Recipe for suc­cess

Un­less the In­dian aero­space and de­fence in­dus­try has ac­cess to the global mar­ket, the prospects of suc­cess of ‘Make in In­dia’ cam­paign is likely to re­main plagued by un­cer­tainty


Make in In­dia’, the lat­est mantra for the In­dian de­fence in­dus­try, was launched per­son­ally by Prime Min­is­ter Naren­dra Modi on Septem­ber 25, 2014, four months af­ter the NDA Govern­ment came to power. This was the first and im­por­tant step in the ful­fil­ment of the prom­ises made in this re­gard by the Bharatiya Janata Party (BJP) dur­ing the elec­tion cam­paign. The broader aim of the ‘Make in In­dia’ cam­paign is to kick-start In­dia’s overly lax man­u­fac­tur­ing seg­ment es­pe­cially in the In­dian aero­space and de­fence in­dus­try and thereby to re­ju­ve­nate the con­fi­dence of in­vestors.

In­dia has one of the largest armed forces in the world and around 70 per cent of the re­quire­ment of mil­i­tary hard­ware is met with through ac­qui­si­tion from abroad; the re­main­ing 30 per cent be­ing pro­duced by the In­dian aero­space and de­fence in­dus­try in the pub­lic sec­tor which dom­i­nates the scene. Im­port of de­fence equip­ment con­sumes over 40 per cent of the an­nual bud­getary al­lo­ca­tion for the Min­istry of De­fence (MoD). As a multi­bil­lion­dol­lar mar­ket for mil­i­tary hard­ware, In­dia is an ex­tremely at­trac­tive mar­ket for the global aero­space and de­fence ma­jors. The new thrust for ‘Make in In­dia’ is ex­pected to open up fresh av­enues for man­u­fac­tur­ing in this sec­tor.

Over the years, In­dia has ac­quired the du­bi­ous dis­tinc­tion of be­ing the largest im­porter of mil­i­tary hard­ware in the world, a sta­tus that Prime Min­is­ter Modi is de­ter­mined to change. For a na­tion as­pir­ing to be a re­gional power, it would be nec­es­sary to de­velop an in­dige­nous ca­pa­bil­ity to man­u­fac­ture most if not all the equip­ment re­quired by the three ser­vices as also the para­mil­i­tary forces. Be­sides, it is also of im­por­tance that the in­dige­nous mil­i­tary in­dus­trial com­plex must be in­ter­na­tion­ally com­pet­i­tive.

Quite un­der­stand­ably, there will be im­ped­i­ments in the ‘Make in In­dia’ cam­paign of the Modi-led NDA Govern­ment; but steps have been un­der­way since the be­gin­ning of the last decade to in­tro­duce the nec­es­sary re­forms. And now there is fresh im­pe­tus in this di­rec­tion. Par­tic­i­pa­tion up to 100 per cent by the In­dian pri­vate sec­tor in the de­fence in­dus­try was per­mit­ted for the first time in the year 2001. There­after, the MoD in­tro­duced the De­fence Pro­cure­ment Pro­ce­dure (DPP) in 2002 to de­fine and reg­u­late the process of pro­cure­ment of mil­i­tary hard­ware from abroad and re­stricted for­eign direct in­vest­ment (FDI) to 26 per cent. This, how­ever, was later re­vised to 49 per cent. The DPP has been re­fined pe­ri­od­i­cally with the aim of mak­ing it more busi­ness-friendly and the lat­est ver­sion, DPP 2016 that was re­leased dur­ing the De­f­expo 2016 held in March this year in Goa has gen­er­ated a fresh surge of hope.

There are also on­go­ing ef­forts by the govern­ment to make rad­i­cal changes in the ar­chaic rules and reg­u­la­tions for the de­fence in­dus­try as also the laws per­tain­ing to im­ports, ex­ports and tax­a­tion to make it eas­ier for en­trepreneurs to do busi­ness in In­dia. The pro­posal to raise the cap on FDI be­yond 49 per cent pos­si­bly to 74 per cent or even up to 100 per cent is cur­rently un­der ac­tive con­sid­er­a­tion at the MoD. This has been a ma­jor is­sue with for­eign in­vestors as with FDI at 49 per cent, they have no con­trol over their in­vest­ments. For ob­vi­ous rea­sons, the MoD is hes­i­tant to al­low con­trol to pass into the hands of in­vestors from abroad. But the re­lated is­sue is that no for­eign orig­i­nal equip­ment man­u­fac­turer will trans­fer sen­si­tive and mod­ern tech­nol­ogy un­less he can ex­er­cise con­trol over his in­vest­ments in In­dia. With­out trans­fer of tech­nol­ogy, the in­dige­nous in­dus­try may not be able to grow be­yond its present level of ca­pa­bil­ity. A ma­jor lim­it­ing fac­tor for the In­dian aero­space and de­fence in­dus­try is the low vol­ume of do­mes­tic de­mand which does not pro­vide for econ­omy of scale, a fun­da­men­tal con­sid­er­a­tion for any in­dus­trial ven­ture. Be­sides, as mil­i­tary plat­forms are sub­ject to pe­ri­odic re­place­ment with new gen­er­a­tion equip­ment, in­fu­sion of fresh in­vest­ments in the in­fra­struc­ture would be re­quired with match­ing fre­quency. This is­sue could be a ma­jor im­ped­i­ment to the ‘Make in In­dia’ cam­paign. The re­quire­ment there­fore would be to find ways scale up de­mand to ob­tain max­i­mum re­turn on in­vest­ment and make the ven­ture prof­itable to sur­vive. There­fore, un­less the In­dian aero­space and de­fence in­dus­try has ac­cess to the global mar­ket to en­hance the vol­ume of de­mand sub­stan­tially, the prospects of suc­cess of the ‘Make in In­dia’ cam­paign is likely to re­main plagued by un­cer­tainty.

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