Recently, the Defence Acquisition Council (DAC) approved defence purchases worth Rs 2.23 lakh crore, including 97 Tejas Mark 1A fighter jets and 156 Light Combat Helicopter Prachand. The Defence Ministry stated that 98% of these procurements will be domestically sourced, significantly boosting the Indian defence industry towards the goal of 'Aatmanirbharta' (self-reliance).
INDIAN DEFENCE INDUSTRY:
India’s defence industry is primarily dominated by the government and its agencies:
The Indian defence manufacturing sector is largely dominated by the Defence Public Sector Units (DPSUs) and Ordnance Factories (OFs).
The Research and Development (R&D) sector is largely controlled by the Defence Research and Development Organisation (DRDO).
As per the Ministry of Defence, the value of India's defence production in Financial Year (FY) 2022–23 has crossed the figure of Rs 1 lakh crore for the first time ever. The current value of defence production in FY 2022-23 is a rise of more than 12 per cent over FY 2021-22.
The Indian government has set the defence production target at USD 25 billion by 2025 (including USD 5 billion from exports by 2025).
SIGNIFICANCE OF INDIGENISATION:
Reduce import bill:
India remained the world’s largest arms importer for the five-year period between 2018 and 2022, according to the Swedish Think Tank Stockholm International Peace Research Institute(SIPRI).Strong indigenous manufacturing capabilities, especially in the MSME sector, can help reduce India’s reliance on import.
Enhance strategic autonomy:
India is reliant on foreign defence imports, particularly from Russia. Hence, New Delhi has been forced to walk a diplomatic tightrope on the Ukraine-Russia conflict. Such constrains can be avoided by developing indigenous defence capabilities.
Make India a manufacturing hub:
Defence indigenisation adds impetus to the efforts to meet the ambitious target set by the Government to achieve a manufacturing turnover of USD 25 billion or Rs.1,75,000 crore by 2025.
Enhance domestic R&D:
A strong domestic defence industry can help bring investment and innovation into the country’s defence manufacturing.
Promote defence exports:
There is a huge global market for defence equipment. Having strong indigenous capabilities will enable India to promote more exports and strengthen bilateral ties with other nations.
Geopolitical significance:
Chinese aggressions in Indian Ocean region have increased the demand for arms among South East Asian countries. Indigenous capability can enable India to project itself as a more “reliable security partner” and an “alternative to China”.
Adapt to changing warfronts:
Future requirements of the armed forces are going to be complex, dynamic and based on future warfare. Eg: Cyber warfare. To meet such demands, India needs a competitive domestic defence industry.
CHALLENGES FOR INDIA:
Constrained R&D capabilities:
Compared to the US and China which spend in excess of 10 per cent of their defence budget on R&D, India spends only around 5-6 percent.
Underdeveloped private sector:
The Defence Industry sector was opened up to 100% for Indian private sector participation in 2001. However, only a handful of Indian firms have been established so far.
Organisational shortcomings:
Lack of higher organisational structure for defence innovation has often led to ad-hoc decision-making, duplication of efforts and waste of resources.
Rama Rao Committee, constituted by the MoD to review the functioning of DRDO, in its report identified organisational shortcomings as the key weakness in India’s defence innovation system.
Stiff competition:
The US, Russia, France, Germany, China and Israel are established players in the international arms market. India needs to develop cutting edge products and competitive prices if it is to compete as a major manufacturer.
Deficit of human resource:
The DRDO, which is at the heart of the defence innovation, is presently faced with major human resource challenges as seen from poor scientist to other staff ratio, high rate of attrition, low educational background of scientist, and poor level of training.
Continuing reliance on technology import:
Most of India’s indigenisation success has been in auxiliary and spares. Ambitious projects like the Kaveri engine project failed to meet the expected standards. Hence, India continues to be reliant on other countries for technology transfer.
GOVERNMENT EFFORTS:
Efforts under Make in India:
Ministry of Defence has signed more than 180 contracts with the Indian industry between 2014 and 2019, worth approximately USD 25.8 billion, under the ‘Make in India’ scheme.
The Defence Ministry has set a target of 70% self-reliance in weaponry by 2027, creating huge prospects for industry players.
FDI in defence manufacturing
Foreign Direct Investment (FDI) in the defence sector is allowed up to 74% through the automatic route and up to 100% by government route.
Positive Indigenisation List:
A Positive Indigenisation List is a list of defence materials that India will not import. This would offer a great opportunity to the Indian defence industry to manufacture these items to meet the forces’ requirements.
Defence Acquisition Procedure 2020:
DAP 2020 has been aligned with the vision of the Government of Atmanirbhar Bharat and empowering Indian domestic industry through Make in India initiative with the ultimate aim of turning India into a global manufacturing hub.
Government is setting up two Defence Industrial Corridors (one in Uttar Pradesh and another in Tamil Nadu) to ensure connectivity among various defence industrial units.
Ordnance Factory Board (OFB) has been split into seven different PSUs to improve functional autonomy, efficiency, growth potential and innovation in the defence sector.
Boost for R&D:
As per the 2022 budget, 25 percent of the annual research and development budget of the defence ministry will be reserved for private companies and start-ups.
Mission Raksha Gyan Shakti was launched in 2018 with the aim to inculcate IP culture in Indian defence manufacturing ecosystem.
Diplomatic efforts:
Ministry of External Affairs is facilitating Lines of Credit (LOC) for countries to import defence products. In addition, defence attaches in Indian missions abroad have been empowered to promote defence exports.
Efforts to enhance ease of doing business:
Simplified defence industrial licensing, relaxation of export controls and grant of no-objection certificates and specific incentives under the foreign trade policy. Delegated powers to defence public sector units to explore opportunities for export and participation in global tenders. draft ‘Defence Production & Export Promotion Policy (DPEPP) 2020’ is expected to be finalised soon.
Innovations for Defence Excellence (iDEX):
iDEX, managed and funded by the Defence Innovation Organisation (DIO), aims to boost Defence and Aerospace innovation by engaging industries, MSMEs, startups, and academic and R&D institutions.
The iDEX framework plans to establish independent Defence Innovation Hubs (DIHs) for direct interaction between innovators and the Armed Services, focusing on solving major defence challenges. Two DIHs have been announced in Coimbatore and Nashik.
Defence India Startup Challenge:
Launched by Ministry of Defence in partnership with Atal Innovation Mission, it aims to support Startups/MSMEs/Innovators to create prototypes and to commercialize products or solutions in the area of National Defence and Security.
WAY FORWARD:
Creating a Supportive Ecosystem for Industrial Base:
Focus on infrastructure development is vital for aerospace and defence manufacturing. Encourage the creation of A&D hubs and clusters, particularly for MSMEs, to leverage collective efficiencies and risk-taking.
Skill Development: Develop a pool of skilled personnel by:
Establishing educational institutes and universities specialising in aerospace and defence technologies.
Forming a Defence Sector Skill Council and initiating a Defence Industry Internship Programme
Providing subsidies for international accreditation
Changing Mindsets Towards The Private Sector:
Foster a collaborative partnership approach with suppliers, treating the private sector as equal nation-builders and not just as vendors or profiteers. Encourage private industry to identify and finalize technology tie-ups and partnerships.
Enhanced Government-Private Sector Collaboration:
Simplify procedures for doing business with DPSUs/OFB and increase their outsourcing to private players, particularly in creating a supply chain within the country.
IDDM (Indigenously Designed, Developed and Manufactured) Platforms:
Ensure clarity in the execution of IDDM to prevent overlap with other procurement categories. Define procurement rules clearly and flexibly to adapt to the increased requirement of Indigenous Content (IC).
Creating a Clear Demand Profile:
Share equipment requirements transparently with the industry to inspire confidence and investment in long-term production processes.
Aligning Tax Policies:
Rationalise the tax framework to encourage local resource utilization and build skills and expertise across the aerospace and defence value chain.
Addressing the High Cost of Capital:
Implement non-collateralised funding and low-interest loans for SMEs to develop the SME ecosystem.
Leveraging M-SIPS for Defence Production:
Use the Modified Special Incentive Package Scheme (M-SIPS) to encourage defence production, similar to its application in electronics manufacturing.
Inclusion of R&D as an Eligible Offset Activity:
Promote domestic R&D by allowing it as an eligible offset activity and incentivising investments in R&D.
PRACTICE QUESTION:
Q. “India should boost its defence indigenisation capabilities, if it wants to play an important role in the regional and global arenas”. Discuss? (15 marks, 250 words)
