13/7/2014

In defence of private participation | Business Line

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In defence of private participation

A Didar Singh

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Right signals The Samyukta, Indias first major electronic warfare system, was developed in partnership with TATA Power - SED Mohammed Yousuf

The achievements in nuclear and space sectors can be replicated in defence production, if the Defence Ministry is willing

After Indias independence, defence production was restricted to the public sector. Poor industrial infrastructure
prompted the government to create defence public sector units as system integrators along with ordnance factories,
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which were meant to produce defence hardware.

Over time, these units produced equipment, systems and consumables based on transfer of technology (ToT) acquired
mainly from the Soviets, without developing any know why. It was only in the early 1970s that the Defence Research
and Development Organisation (DRDO) was created with a mandate to develop indigenous products and systems.
But since then, a lot has changed.
Private participation
The public sector was unable to cope with the increasing operational requirements of our armed forces. Spares and
upgrades were not made available in critical situations, leading to rising imports.
Hence, the government in 2001 decided to open up the sector to private entities subject to licensing, and allowed
foreign direct investment up to 26 per cent.
The policy intent has not been matched by implementation, affecting our technology upgradation and indigenisation
plans.
Private sector participation in Indias defence sector has led to fruitful results. The involvement of Tata Power SED in
building the Samyukta Indias first major electronic warfare system and L&Ts contribution to the nuclear
submarine programme are noteworthy examples. The government issued a notification, referring to the Tata Power
SED as a gazetted work centre for the Samyukta.
Similarly, L&Ts in-house development of hull construction technologies for submarines gave the company an
opportunity to participate in building INS Arihant Indias first nuclear submarine despite severe sanctions.
Since 2001, the private sector has displayed capability in the complete product life cycle for advanced systems such as
missile launchers, rocket launchers, land-based as well as naval engineering systems, sensors such as radars and
sonars, avionics, secure communication, and aircraft sub-systems.
With world-class skills in IT, ITeS and manufacturing, the private sector has augmented Indias indigenous defence
production capability. The private sector has also built up extensive infrastructure without waiting for any orders
from the Ministry of Defence (MoD). Despite this track record, the Indian private sector does not enjoy a a level
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playing field vis--vis foreign equipment makers and defence PSUs.

A battery of challenges
Some of the disadvantages include nomination preference to PSUs, disadvantages in taxation through differential
exemption regimes, no compensation for exchange rate variations, lack of support for export orders, and procedural
delays.
It was in 2005 that the Vijay Kelkar committee emphasised self-reliance, active private sector participation, a longterm product strategy and identification of system integrators in the form of Raksha Udyog Ratnas (RURs) or
Champions of Industry from private sector, which would be on par with DPSUs.
However, the MoD has jettisoned the concept of RURs. The nomination of defence PSUs remains the preferred route.
Almost every policy of defence production and acquisition refers to the need for self-reliance. While Defence
Procurement Procedure-2013 has enumerated the different procurement categories, giving highest priority to
indigenous products and relegating imports to last preference, it is for the MoD to implement these policies in right
earnest.
However, the MoDs apathy towards self-reliance and state-of-the-art defence technology clearly demonstrates the
governments lack of faith in the private sector. The much talked about FICV project, which had shortlisted four
developmental agencies, has been retracted with no news of its revival.
The TCS (Tactical Communication System) programme is moving at a snails pace. This sends negative signals not
only to the industry but also to their foreign technology partners.
Another recent example, which has dented private sector confidence, is the IAF Avro replacement programme. This
was the first Buy & Make programme, where the MoD decided to have the ToT for the Make part to be transferred
only to Indian private players and establish a second line of aircraft production in India. Recently, this programme
has run into rough weather.
Hitting confidence
The government is yet to walk the talk on allowing private player to play a strategic and leading role. The Indian
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private industry is willing to invest and play a major role in defence indigenisation. But the government has to create
the right conditions on the ground. Corporates are answerable to their boards and cannot invest indefinitely in an
unpredictable environment.
FICCI urges the government to repose trust in Indian private companies, stop nomination of major projects to PSUs
and introduce competitiveness in the defence sector.
This will open more avenues for public-private partnership, promote indigenisation, create the much needed defence
industrial base and generate economic spin-offs.
The defence sector should learn from the phenomenal success that India achieved in the strategic nuclear and space
sectors.
The Nuclear Power Corporation of India (NPCIL) and the Indian Space Research Organisation (ISRO) recognised the
strengths of private industry and involved them during the initial stage, not as vendors but as risk-sharing partners.
As a result, India sustained its capabilities even under the sanctions. Industrys partnership with ISRO and NPCIL is a
shining example of PPP, which also needs to be emulated by the defence and aerospace sectors.
(The writer is the Secretary-General, FICCI)
(This article was published on February 7, 2014)

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