Ex­pand­ing Base

The gov­ern­ment fine-tunes its pro­cure­ment pol­icy and pushes for pri­vate sec­tor-driven in­di­geni­sa­tion of defence pro­duc­tion.

India Business Journal - - DEFENCE - ARUN JAIT­LEY

Can a na­tion as­pir­ing to be a su­per power con­tinue to de­pend on im­port of defence equip­ment and ig­nore de­vel­op­ment of its in­dige­nous defence pro­duc­tion or defence in­dus­trial base? Def­i­nitely not; in­dige­nous defence pro­duc­tion or defence in­dus­trial base is the es­sen­tial com­po­nent of long-term strate­gic plan­ning of a coun­try.

The heavy re­liance on im­ports is not only dis­turb­ing from the per­spec­tive of strate­gic pol­icy and the role In­dia has to play in the se­cu­rity of the re­gion, but is also a mat­ter of con­cern from the eco­nomic point of view in terms of the po­ten­tial for growth and em­ploy­ment gen­er­a­tion. Though all the as­pects of power con­sti­tute a su­per power, the mil­i­tary power is a key to a na­tion's rise to great or su­per power sta­tus.

Evolv­ing poli­cies

Go­ing back into his­tory, the Indian defence in­dus­try has a his­tory of more than 200 years. Dur­ing the Bri­tish pe­riod, ord­nance fac­to­ries were set up to man­u­fac­ture guns and am­mu­ni­tion. The first ord­nance fac­tory was set up in Cos­si­pore (cur­rently Ka­shipur, a neigh­bour­hood in north Kolkata) in 1801. A to­tal of 18 fac­to­ries were set up be­fore in­de­pen­dence.

At present, In­dia's defence in­dus­trial base com­prises 41 ord­nance fac­to­ries ge­o­graph­i­cally spread across the coun­try, nine defence public sec­tor un­der­tak­ings (DPSUs), more than 200 pri­vate sec­tor li­cence-holder com­pa­nies and a few thou­sand medium, small and mi­cro en­ter­prises (MSMEs) feed­ing to the large man­u­fac­tur­ers and DPSUs. More than 50 defence lab­o­ra­to­ries of Defence Re­search and De­vel­op­ment Or­gan­i­sa­tion (DRDO) are also a part of the en­tire eco-sys­tem of defence man­u­fac­tur­ing in the coun­try.

Till about 2000, most of our ma­jor defence equip­ment and weapon sys­tems were ei­ther imported or were pro- duced in In­dia by ord­nance fac­to­ries or DPSUs un­der li­censed pro­duc­tion. DRDO, be­ing the only defence R&D agency in the coun­try, ac­tively contributed to the tech­nol­ogy de­vel­op­ment and sup­ple­mented the ef­forts of in­di­geni­sa­tion to a large ex­tent. As a result of the ef­forts of DRDO and DPSUs in R&D and man­u­fac­tur­ing, the coun­try has reached a stage, where we have de­vel­oped ca­pa­bil­i­ties in man­u­fac­tur­ing of al­most all types of defence equip­ment and sys­tems.

To­day, ac­cord­ing to a rough anal­y­sis, out of our to­tal defence pro­cure­ment, 40 per cent is in­dige­nous pro­duc­tion. In some of the ma­jor plat­forms, a sig­nif­i­cant amount of in­di­geni­sa­tion has been achieved. For ex­am­ple, T-90 tank has 74 per cent in­di­geni­sa­tion, in­fantry com­bat ve­hi­cle BMP II has 97 per cent in­di­geni­sa­tion, Sukhoi 30 fighter air­craft has 58 per cent in­di­geni­sa­tion, Konkurs mis­sile has 90 per cent in­di­geni­sa­tion.

Apart from the in­di­geni­sa­tion level achieved in plat­forms be­ing man­u­fac­tured un­der li­censed pro­duc­tion, we have also achieved suc­cess in de­vel­op­ing some of the ma­jor sys­tems in­dige­nously through our own R&D. These in­clude Akash Mis­sile Sys­tem, ad­vance light he­li­copters, light com­bat air­craft, Pi­naca rock­ets, var­i­ous types of radars such as cen­tral ac­qui­si­tion radar, weapon lo­cat­ing radar, bat­tle­field sur­veil­lance radar and so on. These sys­tems also have more than 50 to 60 per cent in­dige­nous con­tent.

With the above progress made through the State-owned man­u­fac­tur­ing com­pa­nies and DRDO, the time was right to ex­pand the defence in­dus­trial base by in­clud­ing the pri­vate sec­tor in the fold of Indian defence

in­dus­try. In 2001, the gov­ern­ment al­lowed en­try of pri­vate sec­tor into defence man­u­fac­tur­ing, along with for­eign di­rect in­vest­ment up to 26 per cent. It is our en­deav­our to harness the po­ten­tial of the en­tire spec­trum of the in­dus­try and ex­per­tise avail­able in the coun­try in our jour­ney to­wards building our own defence in­dus­trial base, ul­ti­mately lead­ing to self-re­liance.

Though the en­try of pri­vate sec­tor was opened up in 2001, growth of pri­vate sec­tor par­tic­i­pa­tion in defence man­u­fac­tur­ing was in­signif­i­cant till about three to four years ago, and it was largely limited to pro­duc­tion of parts and com­po­nents to be sup­plied to ord­nance fac­to­ries and DPSUs. With lib­er­al­i­sa­tion in the li­cens­ing regime in the last three years, 128 li­cences have been is­sued for man­u­fac­tur­ing of var­i­ous defence items, whereas in the last 14 years be­fore that pe­riod, only 214 li­cences were is­sued.

Pri­vate push

Defence be­ing a monop­sony sec­tor, where the gov­ern­ment is the only buyer, the struc­ture and growth of the do­mes­tic defence in­dus­try is driven by the pro­cure­ment pol­icy of the gov­ern­ment. The gov­ern­ment has there­fore fine-tuned the pro­cure­ment pol­icy to give pref­er­ence to in­dige­nously man­u­fac­tured equip­ment.

To fur­ther pro­mote man­u­fac­tur­ing of strate­gic plat­forms, namely, fighter air­craft, he­li­copters, sub­marines and ar­moured ve­hi­cles, the gov­ern­ment has re­cently an­nounced Strate­gic Part­ner­ship Pol­icy, where short­listed Indian com­pa­nies can form joint ven­tures (JVs) or es­tab­lish other kinds of part­ner­ships with for­eign orig­i­nal equip­ment man­u­fac­tur­ers (OEMs) to man­u­fac­ture such plat­forms in In­dia with trans­fer of tech­nol­ogy. The poli­cies and ini­tia­tives taken in the last three years have started show­ing re­sults. Three years ago, in 2013-14, where only 47.2 per cent of the cap­i­tal pro­cure­ment was made from Indian ven­dors, in 2016-17, it has gone up to 60.6 per cent.

To pro­mote in­dige­nous de­sign, de­vel­op­ment and man­u­fac­tur­ing of defence equip­ment within the coun­try, the gov­ern­ment has un­der­taken a se­ries of pol­icy and process re­forms. A num­ber of steps have also been taken to re­vi­talise the work­ing of DPSUs. All DPSUs and the Ord­nance Fac­tory Board (OFB) have been man- dated to in­crease their out­sourc­ing to SMEs so that an ecosys­tem for man­u­fac­tur­ing de­vel­ops within the coun­try. The DPSUs and OFB have been given tar­gets for ex­port and for mak­ing their pro­cesses more ef­fi­cient by cut­ting down costs and re­mov­ing in­ef­fi­cien­cies. Our defence ship­yards have achieved a sig­nif­i­cant per­cent­age of in­di­geni­sa­tion in ship­build­ing. To­day, all ships and pa­trol ves­sels are be­ing or­dered by the Indian Navy and the Indian Coast Guard from the Indian Ship­yards. Grad­u­ally, dis­in­vest­ment in DPSUs is also be­ing pur­sued to make them more ac­count­able and bring in op­er­a­tional ef­fi­ciency. In the last three years, the value of pro­duc­tion (VoP) of DPSUs and OFB has in­creased by ap­prox­i­mately 28 per cent and pro­duc­tiv­ity by 38 per cent.

We are at a cru­cial and im­por­tant phase of our jour­ney to­wards self-re­liance as far as defence pro­duc­tion is con­cerned. Af­ter in­de­pen­dence, while we started with pri­mar­ily im­ports, then grad­u­ally moved to­wards li­censed pro­duc­tion in the '70s, '80s and '90s and now have started mov­ing to­wards in­dige­nous de­sign, de­vel­op­ment and man­u­fac­tur­ing. Like other sec­tors such as au­to­mo­bile, com­puter soft­ware and heavy en­gi­neer­ing, among others, I am hope­ful that with the con­stant pol­icy push, ef­fi­cient ad­min­is­tra­tive pro­cesses and hand­hold­ing, the Indian defence in­dus­try would rise to the oc­ca­sion, and we can wit­ness de­sign, de­vel­op­ment and man­u­fac­tur­ing of ma­jor defence equip­ment and plat­forms in the coun­try in near fu­ture.

The process of re­forms and the ease of do­ing busi­ness is an on­go­ing process, and the gov­ern­ment and the in­dus­try will have to work to­gether to cre­ate an ecosys­tem, which is re­quired for growth and sus­tain­abil­ity of this sec­tor. This would be in our long-term in­ter­est of na­tional se­cu­rity.

(The au­thor is the Union Min­is­ter for Defence, Fi­nance and Cor­po­rate Af­fairs.)

Many of In­dia's defence sys­tems, such as Akash mis­siles and Pi­naca rock­ets, have more than 60% in­dige­nous con­tent.

Pro­cure­ment from Indian ven­dors has shot up from 47.2% in 2013-14 to 60.6% 2016-17.

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