has expectedly drawn sharp reactions. Those who oppose argue that higher FDI is not required and, more importantly, it will not be in national interest, not the least because it will stymie the process of indigenization. This calls for a dispassionate analysis.
Rejig of Defence Budget 2014-15?
If reports about the diversion of INR 13,000 crore from the capital segment of the defence budget to the revenue heads are true, it is an indication of the growing strain on the revenue budget.