Major General Rajan Kochhar
There has been much talk
in recent times on how the Indian Defence Industry can be resuscitated.
Unfortunately, whatever policies which have emanated from South Block, have not
translated into any tangible improvement of our defence manufacturing
capabilities. Self-sufficiency in
defence will be the single most important constituent of strategic independence
and Atma Nirbharta. In such conditions indigenous industry must step up. In
future, Industry must not only meet our demands but also become export
oriented.
India allocates about 1.8% of its GDP towards defence
spending, of which 40% is allocated to capital acquisitions and only about 30% of India's equipment is
manufactured in India, mainly by public sector undertakings. Even when defence
products are manufactured domestically, there is a large import component. The Indian defence industry is largely
dominated by government-owned/controlled entities; with the private sector
playing a peripheral role. The dominance of the public sector is ensured
through the nine giant Defence Public Sector Undertakings (DPSUs) and 41
Ordnance Factories (OFs) that are under the administrative control of the MoD’s
Department of Defence Production (DDP). There are also 50-odd research
laboratories under the umbrella of the Defence Research and Development
Organisation (DRDO), the MoD’s premier R&D agency.
Our greatest weakness has been the lack of
overall perspective towards defence manufacturing. We have being giving undue
importance to institutions such as Defence
Research and Development Organisation (DRDO), the premier R&D agency of the
Ministry of Defence (MoD)and Director General of Ordnance Factories(DGOF) to
cater to our defence requirements. These organisations do not have a laid down
road map and decisions are taken in a compartmentalised environment bereft of
the involvement of stakeholders. Is it not a matter of surprise that Indian
Army accounts for more than 80% of its
orders on OFB and still doesn’t have any member in the advisory board of Ordnance Factory Board (OFB). The
absence of stake holders in the decision making process has a catastrophic
effect on defence manufacturing and procurement. The Armed Forces are
interested in getting the equipment in the shortest time frame, whereas these
organisations have scant respect for timelines and the sanctioned budgets.
India is probably the only large country in the world which is
overwhelmingly dependent on external sources for its defence requirements.
According to Stockholm International
Peace Research Institute (SIPRI), the latest data on
global arms transfer shows that Indian
arms imports have come down significantly (by
32%) since 2015, indicating that the ‘Make in India’ initiative is gaining
ground, however, the country is still ranked as the world’s second biggest
weapons buyers, just behind Saudi Arabia. The silver lining for India, along
with the 32% dip in imports has been the entry into the exporters list. At
present, the exports shown are modest – they account for only 0.2% of the
global arms market – but the start is significant. India’s biggest clients are
Myanmar, which accounts for 46% of exports, Sri Lanka at 25% and Mauritius at
14%.
The dependency on arms import is a stark
reminder of how far India is from the objective of substantive self-reliance in
defence production that it has aspired to since the early days of independence.
The Govt of India had identified 25 sectors including defence manufacturing to
further its programme of ‘Make in India’ which was launched almost four years
back. What then has been the cause of this entire initiative becoming a non
starter? Let us make an endeavour to analyse this.
The need of the hour is to get
the private sector involved in defence
production. The biggest hindrance in the private sector’s participation so
far has been mistrust. When it comes to big contracts, procedural hurdles come
in the way, making it virtually impossible for the private sector to get into
complex defence manufacturing. Moreover, single source procurement from the
private sector is still considered a taboo, whereas import without competition
is greatly admired. There is therefore a requirement to change mindsets and
treat the private sector as an equal partner. This can only be demonstrated by
awarding big contracts, preferably through the ‘Make’ and ‘Buy and Make
(Indian)’ procurement categories, which hold the key to the success of the
private sector’s participation in defence production.
It is therefore
distressing to hear that post COVID 19, out of 56 companies which have
closed shop in China only 3 have come to India. Maximum have shifted base
to countries like Indonesia, Taiwan and Thailand. As per the official estimate of the MoD, India is likely to
spend around $130 billion on defence modernisation in the coming seven-to-eight
years. While this makes India one of the largest defence markets in the world,
the opportunity it offers should be fully exploited for the benefit of local
industry. This will not only improve India’s self-reliance in defence
production but will have a multiplier
effect on the wider economy. The government must ensure that the local
industry is geared and incentivised enough to rise up to the expectations and
make the government’s ‘Make in India’
initiative a success story.
In order for Make in India to be a success story there needs to be two
primary objectives, i.e.
#
Reduce own dependence on imports.
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Enhance our export potential.
Therefore,
the strategy to ensure that the recent policy changes in respect to
indigenisation, strategic partnerships, leasing options and transfer of
technologies take place at the earliest, must relate to the following ground
rules:-
·
Easy availability of land in State Economic Zones (SEZs).
·
Making all approvals whether related to customs, legal, excise etc time
bound.
·
Creating viable supply chain mechanism and tapping existing network such
as Pharma, Mobile phones, machinery etc.
·
Focus on medium and small sized enterprises.
·
Budgetary allocation to match the capability building roll on plan.
However, the
foreign companies could have a direct and major role if the government decides
to float tenders to subsidiaries of foreign defence companies operating in
India. With the Modi Government enhancing the defence foreign direct investment
(FDI) cap from 49 per cent to 76 per cent under the automatic route, the
foreign vendors through their subsidiaries would like to be treated just like
any other Indian company and demand a fair chance to participate in the
tendering process for certain embargoed items. If this is permitted, it would
put the Indian companies in tough competition with foreign subsidiaries and may
drive a better price for the armed forces.
It would help if
the MoD issues a formal order addressing the concerns expressed by various
stakeholders about certain aspects of the negative list, especially its impact
on ongoing and forthcoming projects that involve cooperation with the foreign
OEMs, as well as the purpose of bifurcating the capital budget without
increasing the overall allocation, which is the core problem besetting
modernisation of the armed forces.
Let
us hope the Atmanirbhar Bharat does not end like earlier self
reliance or Make in India paradoxes by successive Governments on
indigenisation and strengthening of Defence Industrial Base (DIB) and defence
product development which has been overwhelmingly dominated by the Government
sector. Their dominance has been associated with inefficiency and lack of
accountability on delivery, productivity and quality, etc. Synergizing public
and private sector is a must for creating robust indigenous defence industrial
capabilities and will thereby lead to gradual and systemic reduction of import
dependence. It is time for the Government to be realistic and actionable rather
than merely coming out with slogans/statements year on year such as ‘Self Reliance in Defence’, ‘Make in
India’ and now the latest one to join the bandwagon is ‘Atmanirbhar Bharat’.