India pushes for private companies in defence equipment production

Context:

India pitches to private companies for help in defence industry

Introduction:

• India’s first private sector missile sub-systems manufacturing facility, a joint venture between the $ 2.5 billion Kalyani Group and Israel’s Rafael Advanced Defence Systems Ltd, was inaugurated near Hyderabad
• The Kalyani Rafael Advanced Systems (KRAS) plant will make anti-tank guided missile (ATGM) Spike and the production is expected to begin in few weeks
• Besides supplying to the Indian Army, the plan is to export to South East Asian countries.

About the joint venture:

• The joint venture will invest in designing, developing and manufacturing of weapon systems including Anti-Tank Guided Missile (ATGM) systems and remote weapon systems.
• Spread across 24,000 square feet, the unit is set to roll out tandem warhead, portable anti-tank missile systems and also Spike missiles which have a range to 2 km to 10 km depending on the mode of transportation.
• It also has a night vision capacity making the weapon deadly accurate even at night time.
• Formed in line with the ‘Make in India’ initiative of the Centre and the policy to encourage private sector participation in defence production, the 51:49 joint ventures will develop a wide range of advanced capabilities.
• These advanced capabilities include command control and guidance, electro-optics, remote weapon system, precision guided munitions and system engineering for system integration

 Related statistics:

• India holds the dubious distinction of being the world’s largest importer of military hardware; it imports more than 70 percent of its defence requirements.
• The country is seeing an unprecedented expansion of its civil aviation sector, which is expected to become the third largest in the world after China and the US by 2020.
• India is the largest buyer of Israel’s military hardware.
• India currently is the fourth-largest arms supplier to India after the US, Russia, and France.

Need for 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.
• It was in 2005 that the Vijay Kelkar committee emphasised self-reliance, active private sector participation, a long-term 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.
• A subsequent committee was constituted led by Probir Sengupta identified 13 Indian firms that could be designated along these lines.
• Imports contribute 75% of India’s defence equipment needs; the domestic private sector’s share is just 5%

Examples of private sector participation in India’s defence sector:

• The involvement of Tata Power SED in building the Samyukta — India’s first major electronic warfare system — and L&T’s contribution to the nuclear submarine programme are noteworthy examples.
• Similarly, L&T’s in-house development of hull construction technologies for submarines gave the company an opportunity to participate in building INS Arihant — India’s first nuclear submarine — despite severe sanctions.
• The private sector has also built up extensive infrastructure without waiting for any orders from the Ministry of Defence (MoD).

Steps taken by Government for encouraging private players in defence sector:

The government is committed to creating a level playing field to encourage private sector participation in defence industry. Some of the steps taken by government are mentioned below:

• In the case of the Rs.25, 000 crore Landing Platform Dock (LPD) project, the government has decided to issue the tender only to private shipyards.
• The government has also attempted to operationalize the defunct “Make” procedure, which was first articulated in 2006 with the core objective to enable private players to grow into big defence entities.
• Under the “Make” procedure, the first developmental contact was awarded to two consortiums, one of which consists of two private players, Larsen & Toubro and Tata, under the Indian Army’s Rs.50,000 crore Battlefield Management System (BMS) project.
• In another significant development, the Defence Research and Development Organization (DRDO), the premier research and development wing of the defence ministry, signed a technology transfer agreement with L&T for commercial production of the Pilotless Target Aircraft (PTA), Lakshya.
• The New Delhi’s yet to finalized “Strategic Partnership” model will boost the role of private companies, grow India’s small defence industry, which is dominated by state-run companies and end its role as the world’s largest arm importer.
• Strategic partnerships with select Indian firms have long been regarded as essential to enabling significant private sector participation in defence manufacturing
• Recently, the defence ministry has finalized its roadmap for the selection of private sector companies for mega military production orders . Financial strength, technicall capability and existing infrastructure will be the main criteria for selection of the Indian companies
• The government has all along insisted that defence industry would be a centrepiece of Make in India

Solutions:

• India needs to work on challenges of defence manufacturing sector
• Finance is the biggest issue with the small industries.
• As research and development (R&D) is necessary for the defence manufacturing sector
• Development programs will strengthen the industry.
• Lack of consistency and delay in defence approvals have jeopardised many procurement programmes which need to address

Conclusion:

The defence sector should learn from the phenomenal success that India achieved in the strategic nuclear and space sectors. The governments need to create the right conditions for private players.