Hurdles in Growth of Defence Industry in India

Discussion in 'Defence & Strategic Issues' started by Daredevil, Mar 27, 2013.

  1. Daredevil

    Daredevil On Vacation! Administrator

    Apr 5, 2009
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    The policies of the Government of India, the desire of armed forces and expectations of the indigenous industry for establishing a defence industrial base have yet to be fulfilled despite efforts being made by all the stakeholders. Despite the intent of policymakers being positive, desired results have not been achieved. There seems to be serious disconnect between the planning and execution of programmes which were meant to achieve the ultimate objective of self reliance and indigenisation in defence. There are several bottlenecks in the modernisation drive of the armed forces which need to be removed to achieve higher operational preparedness. The defence sector of India has been under the purview of the Government right from its inception. In 2001, the industry was made open for private sector participation which was an outcome of the economic reforms of 1991. In order to streamline the defence acquisition process, an official Defence Procurement Procedure (DPP) was drafted in 2002, which has been subject to several revisions in subsequent years. The introduction of the defence offsets policy in 2005 and Defence Production Policy in 2011 has encouraged the private sector to invest and participate in defence production and thereby gain lucrative business opportunities.

    There are still major obstacles in defence acquisition procedures which are a hindrance to the enhancement of our military capability. In most of the cases, Staff Qualitative Requirements (SQRs) are formulated without proper analysis of the technology availability, practicality and manufacturer’s capability. Major delays in procurement projects are related to irrational SQRs which either cannot be fulfilled or cause misunderstanding between the stakeholders. Interacting with the vendors and roping in technical experts can be helpful in forming pragmatic and achievable SQRs. Many a times Request for Proposals (RFPs) are sent out and months or even years later they are cancelled due to myriad reasons. In December 2012, the Defence Ministry cancelled a tender for procuring 180 self-propelled wheeled artillery guns for the Army for the third time in a decade. The cancellations of RFPs for 22 attack helicopters for the IAF, new engines for the Jaguar aircraft, 197 light utility helicopters (LUH) for the Indian Army and multi role helicopters for the Navy are some instances. Cancelling tenders has not only led to wasteful expenditure, but also resulted in capability voids which can be exploited by our adversaries to their advantage.

    There are delays and cost overruns in most of the projects – be it acquisition or in-house production. Sometimes, the technology becomes obsolete before its induction into the Services. Capability development in a timely manner after performing due threat analysis is a very crucial aspect of maintaining national security and the ability to project power to safeguard our national interests at home and abroad. The procedural hassles have to be dealt with efficiently and speedily. Unfortunately, various scams in defence procurement have led to blacklisting of many capable companies. This has further reduced the options for the defence forces to acquire cutting edge technologies from leading vendors of the world. The recent threat of blacklisting Finmeccanica in relation to allegations of bribery for AgustaWestland VVIP helicopters causes further delay in procuring and inducting leading edge equipment. Though the scam does not directly affect India’s defence capability but if a similar approach is applied in other deals then the situation will be different. There are limited state of the art defence manufacturers in the world market and even less vendors who are ready to part with critical technology, as mandated in the DPP. Out of the limited available options, blacklisting those companies is not the solution as India’s national security is at stake. The matter should be investigated and the guilty should be punished by imposing financial penalties, but scrapping the deal altogether has an adverse impact on our military capability. Debarring the vendor should be the last option to be used in exceptional cases after detailed investigations and in consultation with the Service Headquarters.

    Offsets have been successful worldwide and there is no reason why they shouldn’t be in India. The MoD has successfully implemented the defence offset policy on paper and several offset contracts have been signed. However, the practical implementation and benefits of offsets on ground are yet to be realised. Defence Offsets Management Wing (DOMW) has been entrusted with the responsibility of planning, execution and monitoring of offsets worth billions of dollars. The staff dealing with offset contracts is too small in number to handle such huge programmes. Moreover, the personnel employed in DOMW lack requisite training, expertise and competence to manage offset contracts of such nature. This leads to insufficient interaction between DOMW, Original Equipment Manufacturers (OEMs) and Indian Offset Partners (IOPs) thereby causing further delays in signing of the main contracts. As a result, the defence forces are denied timely induction of critical equipment. Another hurdle is obtaining the Industrial License to manufacture products related to the defence sector. The delays in obtaining the license are a major impediment discouraging the private companies to invest capital and resources in an uncertain environment.

    The ‘Buy (India)’ and ‘Buy and Make’ programmes as mentioned in the DPP are aimed at encouraging the domestic industry to participate in defence production. The private companies have to balance the risks involved with the expected rate of return on investments and accordingly take business decisions. However, the No Cost No Commitment (NCNC) trials are contrary to the private industry’s objective of making profits and hence, discourage their participation in defence production. The government needs to act as a facilitator and incentivise the private sector for greater involvement in defence production. Not only production, but even Research and Development (R&D) should be undertaken by the private sector emulating the successful examples of US and Europe. A DARPA like institution could be formed in India funded by the government, which could carry out defence related research independently and free from bureaucratic hassles. The private companies should be exempted from various forms of duties and tax for them to grow and compete with the public industry in a fair and transparent manner. A case in point is the IT sector which has flourished because of the support and incentives provided by the government.

    All the stakeholders – the MoD, the domestic industry, and users (armed forces) have the same mission of setting up of a robust and stable defence industrial base in India. However, what is missing is an integrated vision and approach. With greater interaction and cooperation the stakeholders need to reach a common platform. An effective system of transparency, probity and accountability needs to be put in place to overcome the hurdles that have thwarted the modernisation process. Additionally, academia and experts should be made a part of the group entrusted with taking major decisions. DOMW needs to be strengthened, manned with best human resource and empowered for offsets to fructify. An understanding needs to be fostered among the key players that defence is a specialised field which requires expertise and technological capability. Blacklisting the foreign vendors is not the way forward as India needs the solutions and technology of world class vendors. In a situation where our adversaries are undertaking massive military modernisation steps, India cannot afford to be complacent and needs to strive purposefully to secure our national interests.

    The author is a Research Assistant at CLAWS, New Delhi.

    The Centre for Land Warfare Studies (CLAWS)
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