The Indian defence industry – India ready to export


Radhakrishna Rao

IssueCourtesy: CLAWS| Date : 04 Aug , 2014

http://www.indiandefencereview.com/news/turning-india-into-an-arms-exporter/

While dedicating the formidable Indian warship INS Virkamaditya, the retrofitted Russian aircraft carrier to the nation at an impressive ceremony held in June, Prime Minister Narendra Modi made a strong pitch for an all round self-reliance in the defence production sector with a view to meet the growing and diverse needs of the Indian defence forces.

Rightly and appropriately, Modi wondered why should India, which has many impressive technological strides to its credit, import defence equipment at first place. Elaborating on the need for self-sufficiency in defence production, Modi drove home the point:”We need to give immense importance to latest technology. We must be self sufficient. Why can’t we send our defence equipment to other countries?”

The logic of Modi was that India which has already sent probes to Moon and Mars cannot forever depend on imported defence hardware. Moreover, the need for self reliance in defence production projected in the election manifesto of the Bharatiya Janata Party (BJP), the largest and dominant partner of the National Democratic Alliance (NDA) government, can by no means be taken lightly by Modi. There is no denying the fact that Modi is all for giving a big push to the creation of a vibrant Indian military industrial complex that would not only meet the needs of Indian defence forces but also turn India into a major exporter of arms and ammunition.

Taking a cue from the spirited advocacy by Modi of the need to position India as a leading arms exporter – from being a major importer now – Defence Research and Development Organisation(DRDO) has made it clear that there is a huge potential for the export of missiles, fighter aircraft and related defence hardware from India.

However, DRDO chief Avinash Chander said that the country would need to adopt a new “policy mechanism” to facilitate the large scale exports of defence equipment. ”We have a list of equipment that includes the Light Combat Aircraft(LCA) Tejas, Akash air defence system, Prahar class of missiles and Indo Russian supersonic cruise missile BrahMos along with a number of systems that can be exported” stated Chander. According to Chander, the biggest advantage that India could derive in the defence export market is the “competitive and affordable price tag” of Indian defence and aerospace products.

All said and done, attaining the goal of indigenous defence production on a large enough scale to meet the demands of Indian defence forces would be a complex and time consuming process. For India would need to overcome the sixty years legacy of “lost opportunities and shocking neglect’ to build a self reliant defence production base.

What’s more, most of the Indian origin defence equipment continues to feature a large number of imported components and sub-systems. And for long, defence production in India has been synonymous with the units of state owned Ordnance Factory Board (OFB) numbering forty one and nine defence public sector undertakings with private sector playing a very marginal role in the entire exercise. Not surprisingly then, two third of India’s defence hardware requirement is met through imports and India had also notched up the not so pleasant distinction of being the largest arms importer.

The on-going consultation to hike the level of FDI (Foreign Direct Investment) in India’s defence sector happens to be a major initiative of Modi government to expand the scope and sweep of defence production in India. In this context, the Department of Industrial Policy and Promotion (DIPP) is batting for 100% FDI in case of the investing foreign partner willing to make available state of the art technology and 74% in case of the transfer of technology that is not cutting edge. But then a section of the Indian industry advocates the need for capping the FDI in defence sector at 49%. But there is also a view that 49% FDI may not be alluring for global companies to invest in India. It would only sustain the continuation of the status quo situation.

The current level of FDI investment in Indian defence sector is 26% which is said to be far from attractive to foreign manufactures to invest in the Indian venture. After much dithering, in July 2013 the then Indian Government decided that FDI of more than 26% could be allowed on a case by case basis subject to the condition that such a “relaxation” helps India “access modern and state of the art defence technologies.” According to a study by the New Delhi based Stratcore India, the plan to boost the FDI in defence sector could result in the creation of half a million jobs over the next one decade if manufacturing can be managed according to a plan and the government can facilitate collaboration among foreign companies and their Indian counterparts.

The Modi Government going beyond paying lip service to the cause of defence self reliance has clearly demonstrated that it means business – serious one at that – in pushing the country towards the goal of indigenous defence production. In a first step taken in around one month of assuming office, Modi Government has smoothened the road for an increased participation of the private sector industries in country’s defence production infrastructure. To this end, it has announced a relaxation that would no longer require any industrial licence to produce a large number of components and sub systems required in fighting equipment.

The new notification issued by the Union Commerce and Industry Ministry makes it mandatory to have manufacturing licence only for heavier battle field systems including tanks, armoured vehicle, aircraft and warships. Further, the control on the dual use items with both defence and civilian applications have been relaxed. According to the notification issued by the Ministry of Commerce and Industry,” it is clarified that dual use items, having military as well as civilian applications other than those specially mentioned in the list would also not require industrial license from the defence angle.”

Indeed, at the end of the day the relaxation in the licensing norm could boost the prospects of heavy engineering firm including Bharat Forge, L&T Mahindra, and Walchandnagar Industries which have already forayed into the Indian defence production sector. This landmark decision augurs well for giving a quickening impetus to the task of build a resurgent Indian military industrial complex with the growing participation of the private sector.

“This step is important as it would bring more clarity to the procedures and it will encourage new entrants into the defence sector. The Indian defence industry is already at the bottom of the value chain and there is very less incentive for anyone to set up a defence industry in India,” says Baba Kalyani, Chairman and Managing Director of the Pune based Bharat Forge. Kalyani also happens to head the Confederation of Indian Industry’s national committee on defence.

If the massive outgo of foreign exchange for the import of weapons were to be diverted to support research, development and production in India, the country could easily walk on the road of self reliance in defence production. It was the obsession with secrecy that Indian bureaucracy nurtured all these years that blocked the participation of private industry in the defence sector. Of course, the Indian private sector lacks the technological base and manufacturing infrastructure good enough to turn out high performance, superior quality fighting equipment.

This gap can be filled either through public-private sector participation or investment and participation by foreign companies. Further, the Indian private sector comes in very poor light in so far as the investment on research and development is concerned. As such the Indian government should come out with a slew of incentives to encourage investment in research and development to achieve technological excellence in critical areas of defence and aerospace products development.

Currently, much of the investment on defence and aerospace research and development is borne by the state owned research organisations and public sector enterprises. It was a relaxation announced in 2001 by the then NDA government led by Atal Bihari Vajpayee that enabled the participation of the private sector into the Indian defence production matter subject to the condition that they get an industrial licence from the commerce ministry. But then the task of building a vibrant Indian military industrial complex showcasing India’s technological prowess is challenging and daunting.

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