THE PRIVATIZATION OF INDIA'S DEFENSE SECTOR

LIMITATIONS AND PROSPECTS

- ADAM A. AZIM

Privatization within the Indian defense sector largely began with the onset of the 21st century, when India ushered in liberalization and economic reforms throughout the Indian economy as a whole. These efforts aimed at liberalization and reforms were intended to prompt a shift away from a state-led command economy that had been instituted during the Cold War. Also, this shift away from a command economy would entail handing over the reins of a number of state-owned enterprises to the private sector in order to boost efficiency and quality.

But for the most part, India’s defense sector still remains heavily reliant on support from both the Indian government as well as technologically advanced nations such as Russia and more recently the United States. India’s reliance on Russia for defense capabilities began in 1965 after India’s war with Pakistan. Because of the Cold War context, the United States in 1965 imposed an embargo on weapons sales to India as a concession to its Pakistani ally, and as a result, India turned to the former Soviet Union and thus Russia for defense support.

However, in the 21st century and despite foreign support, the Indian government remains the most important patron of Indian defense by providing for approximately 80 percent of development costs. Nevertheless, there has been an increase of approximately 26 percent in ‘Foreign Direct Investment’ (FDI) in India’s defense sector. Tata and Airbus are believed to be the two private companies who have procured the weightiest contracts for private defense development in India.