FDI in the defence sector: Should India allow more?

India’s global perspective, with its pioneering concepts and vision, has made it a lucrative market for foreign defence giants. In addition to being one of the fast developing economies, India has also focused on elevating its military and arms base. Statistics show that India (with 15% of the central government’s expenditure allocated for defence) is one of the world’s top 10 nations in terms of defence expenditure.

Statistics available in public domain also confirm that India spends 2-3% of its GDP on defence, which is in line with other big nations and signifies India’s steady focus on its defence sector. Some recent statistics show that the US leads the ranks with defence expenditure of US$610 billion (3.7% of GDP), followed by China with US$96 billion (1.5% of GDP), and India with US$33 billion (1.8% of GDP).

About 70% of India’s defence needs are procured from abroad and 30% are sourced from public sector undertakings (PSUs) and private sector companies in India. India looks for high-quantity imports of materials and equipment and the proposed budget estimate for defence spending in this financial year is reported to be about US$35 billion.

OP Khaitan & Co is a 40-lawyer law firm, based in New Delhi. Gautam Khaitan is the firm’s managing partner.