|#1364||2756||April 15, 2015||By Vijay Singh|
Mere lip service to the subject of Defence Production has today made India the largest importer of weapon systems in the world. With nearly 250 billion dollars required for modernisation in the next decade, the record needs to be set straight. The stark reality of delayed defence projects, exorbitant budget expenditure and poor product delivery has brought to fore the culture of mediocrity that is imbibed in our Defence Industrial Base (DIB). The long gestation period for indigenous defence projects is used as an ideal garb to reduce accountability, enhance costs, assemble imported components and finally provide a product which is far from satisfactory.
With the Modi government “Make in India” thrust and a slew of decisive policies in terms of enhancing FDI in defence by 49%, cutting red tapism, boosting R&D and a strong resolve by the Defence Acquisition Council (DAC) to meet deadlines, shows the positive intent of the government. If this can be construed as a new beginning towards self reliance, transparency and accountability, the Defence services will again be committing a historical blunder by not staking their claim to be the foremost stakeholders during all stages of defence production.
The Missing Link
The Defence Industrial Base, comprising of 08 Defence PSUs (DPSUs), 39 Ordnance Factories (OFs), DRDO and a nascent private sector is in no way interlinked with the ultimate core consumer i.e. the Defence Services. The Department of Defence Production (DDP) controls the OFs, has a limited say on the DPSUs, has no control on the DRDO and has negligible accountability to the Defence Services. In a chain created for the defence of the nation, the Defence Services are the missing link. So what needs to be done is something very basic. While conceptual level discussions can be left to the top hierarchies, the Service HQs require to formulate specific project level teams to be fully amalgamated with major capital projects being undertaken by any player of the DIB right from the drawing table to the final production. Extrapolating this template in retrospect to projects such as MBT Arjun, INSAS rifles, Tejas the Light Combat Aircraft (LCA), Nishant UAV and many such more would have given an altogether different outcome.
Department of Defence Production (DPP)
DDP can easily be defined as the fulcrum of our DIB. It exercises administrative control over OFs, DPSUs and is the governments intermediary with the private sector. It was raised in Nov 1962, under the aegis of the MoD, to give an impetus towards indigenisation and self reliance of defence equipment for the Armed Forces of India. It is therefore essential to understand that any restructuring of India’s Defence Sector has to commence with the restructuring of the DDP. The following basic measures will help the overall aim:
They account for more than 65% of the total defence industrial output  in India. One can easily call them as the blue chips of our DIB who operate in the high end technology spectrum. Well, then the next question that comes to our mind is ‘Why are they delivering a sub optimal performance in their present form ?’
With the exception of Bharat Dynamic Limited (BDL), other DPSUs such as Bharat Electronics Limited, Bharat Earthmovers Limited (BEML), Garden Reach Shipbuilders and Engineers Limited (GRSE) and Goa Shipyard Limited (GSL) have already made deep inroads in the civil market and leveraged technology for civil end use. Assembling state of the art metro coaches for Delhi, in collaboration with Hyundai Rotem of South Korea by BEML , creation of telecom infrastructure in the country by BEL and construction of high end commercial vessels by GRSE and GSL are a clear indicator of their shifting priorities. Lack of clear policies by the government, long gestation period for def projects and fall in revenues from defence production has contributed towards their change of focus. Certain basic measures which are essential to restructure the functioning of DPSUs are as under :-
Much has been said and written about the critical role that the private sector can play in defence production. With concrete steps now being taken both by the government and the private players, the following basic issues need to be streamlined:
Foreign Direct Investment (FDI)
The concept of FDI has to move from the drawing board to that of promoting self reliance in the defence industry.The permissible limit of 26% FDI since 2011 did not lead to any value addition.Similarly, the recent limit enhancement to 49%  may not be able to kick-start the def industry as ‘control and management’ of the company remains elusive to the foreign investor till it exceeds 49%.It may however be appreciated that FDI beyond 49% will raise concerns of national security and overall control of such ventures.Keeping in line with India’s framework of FDI in four maximum limit based categories  of 26%, 49%, 74% and 100%, the way ahead is :-
Defence Industrial Agency (DIA) Under the PMO
Of all the points mentioned earlier, this perhaps is the most significant. To ensure accountability and seamless coordination of effort and resources, the DIA needs to be raised directly under the PMO to:
In 2011, India replaced China as the world’s largest importer of weapons and has retained the spot since then . A lot needs to be done in terms of a concerted effort towards ‘Make in India’ Campaign and enhanced budget allocation by the government. None the less, the pain could have been a lot less if certain basic policy making processes had been put to place earlier. Meaningful presence of the Defence Services in all decision making platforms, restructuring of the DDP, disinvestment of DPSUs and realigning their core focus towards defence production, providing a level playing field to the private sector and leveraging the FDI spectrum from 26% to 100% on a case to case basis is merely a matter of policy formulation. What India has lacked in terms of high end technology and enhanced budgetary allocation, could have been overcome to a certain extent through better management of the various components of the DIB and formulation of coherent policies to synergise India’s defence sector.
Views expressed are personal.
1. Sourav Majumdar, “L&Ts Defence Dilemma”, Forbes India Magazine, October 03, 2014.
2. Corporate Catalyst India “A Brief Report on Defence Sector in India”, October 2013, Website www.cci.in.
3. Anil Urs “BEML to Roll out Coaches for Jaipur Metro too”, Business Line, The Hindu, December 19, 2011.
4. www. bemlindia.com, company profile, 05 Mar 2015.
5. Surabhi, “Govt Considers Stake Sale in HAL and BEL”, Indian Express, 06 Jul 2011.
6. IANS, “Govt approves 10% disinvestment of HAL”, 08 Nov 2012.
7. ET Bureau, “Cabinet Approves Raising FDI Cap in Defence to 49 Percent, Opens up railways”, Economic Times, August 07, 2014.
8. Laxman Kumar Behara “Indian Defence Industry Issues of self Reliance”, IDSA Monograph Series, pg 80, No 21 July 2013.
9. Nitin Gokhale “Self Reliance should be the ultimate aim of India’s defence sector”, dna, 02 Feb 2015.