India's Modi wants more technology transfer from global defense firms

Reuters News
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Posted: Feb 18, 2015 2:20 AM

By Tommy Wilkes and Siva Govindasamy

BENGALURU, INDIA (Reuters) - India's prime minister has asked global defense contractors to transfer more technology to the country as part of the lucrative deals that they win to modernize its armed forces.

The country's offsets policy, which requires contractors to invest a percentage of the value of the deal in India, will be tweaked to encourage more technology transfer, and less simple assembly or production, Narendra Modi said at the opening ceremony of the Aero India airshow at Yelahanka air base in Bengaluru.

"We have the reputation as the largest importer of defense equipment. This may be music to the ears of some of you. But this is an area where we do not want to be number one," Modi said before an air display of Indian military planes.

"It will no longer be enough to buy equipment and simply assemble here."

India is forecast to spend $250 billion over the next decade to upgrade its military, which still largely relies on Russian equipment it bought from the 1960s to the 1980s, and catch up with strategic rivals like China.

Defense contractors such as Boeing, Lockheed Martin, Airbus and Dassault Aviation have made a beeline to India in recent years in search of deals worth billions of dollars.

Modi, however, added that India should aim to cut defense imports from 60 to 30 percent in the next five years. It can double its defense output and create hundreds of thousands of skilled jobs as a result, he said.

He called for a level playing field between the private sector and public sector firms such as Hindustan Aeronautics, the main beneficiary of India’s defense offset requirements, and asked both to step up to the task of meeting India's requirements.

Tata Sons [TATAS.UL], Reliance Group, Mahindra & Mahindra and Larsen & Toubro are some of the larger private sector firms that have made forays into the defense production market in recent years.

They are also likely to benefit after the government in 2014 hiked the foreign investment limit in the domestic defense industry to 49 percent from 26 percent. This has drawn greater interest from international arms suppliers.

Public sector firms need "to do much better than they are now", Modi added.

(Additional reporting by Sweta Singh and Sagarika Jaisinghani; Editing by Muralikumar Anantharaman)