A STRATEGIC, NOT A COMPETITIVE EDGE
Intent and execution are key to creating a vibrant defence industrial base in the country. Historically, in all of India’s strategic programmes in space, nuclear and defence, success has come about through a public-private partnership. This approach was a key highlight of the strategic missile programme accomplished by Dr A.P.J. Abdul Kalam under the Integrated Guided Missile Development Programme. The MoD’s draft policy continues to exhibit a proclivity towards OFB, DPSUs and DRDO and does not even have a nominal reference on a level playing field for the private sector. It ignores how the PPP programmes of hundreds of tierised vendors in the MSME sector have created strategic depth. It also fails to register the critical ingredient of a successful strategic industry— a continued and sustained order flow. The policy talks of “fostering a competitive, innovative and robust defence industry”, but the word strategic usually denotes ‘beyond commerce’, and ‘competitive’ usually refers to L1, the lowest bidder in a commercial contract. There’s a dichotomy here. Countries create and maintain strategic capabilities to maintain their strategic edge in their national interest. These are costs that are affordable but are not necessarily competitive (L1). No country exports its state-ofthe-art weapon systems merely for commerce. Profits gained from exporting these weapons are ploughed back into increasing their efficacy. In India, we continue to benchmark the cost of our weapon systems against imports (which are at zero tax), in countries where there is very low cost of capital and usually the infrastructure cost has already been amortised over domestic supplies.
Besides the pure strategic benefits of having indigenous capabilities, the economic multiplier of job creation and profit reinvestment in the country are other benefits that must be included in the definition of a “cost effective weapon system”.
For any democratic country, it is critical to have transparency of costs for its domestic development partners and supplier base so that 100 per cent funding for the strategic sector can be made with regulated profits. Americans use the Earned Value Method (EVM) for reporting costs for Tier 4/5 defence companies for large projects. If India has to benefit from its IT capabilities, start-up culture and be an innovator, a transparent methodology to determine the cost base for defence programmes is a must. The MoD has to codify its market-maker role, which is sadly missing from the current policy.
The draft policy has a welcome emphasis on exports (20 per cent). Defence exports also need PPPs and a permanent guiding hand for export control and promotion. India should have an agency like Israel’s SIBAT, the foreign assistance and defence export organisation. We need an ombudsman for offsets and to implement a PPP model and inculcate a spirit of Team India in the strategic defence manufacturing sector. The time has come for restructuring and moving the department of defence production to the ministry of heavy industries. If that is too radical under this draft defence policy, the government should not pledge any further nomination to DPSUs/OFB.
Countries create capabilities for a strategic edge. The costs may be affordable but not necessarily the lowest