Indian Defence Review

Focus on Government Policies

The Prime Minister is convinced that India needs to upgrade its security preparedness, considering its not-too-friendly neighbourhood and the menace of insurgency within the country. The ‘Make in India’ plan conforms to his vision and affirms his reputation of being a pro-growth leader. There is no disagreement that defence manufacturing needs an impetus for the economy to surge ahead. Studies have indicated that even a 20 per cent reduction in imports, would create an additional 100,000-plus high-skill jobs in India, with the inclusion of high-end technology. If the present domestic procurement was to be increased from 40 per cent to 70 per cent in the next five years or so, the output of the defence industry would be doubled. A strong industrial infrastructure can boost investment, expand manufacturing, support MSMEs, raise technology levels and hence, contribute towards the overall national economic growth. Mere words and assurances either by the PM or by the RM are not sufficient to steer the industry. Announcements of essential policies to ensure success in this field are welcome, but need action on ground.

On November 10, 2015, an announcement unveiled a new framework of regulations for Foreign Direct Investment (FDI) in as many as 15 sectors of industries in India, defence manufacturing included. In addition, there has also been an effort to improve the system to enhance the ease of doing business in the country. The policy for enhanced FDI of 49 per cent was amended to permit 100 per cent in June of last year. Although this does not translate to an automatic approval for defence deals and those above 49 per cent FDI would still need government approval, but now deals not involving transfer of ‘state-of-the-art’ technology can also opt for this route.

With a view to streamline the acquisition process, the first DPP was put in place in 2002. It has, thereafter, been subjected to seven major reviews during the last 13 years! Even before all the players understood an amendment, it was already under re-examination, thus causing extended delays in an already long and tiring process. It is now once again been ‘refurbished’ in 2016 – minus a crucial chapter! An expert committee under Dhirendra Singh submitted its recommendations to the Government in July 2015. The Committee made 43 recommendations out of which, 16 were regarding ‘Make in India’ and 27 were regarding the Defence Procurement Policy. The Committee’s recommendations were suitably factored into the DPP 2016, which focuses on boosting the indigenisation initiative by promoting indigenous design, development, and manufacturing of defence equipment, platforms and systems. The recommendations of the Committee are grouped under four sub-heads: conceptual ladder for ‘Make in India’ mission; amendments to DPP 2013; integration of the private sector and lastly, some supplementary issues which otherwise fall outside the purview of the DPP.

While it goes to the credit of the MoD to have made the recommendations public, going by experience, it appears that only those recommendations that suit it, have been accepted, so as not to lose its stranglehold on the acquisitions process through preferences to the DPSUs and OFs.

Heart of hearts, the Armed Forces, and even the Central Armed Police Forces (CAPFs), would like to go the indigenous way to decrease dependence on a foreign nation, but it is just not happening! The new policies promulgated in the recent past were supposed to provide the necessary drive to India’s quest for self-reliance. The new production policy has clauses in it to support indigenisation and upgrading of technology, but, has this not been the thrust ever since independence? Sadly, implementation of earlier policies in letter and spirit has been found wanting. Public-Private Partnerships (PPP) in defence production have been recommended by the many committees that have been formed thus far, but to no avail. While one can see a change in thinking in the nation’s top leadership; frankly speaking, one is quite perplexed over the manner changes are being planned, only to be sidelined later.

The Way Ahead

By 2030, it is estimated that the world will be dominated by the middle class – so would be the story in India. As the economy grows, so would the call to protect our assets, both in the public and private sectors. The delays and indecision, however, are phenomena unique to the Government of India. A decision, if a new layer of indecision can stall it, will be stalled! What then is the way ahead? Few suggestions are as under:

• The way ahead is to place accountability for every rupee spent of public money, not just to make a noise in Parliament, but also to ensure that national security requirements are fulfilled in totality.
• There needs to be clarity of vision and mission statement. The decision to buy or make the new Light Utility Helicopters (LUH) and the replacement for Avro aircraft have been changing with sickening regularity in the past many months.
• In all indigenous projects, be they in the manufacturing or in the R&D sector, there has to be accountability for every month of time overruns and demand of cost overruns. There has to be a clear realisation plan, as to which organisation is to do what, timelines for approvals and detailed project reports.
• The potential of the private sector needs to be harnessed through synergy with the public sector and the users.
• The DPSUs/DRDO must shed their mindset of considering the private sector as competitors and rather see them as partners.
• The private sector has to be given the necessary encouragement by providing it a level playing field by removing protective policies favouring the DPSUs and OFs. The taxes are 41 per cent higher if made in India! The private sector should be on a par with DPSUs and foreign suppliers.

• Support innovative skills in the defence production sector by encouraging MSMEs.
• Improve R&D and skill levels with constant interaction with the academia and allocation of extra funds for research.
• All acquisitions should be through an unambiguous policy and a single agency, rather than having multiple documents and multiple agencies.

If India is to attract a foreign investor as an SP in defence production, it has to portray itself as an attractive business destination, giving confident vibes to the investors. For that, it must fine-tune its policies to provide freedom of action to the JVs that have now begun to form, to respond as per market dynamics. It is, therefore, prudent for the policy makers and those who have to implement those policies, to peep into the minds of investors to appreciate where their motivation lies to invest large sums of money in a foreign nation and the associated risks. The investor would like to have adequate control over the use of his funds, sufficient freedom of action to increase/decrease production capacity and have access to markets to ensure commercial viability, through economies of scale. Towards this end, India needs to have a relook at its defence exports policy.

India’s defence exports have been pitifully low over the years. Defence exports during 2010-2012 were just $183 million, which the former Defence Minister, A.K Antony, had himself termed as “woefully meagre”. There has been a major policy decision by the present Government, wherein it has notified a new strategy for export of defence products. Not only is the sale of military equipment to foreign nations to be given a boost, but a structure has also been proposed, for India to finance purchase of Indian arms by countries, which may need financial assistance. The ‘Strategy for Defence Exports’, issued by the MoD, contains a new set of rules for obtaining clearances for export of military stores by both private and public sector enterprises. Amplifying the new strategy for commercial, military and diplomatic gains, the document specifies for the establishment of a new Defence Export Steering Committee (DESC), along with a National Defence Export facilitation body. It, however, needs to be seen, whether the Policy is faithfully implemented or would the old mindset of questioning every deal through the lens of suspicion continue.

Conclusion

The world over, nations have a system in place that respects priorities and processes that deliver accountability to hasten decisions, especially in matters relating to national security. India witnessed an example of rapid decision making by the French Government after the 13/11 attacks in Paris. Do we have it in us, or is it the best India can do to promulgate new policies, amend some old ones and live with a system that sleeps over decisions, even if those decisions concern self-reliance in national security?

One hopes there will be some introspection in this regard. The myopic view of those who inhabit the corridors of power should not hamper the growth of defence manufacturing. Processes have been initiated and more are in the pipeline, but the medicine must be administered in the right doses, with regularity and with due care. Just facilitating JVs with foreign partners, bypassing the FIPB, to increase investment is not likely to prove successful; the process of recognising what technology comes into India and how would it be absorbed, also needs to be looked into.

An increase in FDI, new policies in manufacturing and export and a new DPP document are initiatives in the right direction to encourage indigenous defence production. The creation of a favourable atmosphere, the change in the thinking, shaking off the lethargy in various government organisations, are some of the other processes that need to be accelerated, if the slogan of ‘Make in India’ is not to remain a mere slogan. The Government needs to act on these issues with a sense of urgency. The world is watching!