Even though, theoretically, defence production is open to both the public and private sectors, in practical terms, there is no level playing field, as the government loads its own enterprises with orders on nomination basis, leaving very little for the private sector, says Jayant Patil, Member of the Executive Committee of Management, Larsen & Toubro, and Advisor, Defence & Smart Technologies to CEO & MD, Larsen & Toubro.
In an exclusive interview to businessline, Patil said L&T had invested ₹8,000 crore in seven facilities for defence production years ago; however, the factories’ capacity utilisation is far from full.
He gave the example of the L&T-owned Kattupalli shipyard near Chennai, which he said was the biggest shipyard in the country, spread over 970 acres, compared with the second-biggest (Mazagoan shipyard) which stands over 40 acres.
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Warship programme
On capabilities, Patil pointed out that L&T had delivered 77 warships, all ahead of time with excellent operational track record. Yet, even today most of the warships are given to public sector companies on nomination basis, he said.
Patil said that under the government’s warship programme, 85 per cent of the orders (by value) have gone to PSUs on nomination basis, only 15 per cent have been put up for competition. Even in the 15 per cent, since the PSUs have an advantage of large orders and an owner — Government of India — who does not demand a ‘return on investment’, they have an edge over the private sector. As a result, only a small portion of the orders comes to the private sector.
Describing it as a “mindset gap”, Patil said the government should realise that any asset, public or private, is created only with public money, he said.
“They say, ‘you compete’. How can I compete when there is no level playing field?” he asked.
On Tata group’s deal with Airbus
Asked about the Tata group’s deal with Airbus to manufacture 40 C-295 transport aircraft, Patil noted that the portion of the “final assembly” in the full value was about 12 per cent. Making a point that the entire aircraft manufacturing could happen in India, he said the “entire upstream is not available to the private sector.”
On electronic warfare
Asked for other examples where the government’s orders go to PSUs on nomination basis, Patil mentioned radar systems, electronic warfare and communications. He said especially in ‘communications’, the private sector was more mature “than anybody else”. He said that the ostensible reason given was ‘security’ but disagreed that there was any security issue in the private sector making the products.
He said that the situation was pretty much the same in ‘space’ too, where because the sector was practically reserved for ISRO, Indian industry still lacks “end-to-end” product capability — though companies may be capable of manufacturing components.
Later, speaking at the Annual Convention of the Madras Management Association, which was on the theme ‘India’s Century’, Patil stressed that the government needs to encourage the private sector in defence supplies. Making a presentation on defence procurement, he said the government aimed for indigenous defence production of ₹1,70,000 crore by 2025-26, of which the public sector’s contribution would be ₹1,15,000 crore. (It was ₹94,846 crore in 2021-22, according to government data.)
For the private sector to reach (the other) ₹55,000 crore, it would need to grow by 20 per cent CAGR. While this is no challenge for them, the government needs to speed up purchase from it, Patil said.