Overcoming years of distrust, the Government, under Narendra Modi, has invited the private sector into the field defence production. But an enabling environment that includes pro-market laws and skilled labour is also needed
The Narendra Modi Government is getting into action mode. It has set the defence industry free, and is mulling over production price index to replace wholesale price index. The Prime Minister’s decision to allow higher foreign equity investment in the defence industry has set the ball rolling. Thirty three deals at different levels have been allowed to go into production. In 14 cases, the Government has told the industry that a licence is no more required. This is a major step towards freeing the industry of socialist era controls.
The last five years of the Congress-led UPA regime had widespread policy paralysis. Even the simplest of decisions were being put off. The bureaucratic and leftist fear of keeping the industry in shackles, for reasons of ‘safety and security’, had led to many problems.
One major concern was if the private sector would be able to keep the necessary wraps over critical productions. Under the UPA, the Ministry of Commerce and Industry’s plea, to increase the foreign direct investment cap for the sector, was repeatedly blocked by then Defence Minister AK Antony, who had to contend with leftist rivals at home in Kerala.
Since Independence, defence production has been the preserve of the public sector, especially ordnance factories. These factories have been doing well but suffer from a lack of investment, technology and marketing experience.
The private sector, on the other hand, has suffered from distrust. This has not been removed totally but there has been an increase in the level of confidence. It is now being realised that the public sector, given its limitations, cannot fulfill the aspirations of the nation to become a defence production hub.
Previously, when public defence units sought foreign assistance, from countries such as Japan, France or even the erstwhile Soviet Union, the going was not absolutely smooth. Even in the heyday of socialism, in the 1960s, it was believed that India alone could neither produce nor develop technology for all its critical needs.
The Modi Government has taken a pragmatic decision. Critics, of course, may still complain that some of the largest corporates like Reliance Aerospace and Punj lloyd have cornered most of the deals to produce weapon launchers, torpedoes, rocket launchers and combat vehicles. Indeed, 19 such proposals from top corporate groups such as the Tatas, the Mahindras and Bharat Forge have been cleared.
Tata Advanced Systems will produce aircraft and spacecraft parts that have so far been the preserve of the Indian Space Research Organisation, Electronics Corporation of India limited, Engineers India limited and related organisations. Mahindra will produce aircraft parts and sophisticated communication devices. Bharat Forge will make guns, howitzers, armoured vehicles and electronic surveillance systems. Previous, these were either acquired from foreign sources or produced partially in different ordnance factories.
But while the Modi Government has given wings to the private sector, security remains an issue. Thankfully, the defence market is intensely competitive. And Indian firms will be working with foreign partners — for example, Reliance Aerospace has a 45 per cent foreign partnership and Bharat Forge has a 37 per cent foreign stake. It is in their best interest to be secretive so as to withstand competition.
The Government is also working on easing other norms to pave the way for larger sales of defence products. Also, the private companies are now exposed to heavy foreign investments. It is expected that the Government’s move will turn India into a defence manufacturing hub in Asia.
The US remains the biggest defence producer. But the Modi regime’s initiative will make India an international manufacturer in arms, rocket launchers and aircraft building in the next few decades.
Defence production is also a highly skill-oriented industry. It will open up jobs for highly qualified technical and marketing persons. If the industry manages itself well, it can usher in a ‘brain gain’, as critical manufacturing begins in the country.
Another aspect that needs correction is defence marketing. lobbying is an essential aspect of defence sales. It involves cuts. Steps have to be taken to rationalise the system of giving commissions to agents, lest the country is accused of unacceptable practices. This will make marketing of such expensive products easier.
Yet, another aspect that will have to be taken care of is creating linkages with the Indian universities to develop the necessary human resources for this hi-tech industry. Presently, the Indian education system is not fully oriented to this aspect.
Training skilled workers will also require large investments but it will also benefit future generations. The Government must ensure that technical degrees have short and are not expensive, so that optimum results can be obtained for the population.