Leading US think tank Centre for Strategic and International Studies (CSIS) has recommended that India must raise its Foreign Direct Investment (FDI) limit to unlock the full potential of Indo-US Defence partnership and boost Defence trade. In a recent report, the US think tank has suggested the India must increase the FDI limit from the current 26 per cent to 50 per cent to attract greater investment in the Defence sector besides other recommendations.
The CSIS report has stated that US and India must discuss India's Defence needs for a robust strategic partnership and recommended that both nations should designate one official on each side to promote bilateral Defence trade. The move will offer a more focused and effective way to interact in Defence negotiations. The US think-tank also said India should abolish "No Cost, No Commitment trials," for all vendors. Eliminating this requirement could greatly reduce the cost of purchased Defence equipment for India.
Although the hike in the FDI limit is one of the prime recommendations made by the US think tank, the report also suggests that both nations must devise means to accommodate the Foreign Military Sales system within the Indian Defence Procurement Procedure (DPP). The report also suggests an offset strategy by India which spells out the technologies and capabilities India aims to garner from its offsets policy. The report also stresses the need for indirect offsets to be applied toward India's infrastructure needs.
The CSIS report has also emphasized on greater transparency and predictability between US and Indian bureaucracies for smother Defence negotiations. The report added that the US should also continue to engage the Indian bureaucracy and offer assistance in developing India's Defence acquisition expertise. As for India, it should publicly communicate its Defence acquisition priorities to facilitate better planning for acquisition and sales.
While recommending various changes for India and its Defence policies, the CSIS report also suggests that the United States must be consistent and reliable in its technology transfer decisions and in its provision of purchased Defence equipment. The report also states that both sides should engage in a bilateral dialogue about the key elements of an effective Defence industrial base. A comprehensive policy review must be undertaken by the US to determine how to assist India with developing its Defence industrial base through co-production and co-development projects.
With Indo-US Defence trade rising in the past few years and US firms gaining a strong foothold in the Defence sector, the report suggested that implementing its recommendations will take the India-US partnership to a deeper level. The US should also seek to engage the various constituencies in India that shape public opinion, including the media, parliament, and state governments. In addition, engaging with the Indian bureaucracy and aiding the development of India's Defence acquisition expertise will help in establishing stronger Defence ties.
Earlier this year, Confederation of Indian Industries (CII), India’s premier industry lobby and the global consultancy firm Boston Consulting Group (BCG) had released a study which had also sought to highlight ways to make the domestic Defence manufacturing sector more productive and lucrative. The study also suggested that increasing the FDI cap in Defence from the current 26% to 49% must be done to guarantee serious participation from global firms. However, these must be done on case-to-case basis. CII national Defence council co-chairman Satish K. Kaura indicated that most industry bodies of the country have not agreed that 49 percent FDI should be allowed on a case-to-case basis, but it should be permitted with mandatory technology transfers and not just licenced production norms.