Defence Production Policy: Hopes Belied

Defence Production Policy: Hopes Belied

Major General Mrinal Suman

The Ministry of Defence (MoD) released India’s Defence Production Policy (DPrP) on 13 January 2011 with much fanfare. It was touted to be a path-breaking initiative to kick-start growth of India’s defence industry. It was assertively claimed that DPrP would ‘help achieve substantive self reliance in design, development and production of defence equipment, weapon systems and platforms; create conditions conducive for the private industries to play an active role; and act as a catalyst to enhance potential of small and medium enterprises (SMEs)’. 

As over two years have passed since the promulgation of DPrP, it is time to take a stock of the progress made in the achievement of the stated objectives and carry out a review of the salient aspects of the policy.  

Enhanced Involvement of the Private Sector

Recognising the emerging dynamism of the Indian industry and admitting the fact that self-reliance will remain a pipe dream unless its potential is tapped, DPrP stressed the need to encourage larger involvement of the Indian private sector in a proactive manner. DPrP sought to build a robust indigenous defence industrial base through synergising the strengths of the public and the private sectors.

Unfortunately, no movement in the above intent is discernible. The public sector continues to occupy a predominant position and bag all the orders. The private sector carries on waiting patiently on the periphery for some of the crumbs to come its way. Production agency nominated to receive technology under ‘Buy and Make’ route continues to be a public sector unit, even if a private company is better equipped to receive incremental technology.

Two retrograde steps taken by MoD in the recent past are symptomatic of the stranglehold enjoyed by the public sector. A special category has been created to place orders on public sector shipyards by nomination. The private sector is thus denied an opportunity to participate in bidding. Secondly, MoD has withdrawn the option earlier given to a foreign vendor to choose an Indian partner as the recipient of technology for maintenance. MoD has appropriated the right to nominate the Indian partner – needless to say, it will never be a private company. Therefore, the prevailing skepticism amongst the private sector entities about Government’s true intentions is understandable.

Preference to Indigenous Production

It was declared in DPrP that preference would be given to indigenous design, development and manufacture of defence equipment and imports would always be the last resort. To assist the indigenous industry to plan in advance, it was stated that an unclassified version of the Long Term Integrated Perspective Plan (LTIPP) would be made public. Despite the fact that the Defence Acquisition Council approved LTIPP for the plan period 2012-27 in April 2012, no public version has been released to date.  

It was also claimed that efforts would be made by the Department of Defence Production to progressively identify and address any issue, which impacts, or has the potential of impacting the competitiveness of the Indian defence industry. Not a single measure has been initiated so far. Similarly, the much promised preference to the Indian industry in the upgradation of defence equipment is yet to become evident.

It was promised that policies would be put in place to encourage both the public and the private sector to strengthen their research and development wings to facilitate constant up-gradation and improvement in systems under manufacture. No steps have been taken so far.

Exploration of Multiple Approaches

DPrP advocated exploration of viable approaches like formation of consortia, joint ventures and public private partnerships to synergize and enhance the national competence in producing state of the art defence equipment within the price lines and timelines that are globally competitive. Even the involvement of the academia, research/development institutions and technical/scientific organisations of repute was recommended.

Pursuant to the above, MoD issued ‘Guidelines for Establishing Joint Venture (JV) Companies by Defence Public Sector Undertakings’ on 17 February 2012. Most disappointingly, whereas a public-private sector JV should be formed to complement their mutual strengths, the guidelines provide a conduit to the overloaded public sector units to outsource overflow of orders to their joint ventures. As the public sector unit retains the right to approve key decisions in JV, it will never allow it to bid for a contract in which it is interested. Thus, competition from competent private sector companies will be thwarted very effectively and the inefficient public sector will continue its monopoly.

Simplification of ‘Make’ Procedure

‘Make’ route of the procurement procedure spells out the process of indigenous development of the defence equipment and has been further split into three sub-categories – strategic, complex and security sensitive systems to be managed through the Defence R&D Board; low technology mature systems to be treated as ‘Buy Indian’ with minimum 50 per cent indigenous content; and high technology complex systems to be undertaken by Indian industry, public sector and consortia on a level playing field.

The above procedure has come under severe criticism for its complexity and contradictory provisions. DPrP had promised to simplify the procedure to expedite indigenous design and development of the required equipment. No action has been taken so far. It has turned out to be a false promise.

Setting up of a Separate Fund

With a view to support research and development to enhance cutting edge technology of the defence systems, the Government had promised to set up a separate fund to provide necessary resources to SMEs; public and private sectors; and academic and scientific institutions. Indian industry, especially SMEs, were quite excited at the prospect of getting much-needed financial support from the Government and drew out ambitious plans for the upgradation of their facilities and knowledge. 

Over two years have elapsed but the promised fund is nowhere in sight. It appears that the Government was never serious about it. Interestingly, some elements in MoD have started questioning the need for a dedicated fund. They opine that adequate avenues are already available under existing budget heads. 

Conclusion

As per DPrP, the Defence Minister is required to carry out an annual review of the progress made in self-reliance.  The degree of bureaucratic apathy can be gauged from the fact that not a single meeting has been held over the last two years. In any case, a review meeting is meaningless in the absence of specifics. Neither a time bound road map has been laid down nor major mile-stones identified for guidance and periodic stock-taking. 

A great deal of euphoria was generated when MoD’s press release claimed that DPrP would act as a catalyst to enhance potential of the Indian defence industry, especially the private sector and SMEs. As seen above, the Government has not achieved any of the stated objectives. As a matter of fact, no serious effort has been made towards that end. It appears that MoD issued DPrP only as a paper of intent to silence its critics and was never serious about its implementation. The private sector feels let down as all their hopes have been belied. Optimism has been replaced by a sense of despondency.

If MoD is genuinely sincere in building up India’s defence industry, it must shed its pro-public sector mindset. Equal opportunities must be provided to the private sector in a non-partisan manner. Unfortunately, no encouraging signs are visible as yet.