MoD Okays Indigenous Defence Equipment

Called the Strategic Partnership model, the policy was approved by the Defence Acquisition Council (DAC) under the Ministry of Defence (MoD) on May 21, 2017. The meeting by the DAC was chaired by the Defence Minister Arun Jaitley. Helicopters, single-engine fighters, submarines, main battle tanks and armoured fighting vehicles could soon be made in India by companies in the private sector in collaboration with foreign manufacturers under the new policy. The policy will enable Indian firms in the private sector develop the defence industrial ecosystem in the country. However, the MoD has put stipulations that to manufacture major defence platforms will require tie-ups with foreign companies for manufacturing, transfer of technology, human resource development and other support.

Issue: 6 / 2017By Air Marshal B.K. Pandey (Retd)Photo(s): By Karthik Kumar / SP Guide Pubns

The issue of indigenisation of the Indian defence industry has been on the cards for over a decade-and-a-half. Since 2002, participation of the private sector in defence production has been an important part of the policy of the government. But the first significant step that the government took in the pursuit of this objective was in 2006 when a new provision aimed at promoting indigenisation was introduced in the Defence Procurement Procedure. This was the introduction of the ‘Make’ category under which an Indian company in the private sector would be permitted to undertake design and development of complex systems.

What was comforting for Indian companies was that the government would fund 80 per cent of the cost of development of the selected items. The Indian company would still have to depend on acquisition of advanced technology from abroad which would not be easy. The Indian Defence Research and Development Organisation (DRDO) lacked the capability to provide the required technologies to support indigenisation of the defence industry.

Despite the pronouncements, there was no comprehensive remodelling by the Indian Government of the policy to make the business environment conducive for heavy investment both by the foreign original equipment manufacturers (OEMs) and Indian entrepreneurs. In February 2013, A.K. Antony, the then Defence Minister, while addressing the audience at a seminar where representatives of the leading companies in the Indian private sector were present, repeatedly assured the gathering that his ministry would strive for greater indigenisation. He went on to state: “The government intends to change two key policies to allow the private sector a greater role.” Unfortunately, no radical changes were introduced and participation by Indian companies in the private sector was largely limited to exploiting business opportunities that lay in the fulfilment of offset obligations of foreign investors. True indigenisation of the Indian defence industry continued to remain a distant dream.

Even today, the Indian armed forces continue to rely on foreign sources for around 70 per cent of their requirement of military hardware. Currently, India is regarded as one of the largest importers in the world of defence equipment. The high level of dependence for defence equipment on sources abroad is a major weakness the Indian armed forces are afflicted with. This deficiency has the potential to undermine the security of the nation as the Indian armed forces could well be denied critically required equipment in times of crisis owing to political misalignment or some other imponderables that could impinge on the relationship with the arms supplier. This is a weakness that Prime Minister Narendra Modi is determined to root out in due course. He referred for the first time to the concept of Strategic Partnership in his address at the tenth edition of Aero India International Airshow at Yelahanka, near Bengaluru, in February 2015. He said: “The country should aim to manufacture 70 per cent of military hardware domestically in the next five years and remove the tag of being number one importer of defence equipment. From sellers, foreign firms must turn into strategic partners.”

Post clearance by the MoD, the policy on Strategic Partnership will now go to the Cabinet Committee on Security for final approval. Once implemented, this policy will be a major step forward in the nation’s march towards building a strong and vibrant indigenous military-industrial complex. The strategic partnership between OEMs and Indian companies could be structured as joint ventures, equity partnership or any other mutually acceptable arrangement between the companies involved would be acceptable subject to the ownership conditions stipulated by the MoD.

One of the first things that Prime Minister Modi did on assuming office was to put the DRDO on notice to shed the lackadaisical approach and deliver. The MoD was tasked to carry out a review of the organisation and determine the measures necessary for its revitalisation. But the launch of the Strategic Partnership model which is designed to propel the Indian defence industry in the private sector to the forefront has been the strongest message to DRDO on their failure to deliver. The confidence of the Indian armed forces in the concept of Strategic Partnership is reflected in the statement by General Bipin Rawat, Chief of the Army Staff, when in a seminar he said, “The Indian armed forces must fight the next war with indigenous solutions.” Hopefully, indigenisation of the Indian defence industry will no longer be a dream!