While in Japan for the annual meeting of the Asian Development Bank earlier this month, Finance Minister Arun Jaitley, who also doubles up as Defence Minister, made some significant observations on the prospects and challenges of India acquiring defence equipment and technologies from Japanese companies.1
Given the context of the visit, the focus was not really on issues related to defence. But what Jaitley said in Japan is an indication of a refreshingly new approach to putting our own house in order as well as strengthening India-Japan ties in a more meaningful manner than has been the case until now.
Jaitley said that foreign companies need to be incentivised to set up a manufacturing base in India and that this will happen only if they feel that there is a likelihood of their getting business in India. More significantly, he also said that India’s policies have to be in sync with this reality.
Jaitley’s remarks are an oblique admission that India’s policies have so far not been in sync with the ground realities. But what are India’s policies? The Ministry of Defence does have a productionpolicy in place,2 but there is no clearly spelt out defence procurement policy? One has to rummage through the pages of the Defence Procurement Procedure (DPP), or even the Defence Production Policy, to get an idea of the MoD’s procurement policy.
To be sure, production and procedure are intertwined. But they are not the same. The problem with intertwining of policy and procedure in the DPP is that even the procedural nuts and bolts are viewed as an integral part of the policy, thus making it difficult for officials to make any concession in regard to procedural formalities for ensuring that a procurement programme does not run aground since any concession could be viewed as a deviation from the policy.
The synchronisation of policies with the changing reality must, therefore, commence with theformulation of a procurement policy, which, among other things, addresses the concerns Jaitley talked about in Japan. How does the government actually want to incentivise foreign companies without upsetting the domestic industry? What kind of assurances can be held out as regards business prospects in India? These and several other issues need to be addressed at the level of policy.
Among other things, Jaitley also said that Japan has a lot of defence technologies for which India has a great use in the context of local manufacturing of defence equipment. He also said that the two countries were looking at business-to-business cooperation,3 which, given the apparent reticence of Japanese companies to do defence-related business in India, was a bit surprising.
While there is no doubt that India could do with some help from Japanese defence firms, the modality of acquiring those technologies from foreign companies in general requires to be clearly articulated. The Defence Production Policy does not throw much light on it and the Defence Procurement Policy does not specify the procedure for outright procurement of technologies per se.
So, is it the intention that technologies will be acquired by the Defence Research & Development Organisation (DRDO) or directly by the private sector? This is a matter that falls in the domain of policy as well as procedure and the sooner some clarity is brought about by the MoD in this regard the better it will be.
The business-to-business (B2B) cooperation that Jaitley talked about does not seem to comport with the government’s stated objective of minimum government, maximum governance. B2B cooperation has to be left to the private businesses. The government can only create an eco-system that is conducive for the growth of such cooperation.
This places the ball in the government’s court as a reasonable assurance of orders from the MoD is the linchpin of B2B cooperation. But it is difficult to visualise how this can be achieved in the B2B model. Past experience also shows that government-to-government (G2G) deals are better suited to defence deals and have a better success rate than B2B deals.
Moving forward on this front will require the MoD to identify what exactly it wants to acquire from Japan and in what time frame. It will also have to make sure that the shopping list is financially sustainable. Having done this homework, it should enter into a dialogue with Japan on the G2G route, for which it should raise a country-specific task force.
In fact, such country-specific task forces must be raised for other countries too with which India intends to have sustained engagement, notably Russia, Israel, France, Germany, South Korea, etc., though not necessarily in that order. These task forces should be repositories of information about the defence industry, government policies, laws, and potential problem areas of the country concerned.
None of this will work unless there is a substantial improvement in the quality and speed of decision-making. Talking of cooperation with Japan, the botched-up US2 amphibious aircraft procurement programme is a classic case of what is wrong with our system and why foreign companies – Japanese, in this case – have reasons to be wary of our system.
Six years down the line, with two prime ministers declaring their commitment to the programme, one still does not know the fate of the proposal to buy these aircraft from Japan which, going by media reports, entailed full transfer of technology, setting up of the MRO (maintenance, repair and overhaul) and spare-parts manufacturing facilities in India and a huge potential for exports to some countries which had already shown interest in the aircraft.
This is the kind of stuff that Make in India is made of and yet our indecisiveness continues to triumph over common sense.
1.Kritika Suneja, “Foreign companies need to be incentivised to set up defence manufacturing base in India: Arun Jaitley,” Economic Times, May 10, 2017, at http://economictimes.indiatimes.com/news/defence/foreign-companies-need-to-be-incentivised-to-set-up-defence-manufacturing-bases-in-india-arun-jaitley/articleshow/58600924.cms
3.“India keen to source defence technologies from Japan: Arun Jaitley,” Economic Times, May 9, 2017, athttp://economictimes.indiatimes.com/news/defence/india-keen-to-source-defence-technologies-from-japan-arun-jaitley/articleshow/58590531.cms