IndiaPost.com - DefExpo: The Indian arms bazaar heats up

The DefExpo 2008, the fifth biennial defense exhibi-tion on land and maritime systems held recently in New Delhi, conveyed most emphatically India's growing clout in the international arms bazaar, albeit mostly as a buyer.

The exhibition, which saw a record 475 participants, including 273 foreign companies from over 30 countries, was in full swing for four days and had global biggies showcase the comparative advantages of their products.

With India emerging as a major customer with considerable financial power, the global companies left no stone unturned to make India a partner in their ventures to access its huge arms bazaar. Gone are the days when India, constrained by limited resources and Cold War politics, depended significantly on the single-source, 'cheap' Soviet-era weaponry for its armory.

With the end of Cold War and the global political realignment, especially post-9/11, Indian security requirements are no longer viewed adversely by the West. The impressive growth story of the Indian economy and its global character have favorably molded the West's perception of India, which increasingly sees its security interests broadening as the economy goes global.

The modernization drive of the security infrastructure, backed by the country's ability to pay, has seen India spending more than Rs. 80,000 crore on procurement of defense items in the last three years. Besides, if all future plans materialize then the total procurement budget would amount to a whopping Rs. 1,88,000 crore in the next five years.

The huge potential of the Indian arms market is what makes it attractive to global companies who are constrained by shrinking defense spending in their domestic markets. India's defense spending may constitute a modest two percent of the global total, but when it comes to arms procurement, the country is a leading importer. In the last five years, the country has committed nearly 60 per cent of its total acquisition budget to foreign suppliers.

The heavy dependence on external sources for modern-day arms indicates the failure of India's domestic efforts to meet its desired levels of self-sufficiency. The domestic defense industries, comprising largely the state-owned Ordnance Factories (OFs) and Defense Public Sector Undertakings (DPSUs), lag behind in efficiency and productivity.

While state entities continued their poor performance, the private sector remained a mute spectator, at least till 2001, when defense production was liberalized. While it remains unanswered why the private sector waited 10 long years since the end of the License Raj, the government in recent years, seems determined to provide a wider role to the private sector.

Various measures such as FDI in the defense industry and defense offsets have been taken to provide a fillip to private sector participation. Since the liberalization in 2001, the private sector has shown a keen interest in defense production with the portfolio of items under production getting bigger each year.

The TATA-Boeing joint venture, besides numerous other such ventures between Indian private industry and global contractors, declared during the course of the exhibition, shows the transformation of the Indian private industry from a mere supplier of raw materials and components during the pre-liberalization period to a credible defense industrial partner capable of producing complex defense systems.

As the Indian arms bazaar heats up in the coming years, the private players, supported by recent government policy, will intensify their involvement in the market and try to corner the maximum market share.

The state-owned industries, which had monopolized the domestic market for a long time, will have to compete with these new players in the market, and will have to get their act together to justify their existence. The writer is Associate Fellow, IDSA. Courtesy IPCS