Ramp up defence production facilities to join the top three

If India buys 12% of the world’s arms exports by value, but exports just 0.17% of it, there is a huge opportunity that needs to be seized.

For the Union Budget 2021 to be announced on 1 February, all commentary and advocacy is agreed that the government will have to do something extraordinary. Strong growth must be restored to the economy. This cannot just be an incremental budget citing fiscal constraints and revenue generation shortfalls. Fortunately, Finance Minister Nirmala Sitharaman has already indicated that the fiscal deficit will be allowed to slip. Estimates say it is already in the region of 7.5%.

However, this is a very unusual time. When money needs to be invested but is scarce, there are very few options. This country, like most others around the globe, will also have to undertake an unprecedented and expensive vaccination process for most of the population.

The debate is on between those who want the government to promote consumption, and those who want new money spent on productive assets that will yield a return in future.

Of course, a certain degree of welfarism is hard-wired into the Indian system with its socialist moorings. It is aimed at helping the bottom 20% of the population. This must not only continue but be enhanced in value terms. But consumptionled growth, which is not organic but pump-primed, will result in a temporary uptick at best. Will it enthuse greater investment by the private sector and lift the mood of the nation? It seems unlikely. America has followed this course, putting in billions every month straight into the general economy, while maintaining a zerointerest rate regime. This has gone on from 2008 after the housing and subprime lending crash. Still, it has only yielded a survival economy by 2020, growing at 3% on consumption alright, but with a widened gap between the 1% rich, and practically all the others. Zero interest favours those who can put it to productive use. The rest just spend their money on everyday goods and services.

In percentage terms, of all fresh monies pumped in now, some 60% needs to go into productive investments. Without this, the international rating and lending agencies will see India as a fiscally irresponsible economy going forward. The question is: what will be the most profitable investment? And the answer is defence production.

Armaments are high value items with strong embedded profits. India has exported

Rs 17,000 crore worth in 2018-19 (approximately $1.5 billion), up from just Rs 2,000 crores in 2014. The target is Rs 35,000 crore or about $5 billion annually. The gradualism of doing this in the next five years must be fast-tracked. Can it be done in 2021 itself?

The government has announced plans to invest $130 billion in the next five years on military production modernisation. Can this be completed by 2022 with the help of this fiscal deficit slippage?

India has purchased about $100 billion worth of armaments over the last decade or $10 billion per annum pro rata. It actually needs to procure perhaps twice as much to be fighting fit in a two- or even multiple-front war. It actually ends up buying much less than its wish-list because of fiscal constraints.

The latest emergency annual purchase is, in fact, upwards of $15 billion. Buying more and more from domestic production after recent policy changes is helping, but every part of the exercise, particularly the efficiency and turn-around time of domestic manufacture, needs to be accelerated.

$5 billion in exports achieved in short order would claw back half of the pro rata annual expenditure over the last decade. Estimates indicate India could be exporting $15 billion worth annually within a decade. Again, can this time-line not be crunched, given some urgent revamping of facilities and policy initiatives?

Nothing else in the possibilities, including all kinds of manufacturing relocations from China, exports of other manufactured goods including electronics, automobiles, launches of foreign satellites by ISRO, commodities, software, even comes close.

And then there is the import substitution that comes from having a highly developed armaments industry. The money spent stimulates the economy but stays incountry. However, this is not a swadeshi call likely to truncate quality. Let us note that the imported content of armaments currently made in India is still at 40% as of 2018, though down from 48% in 2014. The trendline is interesting. The recent Cabinet-approved bid to export Akash Air Defence Systems with a range of 30 km has a 96% indigenisation figure. Nine countries want to import it.

Other items we could export in short order are the Brahmos missiles, the Pinaka multi-barrel rocket launchers and the Astra air to air missiles. To meet both domestic demand from the Indian armed forces and foreign countries in a competitive timeframe, India must undertake a massive modernisation, expansion, and upgradation programme. This must stand independent of the general defence budget, which is mostly consumed by establishment costs and pensions.

Besides, our overall defence budget at $70 billion presently, is dwarfed by that of China at $261 billion, let alone that of the US at $732 billion. Let us note, however, that there is a demand for Indian armaments internationally, unlike for those from China. The Indorussian developed Brahmos missiles could be instant best-sellers if India decides to offer them to friendly governments configured to their specific requirements. This would also mean significant value addition. The secret configurations of our own missiles and other exported armaments can be safeguarded. Most arms exporting countries do likewise. But no major armaments manufacturing country can sustain the massive costs involved without exports.

India already has a number of facilities serving the Army, Navy, Air Force, logistics, ordnance and engineering requirements. These include DRDO and its 50 labs, 4 defence shipyards, 8 defence PSUS and 41 ordnance factories. In recent times, a number of private companies such as Bharat Forge, the Kalyani Group, Larsen & Toubro, the Tata Group, SSS Defence, HTNP Industries, Alpha Design Technologies, Bharat Advanced Defence Systems, SMPP Private Limited, have also entered defence manufacturing. We are developing a new Defence Corridor in Uttar Pradesh in addition to the older and more mature one in Tamil Nadu. But, as always, the private ecosystem cannot survive without orders. And presently, the orders are mostly from the Indian armed forces.

Union budget 2021 needs bold strategies to move this country forward and into the reckoning for the future. If India buys 12% of the world’s arms exports by value, but exports just 0.17% of it, there is a huge opportunity that needs to be seized.

Initiatives already fructified such as manufacturing our own, sometimes in joint venture, nuclear and conventional submarines, stealth frigates, patrol boats, our own aircraft carrier, the light compact aircraft (LCA), trainer aeroplanes that we have even offered to the US, the Arjun MK-1 A tanks we are inducting into the Indian Army, mobile bridges, bullet-proof vests, small arms, rifles, machine guns, carbines, armoured vehicles, transport vehicles—have all taught us many learnings.

If the biggest roadblock in the past was policy, which did not want to develop an Indian armaments industry worth the name, then at present the only real drag is the pace at which we are proceeding to change the template. It takes massive investment, but so do the highways we are building at breakneck speed all over the country.

Our own security needs, our economic well-being, standing in the comity of nations, necessitates this dimension to our development. And the sooner we put urgent emphasis on it the better. We need to put massive resources behind the vision statement and policy changes to realise this crucial atmanirbhar objective.

An economic power is vulnerable without a strong military supported by its own arms industry. Even if we cannot own the entire ecosphere, because of the practical necessity of not reinventing the wheel, making most parts of the armaments we produce is a valid aspiration. Global players like Boeing and Lockheed-martin buy a lot of the componentry for their military planes from outside, sometimes international vendors. It is a highly specialised business, and no entity can do everything in-house profitably.

India is on its way from sixth largest economy towards becoming the third largest by 2030. But renewed Chinese hostility along the LAC, constant friction with Pakistan and its terrorist infiltrators, plus internal sabotage by forces who wish to retard the economy, have made clear that defence preparedness is both good sense and good business.

By leaving for an undisclosed foreign destination, a day ahead of the 136th raising day of the Congress, Rahul Gandhi has left his entire party red-faced; even his staunch supporters have been unable to defend his departure. Some functionaries are claiming that he had to go at a short notice since one of his close relatives, probably his maternal grandmother was ailing and even if this were the case, he could have left after the flag hoisting ceremony at 24 Akbar Road.

There was a feeble attempt made by certain members of interim president Sonia Gandhi’s coterie to generate a consensus on his return as the party chief at the meeting held with dissident leaders in the third week of December. Rahul appeared to be reluctant, but did not lose the opportunity in taking digs at some of the senior leaders who were present to demonstrate that he was still in command even if he was not occupying any official position.

The clear political message that has emanated from his foreign visit is that he shall not be returning as the party chief anytime soon and may like to foist his nominee instead. This may not be acceptable and the Congress, instead of trying to work towards a 2024 road map, may have to face several internal problems. The dissidents who wrote to Sonia Gandhi urging her to strengthen the organisation at every level, do not have the strength to break away and exist on their own. However, collectively they have sufficient experience to create doubts in the minds of people.

Those who follow the Congress closely, know that the Gandhis are not going to give up on the party they run as virtually a personally owned entity in partnership with some of their hand-picked associates or sycophants who have lost their relevance. Therefore, a different political game may start which could be aimed at diminishing the role of the Gandhis in the overall opposition politics. The Congress has been performing poorly in most elections, and now the prospects of it losing the Chairmanship of the UPA are also looking possible. Sharad Pawar, NCP chief, and one of the senior-most politicians of the country, is a probable nominee, who could be in line for leading a combined Opposition, even if it is by another name. This is because, no Opposition leader of today would like any of the Gandhis to be the spearhead of any Opposition unity, though they could easily settle down if a more serious person gets projected.

Within the Congress, there are several seasoned leaders, who have been prevented from working at the full potential. These leaders have become disgruntled, but have nowhere to go and the BJP can only pick them if they fit into a saffron strategy of toppling some Congress regime in a state.

Thus, what appears to be a possible game plan of the Opposition leaders is to try and isolate the Gandhis and their supporters within the Congress. That would enable Sharad Pawar to give a call to all Congressmen, past and present, to join hands with him to pose a challenge to the BJP. Obviously, since Pawar enjoys tremendous goodwill amongst politicians, he could be acceptable to Opposition leaders who matter such as Mamata Banerjee, Jaganmohan Reddy, Stalin, Omar Abdullah and even Sukhbir Badal. From the socialist stream, both Nitish Kumar and Lalu Prasad Yadav in Bihar and Mulayam Singh Yadav in Uttar Pradesh hold him in high regard.

So far as Maharashtra is concerned, every leader cutting across party lines considers him to be the most formidable politician in the country.

If the BJP experimented with the “Gujarat Model” before introducing it in the national arena, Pawar could be replicating a broad-based Opposition alliance inspired by the Maharashtra coalition that has checkmated the BJP. He could also serve as a magnet, which could attract parties and individuals opposed to the BJP towards him.

The reason why Pawar did not surpass his mentor, Y.B. Chavan’s achievement is because like his guru, he had so far acted only as Maharashtra’s stakeholder in national politics. The time has come to change that and he is definitely going to have one last attempt at being the collective Opposition’s Prime Ministerial candidate in 2024, if his health remains perfect.

Pawar has maintained very close personal relations with leaders from various parties. The late Arun Jaitley, though a BJP loyalist, never shied away from complimenting the Maratha for his political and administrative acumen. Despite being a staunch Congressman, Pawar has parted company with the party on several occasions. The last time was when he raised the matter of Sonia Gandhi’s foreign origin and faced expulsion along with the late P.A. Sangma and Tariq Anwar, who, incidentally, is back and general secretary of the Congress. The first time when he parted ways with the Congress was back in 1978 when he along with his political guru plotted to oust the Vasant Dada Patil-led Congress (S)-congress (I) government. At that time, he had outwitted Maharashtra rivals such as Nasikrao Tirpude and a leader as strong as Indira Gandhi. Therefore, for him to take over the overall leadership of the Opposition can only be a matter of time. That is if he does not have a different plan up his sleeve and backtracks at the eleventh hour.

However, the Congress should look beyond the Gandhis if it wishes to counter Pawar. He is a man of all seasons. Between us.