While the major objective behind the ‘Make in India’ initiative was job creation and skill enhancement in twenty-five key sectors of the Indian economy, it has not become quite a game-changer yet.
‘Make In India’ is still groping in the dark.
The ‘ Make in India’ initiative launched by Indian Prime Minister Narendra Modi on September 25, 2014 is an initiative aimed at making India a global manufacturing hub. It was rolled out with the aim of creating millions of jobs in the country.
Under the 'Make in India' initiative, the government has announced several steps to improve the business environment by easing the process of doing business in the country and attracting foreign investment.
'Make in India' aims at increasing India’s GDP and tax revenues by producing products that meet high quality standards and minimizing the impact on the environment. Fostering innovation, protecting intellectual property, and enhancing skill development are the other aims of the program, according to the 'Make in India' website.
Interestingly enough, Modi’s “Make-in-India” push for a military that has been the world’s biggest importer of arms for the last four years has also made little headway, with negotiations stalled over various issues including technology transfer and the local assembly of equipment. Historically, India has been using technology through licence agreements with Russia and a smattering of Western countries. The exceptions are some of
the missile systems, small arms and their ammunition and tanks, where technology has been indigenously developed by the Defense Research and Development Organization (DRDO).
The government’s ‘Make In India’ policy and increase in the Foreign Direct Investment (FDI) cap in the revised defence FDI policy (from 26% to 49%), announced with a lot of fanfare during the Aero India show in February 2015, was seen as a major step to revitalize the defence industry and awaken it from its long slumber. This government action was expected to infuse refreshingly new attitudinal change in India’s policy-making processes, foster trust between the government and the industry and usher in major reforms to improve India’s standing in World Bank rankings. Accordingly, a number of committees under retired bureaucrats were set up by the government to review the problems being faced, and recommend suitable solutions to improve the business environment in the country. However, despite the prime minister’s personal thrust regarding the ‘Make in India’ mantra, very little has changed on the ground. Manufacturing requires a significant edifice of infrastructural support, which is currently absent in India. There is lack of a regulatory framework, especially in the general aviation sector, which has huge growth potential. Reforms require ongoing consultations with the industry and presently there is no positive movement in this direction.
Regardless of all the tall talk of tax reforms in the defence and aerospace industries, they continue to be taxed as before. It should be noted that the high rate of service tax has placed India’s Maintenance, Repair and Overhaul ( MRO) industry at a disadvantage vis-à-vis the MROs in Gulf countries and South East Asia.
The biggest challenge in the ‘Make in India’ policy framework is the existing antiquated Research & Development infrastructure with a severely constrained design capability and limited support, both scientifically and financially. The issue that needs to be addressed is whether the government and the DRDO are following the right approach and strategy for R&D and technological development.
The ‘ Make in India’ programme in defence will have to be facilitated by way of bold reforms in policy, procedures and approach towards global investors. There is an urgent need to facilitate removal of other manufacturing roadblocks, like land, power, transportation infrastructure, taxation and multifarious government clearances. The idea of technology transfer through either licence production or offsets is misunderstood by the decision-makers. Making this the principal strategy and cornerstone of defence technology development and self-reliance in the country is like chasing a mirage. All it does is, perhaps, short-circuit or kick-start a process. But it can never lead to realizing the national strategy of indigenous capability and selfreliance. Nothing can substitute strategic research and development. It can be achieved only by involving the entire knowledge sector of the economy. The private sector in India today is in an embryonic stage when it comes to defence technology. Setting up manufacturing facilities, and fabricating buy-back components using outdated technologies as a part of the offset policy, may perhaps be a good start in the learning cycle. However, major efforts have to be made to hop step this learning curve and mature fast.
One sure way to do this is to develop technologies in-house, both designing as well as manufacturing, so as to catch up. India has to deliberately enter the age of innovation in which research and development becomes an integral component of science, technology and engineering, an element totally disregarded by the Indian industries so far and unthinkable in the aerospace sector. In this respect, HAL (Hindustan Aeronautics Ltd.) has singularly survived on licence production and shown improved bottom lines on captive production without any investment in strategic research and development.
It is time that a level-playing field is provided to the Indian defence industry for being able to showcase its capabilities and manufacturing plans to users in the defence establishment in a much more structured and formal manner than is possible at present. Even though the Ministry of Defence (MoD) does interact with the Indian defense industry in a number of small and ad-hoc ways, the challenge going forward — for the ‘ Make in India’ mantra to become an all-pervasive reality in defense acquisitions — will be to multiply manifold the onset, frequency, range and depth of its industry engagements.
While the modernization of the military requires substantial budgetary outlays, in reality, the gap between the requirement of funds projected by the MoD and the actual budgetary allocation has been widening over the years. This trend is likely to continue, as is clearly evident in the defence budget for 2015-2016. But of greater concern is the fact that the MoD surrendered a total of Rs28,000 crores between 2001- 02 and 201011 under the capital head. This was mainly due to stalled projects amidst allegations of wrongdoing, lack of indigenization and complexity of procedures. However grave the situation, a way out of the morass has to be found to ensure the acquisition of operationally-critical weapon systems, including guns, helicopters, submarines, aircraft and ammunitions that form the core of a nation’s defence capability.
While the government has displayed the necessary political will for indigenization and establishment of an advanced manufacturing base in the country, the challenge lies in its comprehensive implementation — an enabling policy framework, focus and commitment, including addressing the fiscal and taxation issues, which currently impact negatively on the private industry.