Modern high technology defence equipment forms the backbone of any nation’s security. India was the world’s largest importer of defence equipment for many years and is currently the second largest. Since independence, this over dependence on foreign sources for defence equipment has neither helped us build security self-reliance nor has it developed a scientific & technological ecosystem.
In the aftermath of the COVID-19 pandemic, the Prime Minister’s drive for Atmanirbhar Bharat has picked up steam more than ever. The defence budget for FY 2021-22 has capital expenditure budget outlay for the year at INR 1.35 lakh Crore, a 19% increase over previous year’s INR 1.13 lakh Cr allocation. Out of the budgeted INR 1.35 lakh Cr, the Ministry of Defence (MoD) has planned to invest 63% of the outlay, i.e., INR 70,221 Cr only for domestic defence procurement.
In August 2020, the MoD had also announced an embargo on import of 101 Defence equipment and platforms that can be manufactured by Indian defence manufacturers. This will provide a boost to domestic industry. In addition, the MoD has also drawn up a Defence Production & Export Promotion Policy in 2020 that targets scaling up defence production to INR 1.75 lakh Cr and defence exports to INR 35,000 Cr by 2025, at a compounded annual growth rate (CAGR) of 21% and 36% respectively. These policy directions, vision and actions clearly indicate a huge headroom for growth in defence manufacturing in India.
What are we doing? The new Defence Acquisition Procedure (DAP), 2020 released by MoD prioritises indigenous programs and defines higher indigenous content in domestic defence manufacturing. The DAP-2020 also emphasises the importance for Indian Industry to Indigenously Design Develop and Manufacture (IDDM) equipment. The DAP-2020 has introduced a new category that permits equipment and platforms procured under Global Buy category to be now manufactured in India.
MoD is encouraging industry to develop defence testing Infra structure through Public-Private Partnership by providing funding up to 75%; opening DRDO & Service Labs for industry use; and allowing industry to test defence equipment in military ranges. The MoD has also set up new defence corridors in UP and Tamil Nadu for companies to set-up green field units, thus enabling an entire defence manufacturing ecosystem in the country, with announcements of investments of about INR 3,500 Cr in each of these corridors.
Domestic defence manufacturing will receive a major impetus on account of the recently announced major orders on Indian domestic industry, albeit in the Government Sector: Tejas Aircrafts worth INR 48,000 Cr on HAL; and the Arjun MBT worth INR 8,500 Cr on HVF. These production orders will not only benefit large Tier-1 companies but also help develop a domestic defence MSME base.
Going ahead, to create a defence manufacturing ecosystem in the country where private and public sector companies can grow synergistically, the government needs to ensure a level playing field where contracts are not awarded on nomination basis to OFB and DPSUs.
No industrial segment can be self-reliant and competitive without design and IP creation capabilities. In line with this imperative, the MoD has also come up with an IDEX (Innovations for Defence Excellence) platform to support new ideas and start-ups. While DRDO Programs receive funding based on the priorities outlined in the Services Technology Perspective & Capability Roadmap (TPCR), Industrial R&D and academia need to be integrated into this ecosystem. The Strategic Partnership (SP) model to build Indian platforms like submarines, fighter aircrafts, helicopters, main battle tanks & such advanced weapon systems using private industry and Foreign OEM structured SPVs can give a great impetus to Atmanirbharta in national security.
India needs to transform from a large importer of defence equipment to a net exporter. Can India evolve into a defence supplier for Africa, Central & South East Asia, and Middle East in the near future as domestic Industry’s capability in defence design and manufacturing matures. This also calls for integrated efforts between the Government, DPSUs and Private Industry to offer attractive solutions for these markets. Further opening up of the Line of Credit for defence exports could provide major boost to defence manufacturing in India.
The author is Co-Chair, FICCI Defence & Aerospace Committee and EVP, Guns Missiles & Armoured Systems (GMA) BU, L&T Defence. This article was previously published in Autofintechs.com