Defence Procurement: Slow March to Indigenisation

No nation can aspire to great power status without being substantively self-reliant in defence production. Defence Minister, Mr A K Antony, has repeatedly exhorted the armed forces to procure their weapons and equipment from indigenous sources. However, unless the government reorients its defence procurement policies, the import content of defence acquisitions by the Indian armed forces will continue to remain over 80 per cent.

 

India’s defence procurement has remained mired in disadvantageous buyer-seller, patron-client relationships like that with the erstwhile Soviet Union and now Russia. While India has been manufacturing Russian fighter aircraft and tanks under license for many years, no weapons technology was ever transferred to India. Futureprocurement of weapons platforms and other equipment for defence modernisation must graduallylead to a transformative change in the country’s defence technology base and manufacturing prowess.All new defence acquisitions must have aToTclause built into the contract even if it means having to pay a higher price. The aim should be to make India a design, development, manufacturing and export hub for defence equipment in two to three decades.

 

Defence Research and Development

 

Though it seeks to encourage public-private partnerships, privately the government continues to retain its monopoly on research and development and defence production through the DRDO, the ordnance factories and the defence PSUs (DPSUs). The private sector has shown its readiness and technological proficiency to take up the production of weapons and equipment designed and developed by the DRDO and must be trusted to deliver.The DRDO must concentrate its efforts on developing critical cutting edge technologies that no strategic partner is likely to be willing to share; for example, ballistic missile defence (BMD) technology.Other future weapons platforms should be jointly developed, produced and marketed with India’s strategic partners in conjunction with the private sector. The development of technologies that are not critical should be outsourcedcompletely to the private sector. Also, the armed forces should be given funding support to undertake research geared towards the improvement of in-service equipment with a view to enhancing operational performance and increasing service life. Gradually, the universities and the IITs should be involved in undertaking defence R&D. This five-pronged approach will help to raise India’s technological threshold over the next two decades by an order of magnitude.

 

Defence Procurement Procedure

 

The Defence Procurement Procedure (DPP) manual was introduced in 2005. Since then it has been revised and modified several times based on the experience gained during its implementation. The Defence Production Policy was unveiled in 2011. Its objectives are to:

 

Achieve substantive self-reliance in design, development and production of equipment, weapon system and platforms required for defence in as early a time frame as possible.

Create conditions conducive for the private industry to play an active role in this endeavour.

Enhance the potential of small and medium enterprises (SMEs) in indigenisation.

Broaden the defence research and development base of the country.

However, the emphasis on self-reliance remains wishful thinkingat present as most weapons and equipment continue to be imported.The Defence Procurement Procedure (DPP) was amendedonce again in April 2013 to reflect the current thinking on ‘buying Indian’. However, in effect it still favours the defence PSUs over the private sector. MNCs are allowed to bring in only up to 26 per cent FDI as against 74 per cent for non-defence sector joint ventures. Though the procurement of weapons and equipment worth more than Rs 300 crore from MNCs has been linked with 30-50 per cent offsets, it is doubtful whether the economy is ready to absorb such high levels of direct offsets.For example, the MMRCA contract, which is likely to worth USD 10-12 billion or more, will result in an offset obligation of USD 5-6 billion. This is much more than the Indian defence industry can possibly absorb over 10-12 years.

 

Indigenous Defence Production

 

The defence production process must provide a level playing field between defence PSUs and Indian private sector companies forming joint ventures with MNCs where necessary. The amount of FDI that MNCs can bring in must be raised to 49 per cent immediately and to 74 per cent in due course to make it attractive for MNCs. However, no MNC that is unable to provide transfer of technology – either due to the home country’s restrictive laws or due to proprietary considerations – should be considered for future defence acquisitions.

 

India cannot leap-frog to a higher defence technology trajectory virtually overnight. Transforming a low technology base to a higher plane will need time, patience and large-scale capital investment. It will also need strong support across the political spectrum. In the interim period, inevitably, there will bea further dip in defence preparedness.This short-term weakness in capacity building will need to be carefully weighed against long-term gains that will be strategic in nature. The risk involved will require fine political judgement backed by sound military advice.

 

India is a growing economic powerhouse and should no longer be satisfied with a buyer-seller, patron-client relationship in its future defence procurement planning. As the largest importer of arms and equipment in the world, India has the advantage of buyers’ clout. This clout must be exploited fully to further India’s quest for self-sufficiency in the indigenous production of weapons and equipment. In all major acquisitions in future, India should insist on joint development, joint testing and trials, joint production, joint marketing and joint product improvement over the life cycle of the equipment. Indian policy planners must think big in keeping with the country’s growing economic clout and plan for the future with a level of confidence that they have not dared to exhibit before. In 10 to 15 years India must begin to acquiremost of its defence equipment needs from Indian companies—with or without a joint venture with an MNC. Only then will the era of self-reliance in defence acquisition truly dawn on the country. It will be a difficult quest, but not one that a great nation cannot realise.

 

(The author is a Delhi-based strategic analyst and a former Director of CLAWS)

 

Views expressed are peraonal