INDIGENISATION OF INDIAN DEFENCE SECTOR
INTRODUCTION
The road to becoming a global power goes through economic prosperity, global presence, and most importantly a robust security architecture. An indigenous defence ecosystem is a sin-qua-non for building this architecture. This is especially true for India given its geopolitical ambitions in the Indo-Pacific region and the perennial hostility that it faces from neighboring China and Pakistan.
In the quest for building a robust defence ecosystem, India has touched upon many milestones from designing and producing a fourth-plus-generation fighter aircraft to building a state-of-the-art cruise and an inter-continental ballistic missile. These efforts had been vindicated by Stockholm International Peace Research Institute (SIPRI) when it put India in the arms exporters list of 2019 for the first time. However, despite all these endeavors and achievements, India remains primarily dependent on imports when it comes to the critical needs in the defence sector. For instance, during 2015-19, India emerged as the second-largest arms importer in the world just behind Saudi Arabia.
In this background, it is important to understand
What is defence indigenization?Why should India pursue it?How has our defence ecosystem evolved over the years?What is the current situation of India's defense architecture?Why India's efforts towards defence indigenization have led to suboptimal results?What are the recent steps taken by India to overcome these challenges and what more should be done?
In this article, we will attempt to answer these questions.
WHAT IS DEFENCE INDIGENIZATION AND WHY ITS PURSUANCE IS IMPORTANT FOR INDIA?
Defense Indigenisation broadly means creating an ecosystem where indigenous development of defense equipment can thrive. In other words, it implies improving the capability to design, develop and manufacture equipment within the country, using our own skills and resources. Indigenization largely manifests in two forms- firstly, the capability to maintain and repair indigenously built equipment, as well as the equipment sourced from abroad, and secondly, self-sufficiency with respect to manufacturing of critical defense equipment.
With this understanding, it becomes important to elucidate why India should pursue the idea of defense indigenization:
Self Defence: Despite being fundamentally averse to war as a nation, the subject of self-defense is of critical importance to India, especially given the hostile neighborhood on both its eastern and western land borders. Having the requisite self-defense capability and preparedness at all times will keep the country in good stead for any military conflict, or even better, act as an effective deterrent for conflicts altogether.
Strategic leverage: Self-reliance on defence capabilities boosts India's standing as a net security provider in the IOR and further deepens its strategic ties in the region. A successful defence industry also provides leverage with neighbors who may otherwise turn to competitors for security.
Technological development: Indigenous development in the defence sector goes hand-in-hand with the associated technological development. For instance, a case in point is the refusal of the U.S. to provide a supercomputer to India in 1987, because of which India was forced to build its own indigenous capability in the form of supercomputer PARAM.
Economic Drain: Currently, India spends close to 3% of its GDP on defence (compared to 1.6% on the Health Sector), of which about 60% is imported. This leads to a large economic cost to the country and dents the foreign exchange repository.
HOW HAS INDIA’S DEFENCE ECOSYSTEM EVOLVED OVER THE YEARS?
The development of India's defence ecosystem started immediately post-independence in 1947 when India inherited its defence infrastructure and equipment from the British. Since then, the ecosystem has seen several policy changes, alarms in the form of war, and fluctuations in international relationships.
Developments in the sector can be briefly treaded through the following events:
| Decade | Major Developments |
| The 1950s |
During the 1950s, India focused on its capability to indigenously produce equipment with little technical know-how, leaving the advanced equipment requirements to be addressed through imports. In 1956, the revised Industrial Policy Resolution reserved the arms and ammunition industry, which were included in 'core' industries, with the public sector. In 1958, the Ordnance Factories (OFs) set up under British rule became the core group of industries that formed the Defence Research and Development Organization (DRDO). |
| The 1960s |
The impetus for India's defence industry arrived when the country faced drastic reverses in its conflict with China in 1962. This prompted India to increase its defence expenditure from 1.5% of the nation's gross domestic product (GDP) to 2.3%. Following India's war with Pakistan in 1965, the embargo imposed by the US upon export of arms to India heralded an era of defence ties with the Soviet Union. |
| The 1970s |
A lion's share of India's defence equipment was supplied by the Soviet Union. India received advanced weaponry and even commenced manufacturing of equipment, albeit by way of license. The MIG21 fighter aircraft, manufactured by Hindustan Aeronautics Limited (HAL) in Bangalore, stood as a stark symbol of this arrangement. Although the nation received advanced weapons, manufacturing via the license-route, from States and foreign companies, led to stagnation in India's domestic capabilities in terms of research, development and production. |
| The 1980s |
India began a renewed effort to galvanize its domestic defence industry by investing largely into DRDO and development of indigenous missile systems, under the Integrated Guided Missiles Development Programme (IGMDP), such as 'Prithvi', 'Akash' and 'Nag'. India also began the development of its flagship aeronautical project, the Light Combat Aircraft (LCA) during this period. |
| The 1990s |
Post economic liberalization, the manufacture of components, assemblies and sub-assemblies was thrown open to the private sector which mostly supplied these items to the OFs/ Defence Public Sector Undertakings (DPSUs). Since indigenous efforts were not adequate to meet the armed forces requirements, focus shifted towards co-development and co-production in partnership with foreign firms. Thus, in 1998, India entered into an agreement with the Soviet Union to develop a supersonic cruise missile system, the ‘Brahmos’, through a joint venture. |
WHAT IS THE CURRENT SITUATION OF INDIA'S DEFENSE ARCHITECTURE?
India's current situation can be broadly understood through its policy and legislative framework, its defence production network, and its defence budgetary profile.
Policy and Legislative Framework: The Government in 2001, opened defence production to 100% Indian private sector participation and permitted Foreign Direct Investment (FDI). However, both were subject to industrial licensing conditions to be set by the Ministry of Commerce and Industry. Following policies have tried to enable the same:
Defence Procurement Policy (DPP), 2006: Introduced the 'Make' type of procurement from the private sector in order to develop and produce advanced defence equipment, with government commitment to provide 80% of the development costs.
Defence Procurement Policy (DPP), 2013: It laid a hierarchy of acquisition programmes. Accordingly, a higher preference has now been accorded to the 'Buy (Indian)', 'Buy and Make (Indian)' and 'Make' categorization over the 'Buy (Global)' category making it a preferred choice to develop, design, or manufacture defence equipment indigenously.
Current Legal and Regulatory Framework to support the policies
WHY INDIA'S EFFORTS TOWARDS DEFENCE INDIGENIZATION HAVE LED TO SUBOPTIMAL RESULTS?
Shortcomings in Defence Planning: For defence planning, the National Security Council (NSC) has been in existence since 1999. However, the Group of Ministers (GoM) Report in 2001 had observed that the defence planning process is greatly handicapped by the absence of a national security doctrine and the commitment of funds beyond a year. It also suffers from a lack of inter-Service prioritization as well as the requisite flexibility.
Thus, it was then suggested that there is a need to set up a Defence Planning Board (DPB) under the chairmanship of the Defence Minister. However, the suggestion is yet to be implemented.
Hierarchical and skewed decision-making: A 2018 internal report of the MoD identified skewed decision-making process, bureaucratic red-tape, and multiple decision-making heads as the reason for inordinate delays in defence procurement. In addition, there is a lack of input from the Armed Forces in the decision-making on defence and national security strategy.
Budgetary issues: The defense budget in recent years has fallen with an increasing component of funding allocated towards salaries, pensions and other operating expenses. The shrinking amount for capital expenditure on domestic defence production, and research and development has been a major obstacle to India's self-reliance goals.
For instance, India's budget allocation For research and development is only 4% of the total defence budget For 2020-2021 (compared to 12% and 20% For USA and China respectively).
Dominance oF PSUs:Their dominance has been associated with inefficiency and lack of accountability on delivery, productivity and quality.
Production and time delays: Indigenous defence production has been wrought with production delays. For example, according to a 2018 report by a parliamentary Committee on Estimates, the DRDO failed to meet timelines in all 14 mission projects for the Indian Air Force, thereby severely affecting the country’s Air Defence plans.
Not competitive For attracting global investment: Post-COVID-19, out of 56 companies that have closed shops in China; only three have come to India. Maximum have shifted base to countries like Indonesia, Taiwan, and Thailand. This has happened despite India's revived push for attracting investment in the defence sector.
Reasons for this anomaly could be:
1. Discouraging regulatory regime: A domestic or foreign company wishing to do business in the Indian aerospace and defence industry must comply with often conflicting policies of Defence Procurement Procedure (including the Offset Policy), FDI, Industrial Licensing, Foreign Trade (Export/ Import), and Taxation.
2. Volatile exchange rate variations: A number of components and sub-systems are not available in India and have to be imported. This puts domestic manufacturing at a disadvantage to foreign manufacturing by disturbing the financial flows of the process.
High cost of capital: A critical issue impacting investment in India is the high cost of capital which adversely impacts all Indian companies across sectors.
Issues Faced by domestic private entities: The biggest hindrance in the private sector's participation so far has been distrust. This reflects in the procedural hurdles that they face, the narrow range of products that they are allowed to manufacture, and most importantly low confidence of the armed forces in locally and privately manufactured products
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