Defence Industrial Base in India: Public Private Partnership Model

The Indian economy is calibrating its priorities and resources towards becoming an economic superpower. A prerequisite for any emerging nation to become a true power is to possess a well-developed defence industrial base. Self-reliance in defence is essential for a nation for strategic as well as economic reasons. An analysis of history and associated trends reveals that indigenous military development programmes in India have been constantly marred by time delays, bureaucratic hurdles, corruption scandals, failures and cost overruns. Some examples of unsuccessful critical projects are the Arjun Main Battle Tank (MBT), the Tejas Light Combat Aircaft (LCA) and the Kaveri engine; all of which are running decades behind schedule. This has led to a state of affairs in which there is a high degree of dependence on imports[i] and till recently (2001), the responsibility of defence manufacturing was completely rested with the public sector. The issues which have accounted for India’s slow progress towards the ultimate goal of self-reliance are low production rate, minimal innovation, lack of transparency and accountability, limited R&D capability and manufacturing expertise.

While the Defence Procurement Procedure (DPP) 2013 provides stress on indigenous development, India’s current manufacturing base has limited capacity to support the implementation of the improved policies and to transform noble ideas into reality. The last two decades have witnessed the Indian private sector’s exponential growth trajectory and its capacity to innovate, develop and produce world class solutions in fields of cutting edge technology. Thus, it is reasonable to assume and necessary to utilise the immense potential of the private sector in the domain of defence. Proper harnessing of this resource will help India to create an indigenous defence manufacturing hub. One of the implementable mechanisms is the Public Private Partnership (PPP) model. PPP is a tried, tested and benchmarked method to achieve self-reliance in defence and is in use in various countries. PPP is a contractual agreement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility.[ii]

In India, the PPP model has worked with satisfactory results in the building of complex and large scale infrastructure projects like roads, airports etc. The same approach if adapted to defence R&D and manufacturing has the potential of bearing fruitful results. Though, it is common understanding that national defence being a strategic and sensitive sector must be within the ambit of the state, but there are several non-critical areas where the private sector can play an active role to build trust. Countries like United States of America (USA), United Kingdom (UK) and South Korea have successfully inducted and implemented the PPP model in their defence industry to deliver defence solutions. India is in a situation where it needs to modernise its armed forces on a large scale, but within budget constraints. PPP can play a big role as it is a pragmatic model to synergise the strengths of both the public and private sectors to deliver quality results in meaningful timeframe and resource constraints. Some of the advantages of the PPP model are long term committed relationships, improved efficiency and cost effectiveness, greater transparency, optimum combination of competencies, capabilities and expertise of commercial sector and government agencies, shared resources and risks.

After the Cold War ended, the UK Ministry of Defence (MoD) transitioned its policies from self-sufficiency in defence to greater emphasis on PPPs[iii]. Since 1992, PPPs have become a key procurement option for the UK MoD and are indicators of changing priorities. The partnership aims at synthesising the complementary assets and identifying common objectives to craft a deal that makes good business sense to both partners. The project guidelines are well documented and include contractual framework, risk allocation, the role and structure of private finance and detailed contractual terms. The guidance also articulates how project affordability and value for money is to be determined.[iv] Training/ simulator based projects and asset based projects are some successful examples of PPPs in UK defence sector. The projects are based on the Design, Build, Finance and Operate (DBFO) model and the private sector owns the assets and maintenance obligations. Some equipment based on PPPs include the attack helicopter and Hawk simulators; Sea and Rescue (SAR) helicopter, Future Strategic Tanker Aircraft and Skynet 5 satellite[v].    

The US Department of Defense (DoD) has also emphasised on the need for Public Private Cooperation (PPC) to meet the challenges of a dynamic and complex world security environment. The National Security Strategy (NSS), National Defense Strategy and DoD directives stress on partnerships between government and private sector along with nongovernmental organisations (NGOs), research institutions and academia[vi]. Team Orlando is one such example of a collaborative approach where all partners work in synergy towards a common objective under the guidance of the DoD. Team Orlando's success in accomplishing its vital national mission is the result of the unique collaboration between the nation's leading military simulation research, development and acquisition commands, along with the integral capabilities, talent, resources and support of private industry, academia and government organisations[vii]. Team Orlando provides human performance and training systems with support services to include development, acquisition management, delivery, and life-cycle sustainment. 

Dr. Vijay Kelkar Committee report (April 2005) identified the strengths of the private sector and the opportunities that could arise from the PPP model. The revised DPP makes a step in the right direction by prioritising ‘Buy & Make (Indian)’ and ‘Make’ categories of procurement. The last decade has seen the initiation of several ‘Make’ programmes like Future Infantry Combat Vehicles (FICV), Battlefield Management System (BMS) and Tactical Communication System (TCS) projects which favour consortia formation and PPPs. However, the tardy and slow progress of these ‘Make’ programmes casts doubt on their implementation techniques. Fair competition, public private collaboration and foreign tie ups can infuse the necessary dynamism and innovativeness required to catalyse defence manufacturing. However, the inherent challenge associated with partnerships is the ability to strike a fine balance between the motives of profit driven private industry leading to variance with the national security objectives. There are also risks associated with identifying and selecting suitable, capable and competent private partners. Other serious loopholes impeding the success of such ‘forward looking’ programmes in India are corruption, red tapism and tweaking of the contracts for personal benefits. One such instance of mismanagement and inordinate delays is the PPP model used for building the Delhi-Jaipur expressway as part of the Golden Triangle[viii]. The identified weaknesses need to be overcome and an effective system of stringent monitoring and accountability needs to be put in place to make PPPs a success story. The MoD will have to bridge the gaps between high-level policies and the on-ground procedures to execute PPP based projects. PPP models have the potential to drive and materialise the defence industrial base in India, but the real test will lie in its implementation. 

The author is a Research Assistant at CLAWS

Views expressed are personal