The new Government has been praised for opening up the defence production sector to private and foreign players. However, the terms it has offered to them go against the economies of scale and make for bad business

If the Modi Government’s stance at the World Trade Organisation was a classic case of the best kind of decision-making being badly explained and badly sold to the public, then, sadly, examples in national security abound wherein bad decisions, taken with the best of intentions, are being hyped up. little good can come from such decisions. Yet another subset of these bad choices is no decisions being taken at all. Take three examples — the Avro replacement programme, the cancellation of the light helicopter programme and India’s silence on the Islamic State.

While the lack of any operational merit in the Avro replacement programme is obvious, what is more alarming is the economics of replacement. As things stand, the public sector has been excluded from the programme — specifically, the Defence Research and Development Organisation and Hindustan Aeronautics limited.

Under normal circumstances, the exclusion of these dinosaurs who have hobbled on well past their expiry date, is something every Indian should be happy about. This decision has been hailed as the beginning a new era in defence production in the country, conforming to the market-friendly, economic-Right, image of the BJP.

Sadly, this decision is anything but market-friendly and may, in fact, have devastating consequences for the private sector in defence, providing a pivot for regressive socialists to steer the country back to a command economy. The private sector voted for this ‘revolutionary move’ with its feet and refused to submit a tender. Now why does this supposedly business-friendly Government with a pro-business agenda get zero responses from India’s private sectorIJ Because there is simply no economic rationale here. The babu’s in the Ministry of Defence who came up with this supposedly fresh and innovative scheme know little of defence and, evidently, even less of economics.

Here, then is the issue. Nothing can justify the economies of scale that accrue to the production of a mere 40 planes. The requirement set for the private sector companies was that they could team up with any international partner, gain the 52 per cent technology required for domestic production and source the remaining 48 per cent from the international market. These requirements are next to impossible to fulfill.

First, the private companies are required to set up a manufacturing line and invest in the requisite infrastructure to a financial value greater than the actual contract is worth. Second, they have to miraculously and overnight train up a labour force with advanced manufacturing skills to start assembling this plane domestically. Where is this workforce going to come fromIJ

The fact remains that only HAl has these inputs as it is the Government’s guaranteed contract for well past the assembly period of these 40 planes. In effect, each Indian company tendered for this contract is being asked to place its viability at risk for a contract of 40 planes, after which there is no guarantee of new contracts and, therefore, no clarity as to where and how the infrastructure they set up will be utilised.

Moreover, what foreign partner would hand over its technological secrets, that enable it to sell hundreds of planes in the international market, to an Indian company that could become a future competitorIJ And that too, only a 48 per cent share in the contract for a mere 40 planesIJ

On the other hand, the contract for 197 light helicopters, whatever their source, made some sense. Given the volume here, this contract would have been more optimal for a company to invest in both physical and human resources. It was also a programme that made far more sense for the military given how regularly the light helicopters are used, as opposed to the Avro replacement which is mostly used for ferrying fat cat generals who don’t want to fly commercial for prestige reasons.

But even here, the volume of sales for the contract — at best, estimated at one billion dollars — does not make sense for any foreign company to transfer knowhow, in a low profit margin, highly competitive market.

Moreover, the larger issue remains in this case as well: How can any company be expected to invest when the roadmap for future production remains unclearIJ What is a company expected to do after the production ceasesIJ How is it expected to channel its workforce and what is it expected to do with the production linesIJ At HAl and DRDO, the Government seems to have no problem paying people to do precious little and make grandiose statements on television. Private companies aren’t run on taxpayer money and can ill afford to keep their facilities idle.

Clearly, neither the light utility helicopter (despite its military benefits) nor the Avro replacement programme (which also lacks any tactical or military sense) make any economic sense whatsoever. Equally clear is the fact that the people who goaded the Defence Minister into making these ill-advised decisions, neither know the defence market nor do they know economics.

To make matters worse, we have a Prime Minister who insists that bureaucrats should be trusted, despite their demonstrated incompetence. Add to that a part-time Defence Minister, and it is evident how being how seriously national security is being taken in this country. 

Finally, what about the larger geo-political goals that all this military capability is meant to achieveIJ While the Prime Minister was regaling Madison Square with anecdotes, the French, the Americans and the Emiratis were carrying out airstrikes against the Islamic State terror group in Iraq and Syria. This was a mission tailor-made for India.

Had India participated, it would have been a stellar response to the announcement of the formation of Al Qaeda in India. Also, it would have re-assured Syria that the campaign was not a back channel to regime change. For the same reason, the Iranians would have welcomed it too. The Americans would have been overjoyed at India willing to shoulder greater responsibilities and it would not have been objected to by any of the Sunni states. Even two planes dropping bombs (and missing their targets even) would have been hailed as a major show of support for our Shia/Alawite friends. But yet again, India was found sleeping.

Enough of the folks at the Ministries of Defence and External Affairs fooling around, enough of sleepwalking on foreign policy, and no more part-time defence planning, please! Photo-ops are not foreign policy — the lok Sabha mandate was for change, and we are seeing precious little change. At this rate, at the end of five years, spare change will be the only thing left in India’s pockets.