BAE Systems, the world's third-largest defence company in terms of revenue, wants to set up shop in India, instead of opting for the conventional route of selling military equipment from the US or UK or produce defence systems along with a local partner for the armed forces. It seeks to develop technology to meet Indian needs and create an export base for India as its long-term goal. Also, this company will be run and managed by Indians.

However, with the 26-per cent cap on FDI, there is no incentive for a global company to bring its best technology and expertise to India, BAE Systems India President, Julian Scopes, told Business Standard.

The government had turned down BAE's bid to own 49 per cent shareholding in a joint venture with Mahindra Defence Systems. Last month, BAE and Mahindra entered in a JV where BAE now has a 26 per-cent stake. Scopes said the company is satisfied with its current shareholding, but would continue to argue the case that the present FDI cap is bad for India.

"We are talking  to all the relevant government departments regarding this," said Scopes.

For now, BAE has to operationalise the JV with Mahindra. It is also bidding to provide towed 155-mm howitzers and to develop a tactical communication system for the Army.

Also, India has an additional need for 57 Advanced Jet Trainers (Hawk). Under an earlier collaboration with Hindustan Aeronautics (HAL), BAE has delivered 23 jets and 42 jets would be produced by HAL under licence. However, Scopes said there have been a few glitches, such as time delays, in operationalising this project.

Citing the example of the company's set-up in the US, where due to a "Special Security Agreement" with the US government, BAE's top-level management in the US is staffed by Americans, US national security interests are supreme for the company and top-level managers from other countries are not privy to classified information.

BAE has a similar arrangement with Australia, which has become the largest defence company. India and BAE must sign a similar agreement, said  Scopes.

With this set-up, the issue of technology transfer due to any international  restrictions will not arise as the aim here is to create technology based in India. Another advantage is building a local supply chain, which will eventually become a part of global supply chain, will address self-sufficiency issues, he said. It would also allow BAE to "become part of the landscape" in India's defence market, he added.

BAE has a global spread with its "home markets" in the US � which accounts for 59 per cent of its revenue � Australia, Sweden, Saudi Arabia and South Africa. Last year, $1 billion was invested in Australia. This shows BAE's desire and willingness to make large investments, he said. It is also ready to work with Indian firms, PSUs and Defence Research Development Organisation. With $1.6 billion spent on R&D every year, there is scope for collaboration with the DRDO and IITs.