Home DEFENCE Why is self-reliance in Defence Industry a distant dream in India?

Why is self-reliance in Defence Industry a distant dream in India?

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PM presenting citation to officers
Prime Minister Narendra Modi participates in Army Day 2020 function at the n Army house, in New Delhi on January 15, 2020.

There has been much talk in recent times on how the Indian Defence Industry can be resuscitated. Unfortunately, the policies emanating from South Block, have not translated into tangible improvement of defence manufacturing capabilities. Self-sufficiency in the defence industry is the single most important constituent of strategic independence and Atma Nirbharta. The Indian defence industry must step up and not only meet the domestic 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 been 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 industry 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 stakeholders 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 exporter’s 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%.

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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 defence industry is geared and incentivised enough to rise up to the expectations and make the government’s ‘Make in India’ initiative a success story.

PM Modi taking salute

In order for Make in India to be a success story, there need to be two primary objectives, i.e.

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# Reduce own dependence on imports.

# 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 a 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.

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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 the 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.

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Maj. Gen. Dr. Rajan Kochhar, VSM
Maj Gen Dr Rajan Kochhar, VSM, retired from the Indian Army, as Major General Army Ordnance Corps, Central Command, after 37 years of meritorious service to the Nation. Alumni of Defence Services Staff College and College of Defence Management, he holds a doctorate in Emotional Intelligence and is a reputed expert on logistics and supply chain management. Gen Kochhar, a prolific writer and defence analyst, has authored four books, including “Breaking the Chinese Myth” which was released recently. He is a Senior Adviser with Defence Research and Studies, Member, Manoj Parikkar Institute of Defence and Strategic Analyses, New Delhi, Centre for Land Warfare Studies (CLAWS) and Society of Airspace Maritime and Defence Studies (SAMDES). He is also on the Board of Management and faculty with Noida Institute of Engineering and Technology, Delhi NCR.

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