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Our View: The Need for Reforms

Apr. 1, 2012 - 02:32PM   |  
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India has always had a penchant for theatrical politics that sometimes unfold at the most inopportune times.

Such was the case last week as the nation’s largest arms show, DefExpo ‘12, ran its course amid allegations of corruption and a bizarre clash between Defence Minister A.K. Antony and the Army chief, Gen. V.K. Singh.

Singh, who earlier lost his court bid to change his legal birthdate to allow him to extend his time in service by six months, started the week by accusing a former retired general of trying to bribe him in a major truck competition. The claim came a week or so after the government blacklisted six defense firms — two Indian and four from abroad — for alleged corruption.

Tensions were running high when, in a leaked letter to the prime minister, Singh complained that the Army was unable to defend the nation, with tanks lacking ammunition and 97 percent of the country’s air defenses obsolete. The leak sparked an investigation by Antony and accusations of treason by Singh.

It was all a horrible, terrible, ugly distraction out of synch with the message India wanted to convey as a rising military power. For many, it underscored the weakness of Antony and the government of Prime Minister Manmohan Singh (no relation), the massive egos of India’s military elite, and a growing gap between uniformed officers and their civilian leaders.

But Singh is retiring in May, and most are convinced the present government will fall under the weight of scandal and inaction before its term is up in 2014.

Indeed, some top executives from the country’s private defense firms worry that absent deep reforms — chiefly, paring back the role of state-owned contractors and raising the 26 percent cap on direct foreign investment in the country’s defense sector — India’s national security will be devastated.

On this score, they’ve got a point. India’s meteoric economic growth hasn’t come from its government sector, but from the entrepreneurial spirit of its commercial firms, which are forging global brands. They maintain they should have an equal and fair shot at competing against what they see as plodding state-owned firms to satisfy the country’s voracious appetite for defense hardware. And they argue that India will never be able to keep up with China if its private industry is locked out of defense.

The government, however, has a point as well. The past six years have already ushered in more change than in modern India’s 64-year history. Private companies were allowed to compete for weapon contracts only 10 years ago, and change takes time.

But if there is one thing not working in India’s favor, it is time. The nation must address its two key challenges: First, India must increase the limit on foreign investment in defense firms to attract capital and technology. Nikhil Ghandi, the dynamic chairman of Pipavav, the nation’s largest private shipyard, suggests allowing up to 49 percent on a case-by-case basis.

Second, private firms must be allowed to bid on more defense contracts to spur competition to drive innovation and lower cost. History has time and again demonstrated that state-owned companies tend to be less efficient and less innovative than private industry.

That transition, however, will have to be negotiated carefully. While public-sector firms are a vestige of India’s socialist past, they still employ more than 600,000 and wield hefty political clout. Unless coaxed, they can continue to torpedo reform as effectively as any guided weapon.

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