Indian Defence Review

Any current survey of India’s Defence Industry would take us back to the Fiat and Ambassador age. Should it be so at a time when we are on the threshold of emerging as a software superpower and – the Made in India – Mercedes and the BMWs are plying on our roads? Or at a time when the world is looking at us with awe because of the rate of growth of our economy and the rapid strides we are taking in IT. Or when we have begun to flex our muscles as a regional power with global ambitions.

But any claim to power, without a reasonably strong and modern defence industry would lack credibility and be premised on a fragile foundation.  A dynamic, efficient, technologically advanced and profitable defence industry is a pre-requisite for military muscle and without military muscle we cannot expect to be counted as a nation with influence.

Any current survey of Indias Defence Industry would take us back to the Fiat and Ambassador age. Should it be so at a time when we are on the threshold of emerging as a software superpower and ““ the Made in India ““ Mercedes and the BMWs are plying on our roads?

Export of weaponry and military technology creates dependencies besides bringing in revenue. Additionally military technology has always had commercial spin offs. As a matter of fact through most of the twentieth century the bulk of commercial technologies were derived from military research and development. It is only in recent times that in some cases commercial technologies have led to military applications. Thus from the point of view of economic growth, again a sound defence industry backed by dedicated, focused R&D is vital for us.

After the 1962 debacle there was realisation that we must be self sufficient in military hardware or at least have a much bigger and wider defence industrial base. The Ordnance Factory Board was expanded. Under its umbrella new factories came up. Quite a few defence public sector undertakings were set up to cover defence electronics, defence aeronautics, missiles and weapon platforms, plant and machinery.

Concurrently defence R&D was also given greater importance. Defence R&D laboratories covering a wide range of disciplines were established. There may be views that the money allocated for R&D was relatively lower than what some other countries were investing but nevertheless it was not insubstantial. A walk through almost all our defence research establishments would reveal that these organisations are much better looked after than most other Government establishments and certainly better than the military that they are meant to serve.

Also read: India can make major defence equipment

How have the nation’s investments in the defence R&D and industry fared? The Army, Navy and the Air Force have consistently maintained that both have been significantly short on delivery. But for a variety of reasons no serious attention was ever paid to the views of the three services.

The bolder move was to permit 26% foreign investment. It is now being contended that 26% is insufficient and the level should be raised to 49% to make it attractive for foreign investors. Even if this is desirable, the courage and the vision of opening the defence sector to foreign funds must be lauded.

After the Kargil War the Government did some stocktaking. The findings were corroborative of the views that the services always held. The performance of both these establishments were unsatisfactory. Urgent and major reforms were necessary in the management of the defence R&D effort as also in the functioning of the OFB and the defence PSUs. Some suggestions were made and since then the government has been engaged in exploring and formulating policies that could catalyse the country’s defence production establishment. Political considerations make the governments task extremely difficult. And, therefore, it is to the credit of the government that it is still moving forward, albeit, somewhat hesitantly.

The last five to six years illustrate the governments commitment to reforms in the defence sector. The first landmark policy announcement was that the defence industry would be opened to the private sector. This was significant but the bolder move was to permit 26% foreign investment. It is now being contended that 26% is insufficient and the level should be raised to 49% to make it attractive for foreign investors. Even if this is desirable, the courage and the vision of opening the defence sector to foreign funds must be lauded. At an appropriate time the government may well hike the limit of 26%.

Having made some fundamental policy changes the government took the next logical step. How do we implement the new policy? The Kelkar Commission was thus appointed. The commission after examining a wide range of issues has submitted its report. And unlike the fate of most such commissions this report is being acted upon.

Thus we have the new procurement procedure promulgated. Much of the fog around the offset policy has been cleared up. However, among a few there is still insufficient understanding and there are some who have issues with the policy. But then no policy can be perfect. What ought to be appreciated is that there is now a policy and foreign companies seem to have by and large accepted it. The benefit to the country of this policy and to our industry is unquestionable. The extent to which we succeed in exploiting the offset policy to our advantage will depend on our genius. But it is certainly not fuzzy economics as one senior executive of a foreign firm recently said at one of our seminars in Delhi.

The clamor of the private industry to give it a level playing field has generally been heard and acceded to. There is recognition that the private sector can undertake major defence projects and also acceptance that it can compete with the OFB or the defence PSUs.

The clamor of the private industry to give it a level playing field has generally been heard and acceded to. There is recognition that the private sector can undertake major defence projects and also acceptance that it can compete with the OFB or the defence PSUs. The concept of RURs ( Raksha Utpadan Ratnas) has been defined and the guidelines/ methodology to identify such private sector companies have been laid down and are unexceptionable.

From the private sector’s point of view some irritants and some leveling issues still remain but there is considerable appreciation of the steps that the government has taken so far. Some may say that the process is still too slow but given our track record on such matters the government deserves to be commended.

It is understood that some twenty-nine private sector companies have already obtained licenses to manufacture defence equipment. It is possible that many more will progressively seek to enter the fray. Most of our major industries have declared their intent to participate and are exploring opportunities and tie-ups. Tatas, Mahindras, L&T, Bharat Forge, Godrej Boyce, and a few other big players have registered their interest to participate in defence tenders. Besides them, there are a large number of smaller companies that are gearing up with big expectations to penetrate the defence business.