Western powers knocking on India's door for defense deals

French Foreign Minister Fabius is in New Delhi today. He'll be followed by US Sen. McCain, and British officials later this month as India, the world's largest arms importer, tries to reform its defense industry.

India's Prime Minister Narendra Modi speaks with French Foreign Minister Laurent Fabius (L) during a meeting at his residence in New Delhi July 1, 2014.

India's moves to modernize its defense industry and open it up to greater foreign investment are drawing a line-up of top Western politicians who are eager for deals. But turning the world's largest arms importer into a major arms manufacturer could prove a much tougher sell. 

French Foreign Minister Laurent Fabius met with Prime Minister Narendra Modi today to push for the completion of a stalled $15 billion deal to sell 126 Rafale fighter jets. He'll be followed by other high-ranking visitors, including United States Sen. John McCain (R) of Arizona next week, and two senior British ministers later this month. 

The flurry of visits comes after the Indian government announced in late May that it wanted to liberalize foreign investment in the defense industry, including an option for 100 percent foreign ownership. Mr. Modi, who won a landslide election victory in May, has spoken of revitalizing India's arms industry. 

“Why should we import defense equipment? We must be self-sufficient. Why can’t we send our defense equipment to other nations?” Modi tweeted on June 14 at the dedication of a new aircraft carrier purchased from Russia, a longtime supplier of India's military hardware. 

Indian defense officials have long sought – and failed – to promote self-sufficiency in weapons production. Modi, who promises “minimal government, maximum governance,” has vowed to privatize industries, cut bureaucratic loopholes, and attract more foreign investment. 

But Modi's drive for foreign investment in arms manufacturing faces severe hurdles: India's entrenched corruption and red tape; the reluctance of foreign companies to share their newest technology; and the strategic risk of aggravating neighbors Pakistan and China

Still, that doesn't stop India from aspiring to great power status.

“As India enters the 21st century, it has to ensure self-reliance in defense,” says Debi Mohanty, a strategic affairs expert at the New Delhi-based think tank Observer Research Foundation. “India cannot afford to entirely depend on foreign supplies. If it wants to be a global power it has to build its own military manufacturing capacity.”

Rise of Indian defense firms 

India is the biggest buyer of arms in the world, importing nearly three times as much weaponry as its nearest competitors China and Pakistan over the last five years, according to the Swedish think tank Stockholm International Peace Research Institute (SIPRI). India spent $47.4 billion in 2013 on military expenditures, according to SIPRI, making it the ninth-highest military spender in the world.

But only a small share of that expenditure – roughly five percent – goes to private Indian manufacturers, who stand to benefit from the push to modernize India's largely Soviet-era military hardware.

Even that represents a change of tack for India. In 1999, during a border skirmish with Pakistan, India found that its Russian-made equipment wasn't up to par, including night-vision goggles that didn't work, forcing India to turn to Israel for newer equipment. 

In 2001, India liberalized its defense industry by inviting private participation and, for the first time, allowing foreign investors to take minority stakes in joint ventures. The foreign share in such ventures is currently capped at 26 percent. 

Multinationals come knocking

Tata Group, a Mumbai-based industrial conglomerate, has since inked deals with multinationals including Boeing and Israel Aerospace Industries to produce a wide range of defense and aerospace products. Tata has a joint venture with US-based Sikorsky Aircraft Cooperation to build military helicopter cabins in India and is supplying fuselages for Sikorsky's global operations. Other Indian companies with defense arms include Larsen and Toubro, an engineering conglomerate, and Wipro, a software services company. 

India’s defense sector is still largely state-owned. Critics say the failure of state companies to innovate and meet deadlines has held back the domestic arms industry. An armored tank project took over 30 years to complete and the cost overran original estimates by 20 times. 

Foreign companies like Boeing and Britain's BAE Systems have already promised to share technology with Indian companies, provided foreign partners get a greater say over joint ventures. That could be a game changer for Indian companies seeking access to critical technology.

Mr. McCain, whose home state is the site of several key Boeing and Raytheon defense businesses, pledged his support for helping India's defense industry modernize in a Senate speech last week. 

"This is an area where US defense capabilities, technologies, and cooperation – especially between our defense industries – can benefit India enormously," McCain said of India's effort to modernize its armed forces.

Pakistan and China

Lurking behind India's plans is the question of how its two nuclear-armed neighbors will respond. Since 1947, India has fought three wars with Pakistan and one with China, which it lost. Analysts say that although the probability of a simultaneous conflict with both is remote, it can't be ruled out. 

“China has been acting more and more aggressively in the military arena with its close ties with Pakistan military,” says Rana Banerjee, author of "Pakistan Army: Composition, Character and Compulsions." Pakistan imports 54 percent of its arms from China. 
India is raising thousands of soldiers to add to its existing high-altitude troops deployed near India's Arunachal Pradesh state, which China claims as part of its territory.

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