In sourcing Defence

With an annual Defence capital outlay budget of almost $ 16 billion, India offers a significant market for military equipment, weapon systems and platforms. Unfortunately though, this market has not been substantially leveraged to build a robust domestic military-industrial production base. The country is today the world’s largest arms importer, with a 12 per cent share and a self-reliance index — measuring the proportion of indigenous contribution to total procurement expenditure — of around 37 per cent. Whatever domestic Defence industry exists is largely a public sector monopoly, alongside a policy framework predisposed to keep out the private sector. While there can be no compromise over equipping our armed forces with the best possible weaponry and delivering these within their required timelines, one cannot, at the same time, ignore the pitfalls of relying on imports as a default option even from a purely strategic/security standpoint. Acquiring weapons and systems from abroad involve huge outgo not only at the time of import, but also in maintenance and support through their lifespan – not to speak of the uncertainties and costs that technology denial regimes impose.

Against this background, the recent amendments to the official defence procurement procedures, setting out a clear preference order for capital acquisitions favouring domestic sourcing over imports, is welcome. The amended procedures, moreover, specify that any purchase proposal not following the stipulated order will have to “state reasons” for deviation. Imports, in other words, shall no longer be a default option. Also, it has been mandated that any planned procurement by the service headquarters must be preceded by advance consultations, so as to give sufficient opportunity to exercise the “make” (in India) option. Companies, including in the private sector, will even be granted access to the defence establishment’s 15-year long-term integrated perspective plan or LTIPP, enabling them to invest keeping in view future equipment and technology requirements.

While giving a boost to domestic Defence industrial development isn’t a bad strategy at all, it is equally necessary, however, to ensure a complete level-playing field between private players and public sector undertakings/Ordinance Factories. The new procedures, in fact, does away with the system of automatically nominating say, Hindustan Aeronautics when it comes to undertaking maintenance, repairs and overhaul of Sukhoi-30 or Jaguar aircraft. The question to ask is: Why not extend this even to production, entitling private players to bid for official Defence projects involving licensed manufacture with transfer of technology or co-development? Conferring monopoly in acquisition of technology or production to state-owned entities makes no sense, even more so when the Indian private industry is beginning to demonstrate its own capabilities in the field. The private sector is also better equipped to absorb foreign technology and leverage it to develop newer products to suit the specific Indian strategic environment needs: Profits and shareholder wealth maximisation compulsions faced by these companies act as a great motivator here.

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