Defence policy creates room for local players

The government has announced phased restrictions on imports of 101 defence equipment required by the armed forces. It gives the domestic industry the necessary impetus to plan its investments and upgrade its capabilities to design the products that the armed forces need. The defence establishment has to now partner with the domestic industry to ensure cost effective and timely deliveries of these equipment. The domestic defence equipment manufacturers have welcomed the embargo that promises a business of Rs 52,000 crore for them.

The case for restricting imports and encouraging procurement from domestic sources is easy to make. It generates more employment in the country. It saves foreign exchange. In case of emergency, reliance on domestic players to ramp up production at short notice and meet the urgent requirements is better than facing possible supply disruptions and delays from foreign entities. Such reasons have been advanced before to build more ordinance factories, defence public sector undertakings (DPSU) and defence research and development organisations (DRDO).  

Since the past few years, the trend has been to encourage private sector participation in defence production. The 2011 Defence Production Policy (DPP) aimed to achieve substantive self-reliance in the design, development and production of equipment/weapon systems/platforms required for defence in as early a time frame as possible, to create conditions conductive for the private industry to take an active role in this endeavour, to enhance potential of small and medium enterprises in indigenisation and to broaden the defence research and development base of the country. In 2018, the DPP aspired to make India the fifth largest producer of defence equipment in the world by 2025. 

The latest draft Defence Production and Export Promotion Policy (DPEPP) 2020 targets a turnover of Rs 175,000 crore ($25 billion) including export of Rs 35,000 billion ($5 billion) in aerospace and defence goods and services by 2025. It talks of developing a robust and competitive defence industry, reduce dependence on imports, promote exports of defence products and create an environment that encourages research and development. Its focus areas include procurement reforms, optimisation of resource allocation, investment promotion, innovation, quality assurance, testing infrastructure and so on. 

On export promotion, the draft Policy talks of involving our foreign missions and DPSUs to promote exports, government to government agreements and lines of credit and funding. It seeks to strengthen and professionalise co-ordinated support to domestic industry, mandate DPSUs and ordinance factories to earn at least 25 per cent of their revenue from exports, facilitate on boarding of Indian offset partners in the discharge of offset obligations by original equipment manufacturers, use open general export license regime to encourage export of select defence equipment/items to identified friendly countries, showcase achievements of Indian defence industry and take support of the military establishment to explore opportunities for export promotion. 

The mercantilist idea of getting prosperous by exporting more and importing less gave way, long back, to the theory of comparative advantage and interdependence for mutual benefit but its popular appeal is unmatched, especially in matters of national security. 

Anyway, now the policy is clear on the way forward. Hopefully, the domestic players will seize the opportunity and make enough investments to build a globally competitive defence industry. However, building a strong military-industrial complex on the back of a feeble economy and weak manufacturing base is easier said than done.

email: tncrajagopalan@gmail.com