Future of Indian Armed Forces: R&D or M&A?

While the civilian nuclear deal and upcoming climate change negotiations tend to dominate the news with respect to the west’s relationship with India, another enormous sphere of collaboration with equally important ramifications is also underway. India can pick its government leaders and their penny stocks, but they can’t pick their location. Blessed with miles of coastline, the blessing comes with a cost—that its neighbors are among the most unstable in the entire world. Ever since its independence, India has largely purchased its defense consumables and technologies; currently, the country’s armed forces are largely using (outdated) Soviet-era equipment and technologies.

Once the November 2008 Mumbai attacks unfolded, it immediately shed light on the fact that India’s military apparatus is in need of a significant upgrade. And, with new strains of terrorism sprouting all around its borders and patrolling in shared waters, the rush to upgrade only intensified.

India now faces two choices: (1) develop its own proprietary technologies and upgrade from within or (2) to use cash, which it has plenty of, to buy a system overhaul. In fact, last fall, a month before the Mumbai attacks, I met with a senior team from the NY Consular General’s office who were touring the U.S. East Coast looking for defense companies and technologies to acquire—with cash.

According to the U.S.-India Business Council (USIBC), “India has budged as much as US$40bn through 2012 to procure ‘best technologies’ for the upgrade of its defense establishment.” These figures do not account for India’s growing need for homeland security and monitoring. With numbers so high, the big players – Boeing, Lockheed, etc. – are lining up to win RFPs for jet fighters, aircraft carriers, IT systems, helicopters, and basically anything you can imagine.

The U.S. won’t be the only player in the Indian defense space, however; already, Indian leaders are closely collaborating with another democracy with potentially hostile and unstable neighbors: Israel. India has tied up a US$1bn deal with the Israeli government’s Rafael defense firm to deliver advanced surface-to-air missiles to the Indian Armed Forces.

When U.S. defense companies help India fill this major void in its defense systems, the American economy will no doubt benefit. But beyond dollars, U.S. intelligence officials know very well that the Asian subcontinent, for all its business promise, will continue to incubate international terrorism and unsightly experiments carried out there may find their way to other parts of the world. Deeper U.S.-India engagement in defense and technologies assures U.S. interests in gathering intelligence in South Asia will remain strong.