Private Sector in Defence: Expendable or Indispensable?

In an attempt to build a high-tech, self reliant and service oriented defence industry, India developed a considerable and large complex of Defence Public Sector Units (DPSUs), Ordnance Factories (OFs) and the Defence Research and Development Organisation (DRDO). In addition, the Ministry of Defence (MoD) formulated policies like the Defence Procurement Procedure, Defence Production Policy and Offsets Policy, and established systems and structures to indigenise defence production. However, decades of efforts by the government and the public sector units has not resulted in the expected optimum levels of indigenisation. India's defence industry is plagued with a number of structural, technological and institutional limitations that impede the growth of the armament industry. The year 2001 ushered in numerous reforms, the highlight being the opening of doors to the private industry. However, nearly thirteen years later the results are dismal and have had a negative impact on our national security preparedness.

The private industry has abundant enthusiasm and is optimistic about its ability to play a greater role in in-house defence production and exports. Time and again, the MoD and security experts have voiced their opinion about encouraging the private sector in the defence arena and providing it with a level playing field with respect to their public sector counterparts. However, the private sector is uncertain and unwilling of investing in a highly risky Research & Development (R&D) and infrastructure environment in exchange for low returns. An uncertain regional neighbourhood, the epicentre of terrorism next door and the growing nexus between Pakistan and China combined with the economic imperatives of a vibrant and robust domestic defence industry obligate the decision makers to accord the highest priority to indigenisation. The need to enhance trade, increase investment, and accelerate GDP growth coupled with a flourishing manufacturing sector is required to revive the flagging Indian economy. The hallmark of emerging economies has been R&D, manufacturing and exports acting as the fundamental drivers of rapid growth. India has been slow off the blocks, but through the application of best standards and stringent enforcement of policy guidelines, it possesses the capability to improve its languishing defence export figures and plug critical operational modernisation gaps in the armed forces.

A possible pragmatic suggestion to actively involve the private sector is the privatisation of INSAS rifles' production and the subsequent export of a modified version to foreign countries. INSAS (INdian Small Arms System) rifles were developed by the OFB and Armaments Research and Development Establishment (ARDE), Pune in the 1980s and were inducted in the Indian Army in 1994-95. The indigenous 5.56mm design borrowed features from Kalashnikov pattern rifle, SLR and other rifles.[i] The indigenously developed rifles were used extensively in the 1999 Kargil conflict but they suffered from several glitches – rifles' bulging barrels, frequent breakdown of metal parts and cracks in its composite material and plastic magazines when employed in extreme weather of Kashmir and Rajasthan. The rifles encountered reliability problems in the cold climate as they would jam occasionally and the polymer magazines would crack. There were also cases where the rifle would fire on full-automatic while in three-round burst fire mode. Consequently, the Army planned to replace the INSAS rifles with new generation assault rifles for conventional warfare and counter insurgency operations. As part of the Army's F-INSAS programme, acquisition of rifles from foreign vendors along with transfer of technology is underway. The five shortlisted contenders are Beretta ARX-160, the CZ-805 BREN, the Galil ACE, the Sig 551, and the Colt Combat Rifle, a variant of the M16A1.

With due consideration to the defects in the INSAS rifle, instead of scrapping the INSAS project completely and letting the design and manufacturing facilities go waste, an alternative could be that the OFB transfers the Intellectual Property Rights (IPR) of INSAS rifles to a capable private firm. Given the capability, infrastructure and access to world class technology residing within the private industry, it would be reasonable to transfer the design and technology of the INSAS rifle to a domestic private company for upgrade and refit. The private company could rectify the inherent problems in the rifle, modify it to suit the modern warfare conditions and export the rifles in the world market. Till date, the INSAS rifles have been exported to the Royal Bhutan Army, the Nepalese Army and the Royal Army of Oman. If the rifles can be upgraded and polished to suit the global users' requirements with added sophistication and ease of use, they could compete with the market leaders and propel India's standing as a world class manufacturer of high-end technology. 

The Brazilian defence industry is an important case study to take cue from in order to boost India's indigenisation drive, as Brazil is an emerging economy like India. Brazil's arms industry is made up of state-owned and private companies, both of which are expanding into foreign markets, signing licensed production and joint venture agreements and creating successful foreign subsidiaries. Between 1982 and 2007, the country's exports of small arms, parts, accessories and ammunition was $199 million, the reason was the adoption of the National Policy for Export of Military Equipment (Política Nacional de Exportação de Material de Emprego Militar, PNEMEM). The small arms industry makes up the most active sector of the military industrial complex, whose development and growth are attributed to the Brazilian National Security Doctrine (NSD).[ii] The defence industry was seen as a catalyst for technological and economic development as also a way of building national power. Emulating the best benchmark practices of the Brazilian model could assist in improving India's balance of trade and enhancing our hard power capabilities in the defence sector.

The INSAS rifle and Arjun tank are among the few successes of India; it would be unreasonable to let them wither and die. India's growing relations with Japan could be utilised for obtaining world-class technology for not only arms but also critical defence equipment and platforms. Enhanced ties with countries like South Korea and Japan would provide India with advanced defence solutions and help in maintaining healthy foreign relations with the major powers of the South and East Asia region in the wake of the rising Asian hegemon. The fiscal regime and norms play a crucial role in incentivising and supporting the risk taking, investment and R&D required by the defence industry. The high skilled manufacturing capabilities and a proven IT base present the Indian industry with an opportunity to become a key link in the global defence supply chain. This requires the government's active role in fine-tuning policies, systems and structures, refining the processes and creating a fiscal environment to ensure domestic growth and achievement of self-reliance. Small steps towards indigenisation and exports would go a long way in achieving the long-term goal of a robust and independent defence industrial base in India. 

The author is a Research Assistant at CLAWS, New Delhi. Views expressed are personal.

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[i] Cutshaw, Charles. 2006. Tactical Small Arms of the 21st Century: A Complete Guide to Small Arms from around the World. Iola, Wisconsin: Gun Digest Books

[ii]http://www.smallarmssurvey.org/fileadmin/docs/C-Special-reports/SAS-SR11-Small-Arms-in-Brazil.pdf