For a reforms push in defence

The defence sector has seen much action ever since the new government took office. Changes are taking place on the policy front as well as in filling the gaps in critical sectors such as availability of equipment and ammunition. The expansion of the base from the traditional defence public sector undertakings (DPSUs) and ordnance factories (OFs) to the large Indian private sector and the micro, small and medium enterprises (MSMEs) is being supported much more logically and aggressively. The Defence Acquisition Council (DAC) has regularly met and cleared projects that have been held up for years.

While it is too early to jump to conclusions for a sector that moves slowly, and one which is subject to many delays and is under constant scrutiny, there is still much on the positive side to suggest that the right steps are being taken. The defence industry, where the strategic focus on indigenisation and military manufacturing capacity building has been highlighted for many years now, but never taken off, is seeing some real efforts to get going. Industry’s frank interactions with the RM (raksha mantri, as the defence minister is referred to) have increased and ministry of defence (MoD) bureaucrats and services officers are more available for discussions.

At a recent meet organised by Ficci along with MoD to look at the prospects of DPSUs reorienting their vendor bases and focusing on the private sector including MSMEs, RM clearly stated that a mindset change in the MoD was needed. Rather than seek refuge in procedural wranglings, the MoD needs to take a more practical view of the needs of the services.

Although the Modi government’s changed focus is borne out by the simplified licensing regime for defence equipment manufacturing, and increasing foreign direct investment (FDI) caps in defence from 26 to 49 per cent in all areas, the measures didn’t generate the necessary impetus. The industry couldn’t visualise a roadmap to do something differently and succeed. Enthusiasm among the foreign original equipment manufacturers (OEMs) remained subdued.

Then came the push for the ‘Make in India’ initiative from the Prime Minister in August last year. Defence was one of the key sectors under the same effort because of its strategic importance and economic potential. The clamour for changes to the defence procurement procedure (DPP) was also raised in many quarters to reflect these changing priorities.

After some internal work in MOD circles, the government appointed a 10 member expert committee under former home secretary Dhirendra Singh in May 2015 to review DPP and recommend fresh procurement guidelines. The committee recently submitted its report outlining path-breaking changes.

The Dhirendra Singh committee has suggested many landmark changes and the roadmap for the future. The focus on building local capabilities and reducing dependence on foreign suppliers has been reiterated. But what is significant is the recommendation of the ‘strategic partnership model’ (SPM) with the Indian private sector for the platforms, weapons, networks and materials.

This will enable private companies to front-end and manage complex defence projects at par with DPSUs and OFs. Special attention will also be given to rope in Indian MSMEs. As a sequel to this recommendation, the government has now appointed a committee under VK Atre, former DRDO chief, to look into all aspects of the SPM and suggest measures on how to implement it.

The Singh committee report calls for a level playing field for the private sector by way of bank guarantees, payment terms, taxes and duties. It calls for a focus on private sector R&D. Single window clearances and faster processes to obtain industrial licences have also been proposed. The selection of an Indian single vendor on the basis of competitive model is being proposed; the guidance here would be the US system where select defence system integrators are chosen for strategic projects.

The pertinent point is how far the government will implement the committee’s recommendations. Earlier, various committees were appointed to look into defence sector issues. The Kelkar committee, the Sisodia committee, the Rama Rao committee and the VK Misra committee made significant recommendations. But they were never implemented in letter and spirit.

So it would be crucial to reassess the whole national security threat scenario, identify the gaps and start implementing the measures. The technology perspective and capability roadmap as laid out by MoD giving details of the equipment and technologies required by the armed forces needs to be revisited and shared with the industry. Based on that, the SPM can be worked out. The current scenario where private industry is pitted against each other and the DPSUs, can be done away with. Investments can be secured for fostering complementary islands of expertise.

That way the private sector will also be forced into making investments in R&D, technology and facilities. It should be ensured that such investments don’t go waste and help build a better ecosystem.

So far, private sector players have adopted a cautious approach and rightly so. Ideally a certain portion of defence R&D budget, which so far only goes to DRDO labs and establishment, should also be made available to private players who have been granted licences for defence manufacturing. Not only will that set a goodwill example, it will also drive investments in new and diverse areas.

A mission mode approach to identify and inform the private sector of the areas of opportunity, along with incubation facilities, will go a long way in building organisations with competence that can survive beyond one project. It is also critical to note that reinventing the wheel in non-critical sectors is a waste of investment and time, so relevant partnerships with foreign companies should be encouraged.

The current situation in the global arms industry will prompt a closer look at India. Many of the foreign OEMs will help in building the right military industrial complex ecosystem for helping the private sector participate in, and sustain, SPM projects.

The efforts will fall flat if defence budgets are not adequately allocated. For the last decade, defence as percentage of the GDP has always been less than 2 per cent in India and that definitely isn’t optimal. While the total budget allocation for the defence sector was ₹2,29,000 crore for 2014-15 and support for capital expenditure ₹94,587.95 crore, it is far less in comparison to the expected procurement aspirations based on pure necessity. Consistent availability of funds for the next 10 years is a must.

The writer is former India head of General Dynamics, and writes on defence and cyber security issues

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