Prime Minister Narendra Modi has set a tough challenge for India’s defence manufacturing sector — doubling its output and halving defence imports in five years. With a budgeted expenditure of ₹2,29,000 crore in 2014-15, India is one of the top ten countries in the world in terms of defence spends. China spends three times as much as India on defence — but imports only a third as much as India. Although 40 per cent of India’s defence spend is on the capital account, 70 per cent of the capital equipment it buys is sourced abroad. This is why India has emerged as the largest arms importer in the world, a title the Prime Minister has rightly said it has no desire to hold. But changing this is not easy. It requires not just policy reforms, but a radical change in approach on the part of the government. Piecemeal efforts, like hiking FDI limits in defence or removing a few tax issues, while welcome, will not be sufficient.
India’s focus has been on indigenisation and development of local capability, which has led to the creation of a huge defence research and development infrastructure. While this has scored a few successes, a senior DRDO official’s claim that India has reached “maturity” in defence technology is belied by the string of failures and the huge delays and cost overruns dogging key projects, ranging from the Main Battle Tank to the Light Combat Aircraft to even small arms. This needs radical reform, including close integration of the end users — the armed forces — with the civilian development effort. These institutions have to be unshackled and allowed the freedom to recruit the best talent, while being held to tighter outcome norms. While Modi has said the approach will be to look at “national capacity” rather than private or public sector, the existing PSU defence manufacturing set-up needs to be thoroughly revamped. It’s not enough to merely insist on technology transfer — the capacity to absorb and develop on it has to be built up as well. Foreign companies looking to set up manufacturing in India would also need skilled manpower, which would require revamping our technical education set-up. When Singapore pitched for a slice of the aviation manufacturing pie, for instance, it introduced new courses in its technical education curriculum and created a new vocational training establishment to ensure that hi-tech manufacturers were able to source appropriately skilled workers.
India’s defence procurement process is cumbersome, opaque and has been dogged by corruption and controversy. The Prime Minister has promised “simplicity, accountability and speedy decision-making” in defence procurement. The last has been hampered by what Anil Ambani has termed “fear of regulatory censure”, which has paralysed decision-making. To empower decision-makers, the government should consider amending restrictive provisions such as Section 13(1)(d) of the Prevention of Corruption Act, by which a public servant can be accused of corruption simply because a decision has led to pecuniary advantage for someone, even if no bribes had been paid.