| NEW DELHI, July 10
NEW DELHI, July 10 India boosted defence
spending by 12 percent in 2014-15 over the previous year in a
budget presented on Thursday and further opened the domestic
weapons industry to foreign investment to help rebuild the
military and narrow the gap with China.
India has been the world's top arms buyer for the last three
years, trying to replace an ageing Soviet-era military with
modern weapons as a deterrent to a rising China, with which it
fought a war more than half a century ago.
Finance Minister Arun Jaitley set the military budget at
2.29 trillion Indian rupees ($38.35 billion) for 2014-15, 50
billion rupees more than what the previous government agreed in
an interim budget earlier this year.
Defence expenditure for 2013/14 was kept at 2.04 trillion
"Modernisation of the armed forces is critical to enable
them to play their role effectively in the defence of India's
strategic interests," he said to the thumping of desks in the
lower house of parliament, where he presented the new
government's first budget.
Jaitley's Bharatiya Janata Party has long called for a
militarily-strong India to counter potential threats from both
China and Pakistan and said it would speed up the pace of arms
purchases for the military, the world's third largest.
Even at the elevated spending, India's military budget is
still less than a third of China's $145 billion expenditure last
year estimated by the Pentagon in its report to the U.S.
Congress this month.
New Delhi worries that China is building roads and other
infrastructure along the disputed land border as well as
bolstering its naval presence in the Indian Ocean that it
considers its zone of influence.
The rise in India's military spending comes as a Western
governments are rushing to visit the new administration in New
Delhi in the hope of landing multi-billion deals.
Politicians from France and Britain have held talks in New
Delhi, while the United States, which has built close military
ties, is also pushing for faster decisions on arms contracts.
Jaitley also increased the foreign investment limit in the
domestic defence industry to 49 percent from 26 percent, hoping
to draw greater interest from its main arms suppliers and help
reshape the defence industrial base dominated by state firms.
"Companies controlled by foreign governments and foreign
private sector are supplying our defence requirements to us at
considerable outflow of foreign exchange," he said.
Global arms firms are wooing India in the hope of landing
multi-billion dollars and New Delhi is aiming to leverage some
of that buying power to get transfer of technology and end the
overwhelming reliance on imports.
The government is in the midst of finalising an estimated
$15 billion contract with Dassault Aviation for the
sale of 126 Rafale fighter jets.
U.S. government officials are separately pushing hard for
$2.8 billion in delayed sales of Boeing's Apache attack and
Chinook military transport helicopters.
The move to raise investment limits for foreign firms in the
defence sector drew support.
"FDI limit has been raised from 26 percent to 49 percent by
the Finance Minister which is definitely a positive move for the
indigenous defence industry. However, the government still wants
Indian players to maintain control and ownership of the defence
joint ventures," said Nidhi Goyal, a director at Deloitte in
Jaitley, however, did not go as far in liberalising the
sector as foreign manufacturers and even the government's own
investment promotion department would have liked.
India's Department of Industrial Policy and Promotion had
earlier circulated a discussion document that proposed allowing
up to 100 percent foreign direct investment in defence
production, two government officials told Reuters this month.
The note suggested allowing 100 percent FDI in manufacturing
of state-of-the art equipment, one of the officials said. It
also recommended a cap of 49 percent for investments which do
not involve transfer technology and a 74 percent ceiling in such
cases where the foreign investor is ready to share technology
know-how, the official added.
Until now, defence has attracted less than $5 million in
foreign investment. Foreign firms have said they need higher
investment caps and greater management control if they are to
develop a bigger industrial base in India.
($1 = 59.7150 Indian rupees)