Since Prime Minister Modi took office in May 2014, India has embarked on a number of measures to encourage the development of the country’s economy and the streamlining of its indigenous defence capabilities. Probably the most prominent reform has been the raising of a foreign direct investment cap from 26% to 49% since August 2014, and above that limit for state-of-the-art technologies. In addition to such initiatives, there has been a strong emphasis on promoting private sector participation in defence as part of the ‘Make in India’ programme. The withdrawal on the 1st of June 2015 of excise and customs duty exemptions for state-run defence entities should constitute another step towards providing a more competitive environment in procurement and thus further attract international engagement.
Much more, however, remains to be done. The decision last April to conclude the Rafale deal with France over the purchase of thirty-six aircraft directly at a government-to-government level, thereby bypassing the on-going MMRCA tender, was further testimony to the difficulty India has in achieving serious top-end technology capabilities. The swift decision to order ‘ready-to-fly’ planes was, of course, partly driven by the urgent and practical needs of the Indian Air Force to replace its obsolete squadrons. But it also had a clear defence industrial edge since it would have taken much longer to produce the fighter aircraft in India rather than in France. So what are the challenges which India now faces to develop a more effective defence infrastructure? And what are the implications for Indo-European cooperation more generally?
This Policy Brief was produced for the European Union Institute for Security Studies (EUISS).