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Make in India in Defence Production


Current Modi government in India has accorded highest priority to make in India for boosting its economy and creating employment to its young population. Defence production is one of the priority areas for make in India so as to make India self reliant in defence production where about 70 percent of capital acquisitions in weapon and equipment comes through import. Self reliance in defence production will prepare the nation better to deter and meet the challenges from perceived adversaries. Total global defence export business is to the tune of 1.5 trillion dollars. Therefore, it makes sense to give a boost to defence production in make in India.


One has to pause and think how a countries  like China and South Korea that were either at par or inferior to India in industrial and technological development till 1970s became now exporters of defence items and India remained one of the biggest importers in Asia. Definitely, the answer lies in technology acquisition through FDI in civil as well as in defence technology. Therefore, if India wants to boost its defence production, it should learn lessons from China and South Korea and should attract FDI in defence production. Unfortunately, state owned defence manufacturing units and PSUs could not do much as they were constrained by inefficiency of DRDO in developing new products and weapon  systems. What ever little bit they could do is mainly due to technology provided by erstwhile USSR during cold war.


For acquisition of technology, two pronged strategies have to be adopted. First strategy which is long term, may focus on invigorating DRDO through structural reforms and creating parallel R&D organization in defence public sector units or in joint venture under PPP model with well defined IPR sharing so that indigenous defence technology development could be propelled.   The other strategy which is relatively short term is to attract FDI in defence production as it will bring not only bring the contemporary or best technology but will also bring capital required. Government has already increased the FDI from 26% to 49% in defence sector, and in strategic defence technology there is a mechanism to take FDI beyond 49% also.


However, in order to boost up the make in India programme in defence sector, one has to realise that defence industries works in monopolistic or oligopolistic market where buyers are few mainly the branches of government involved in external and internal security.  Therefore, one has to ensure that sustained market has to be there for those who are investing in defence production so that reasonable return on investors investment are assured. Without assured market for a reasonably long period, nobody will invest their money. So, first reform has to be made at demand side. There should be a long term perspective plan for acquisition where specifications needs to be frozen for a reasonable period of time keeping in mind the availability of technologies at competitive and affordable price, strategic requirements based on capabilities of potential adversaries and incubation period of next generation weapon system development. GSQR should not be based on whims and fancy of some of decision makers with vested interest and should not change frequently. Manufacturers views should also be taken while framing GSQR. If a contract is won by one company, then it should supply the item for 5 to 10 years till it recovers its return on investment or technology is phased out globally or becomes irrelevant. Besides providing stable, predictable and assured indigenous market   government should also help the investors in accessing the global market through diplomatic means.  Apart from above it will also require adequate infrastructure and facilities in form of road, power, water, port, and ease of doing business through tax reform, land acquisition, simple environmental and other statuary clearances. A boost in defence production in India will improve its defence preparedness, boost economy and provide employment apart from changing the technological landscape of India as it will also boost civil industries.


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