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Analysis
Indian Defence
Industry:
The Co Production Revolution
by
Col. Rahul K. Bhonsle
India�s Defence Industry sheltered for over half a century is moving towards
a modern paradigm of cooperative production which if properly harnessed
could lead to a co production revolution. The government is committed to
modernization of the defence industry and this seems to be a trend across
party lines. Thus even the next government irrespective of party
affiliations is likely to pursue a similar course which is encouraging.
The present UPA team dithering over the Indo US Civil Nuclear Deal seems to
be firm on modernization of defence production. Indicating the need for
defence modernization while commemorating the DRDO day, the Prime Minister
Mr. Man Mohan Singh said �India�s internal priorities and external policies
are closely linked. Our foreign policy rests on the principles of peaceful
co-existence and friendship with the rest of the world. We seek an
international order that is stable, just and conducive to meeting the
challenges of poverty alleviation, unemployment and inequalities. We seek a
harmonious environment in our neighborhood and a web of linkages that
facilities mutually beneficial cooperation. India pursues its foreign policy
as a responsible member of the international community�.
Stressing on modernization, he said this will be successful only if it is
based on, �our ability to clearly define those strategic and critical areas
in which development of national capability is a must. We must pursue this
goal with determination and a long-term perspective�. The Prime Minister
reiterated the commitment of the government to building a broader base for
the defence industry thus, �The Government remains committed to the
broad-basing of the defence industry in India. Our resources, infrastructure
capabilities, and intellectual capital - in both public and private sectors
� should be treated as national assets, and be carefully nurtured and
optimally utilized�.
Speaking at functions related to the Berlin Air Show 2008, the Defence
Minister Mr. A Antony stated, �While the Indian defence industry, which has
been largely in the state sector, has developed broad-based capabilities, we
have recently put in place policies and initiatives to encourage private
sector participation. The defence industry sector in India is now open up to
100% for Indian private sector participation, while foreign direct
investment is permissible upto 26%. Procurement policies [will] also
encourage co-development and co-production with international manufacturers.
The Defence Offset Facilitation Agency set up in September last year to act
as a bridge between the Indian defence industry and potential vendors, both
foreign and Indian, also helps private industry to obtain industrial
licenses for the manufacture of defence products. Encouraged by these
policies, our companies are entering into high-tech partnerships with
defence majors located abroad to bid for advanced systems and projects in
India�.
The Berlin Air Show is an important event where the Defence minister has
successfully made a bid for co production in line with the industry trends
world wide. The critical area of concern as far as foreign companies are
concerned is the offsets in defence which have been placed at 30 percent and
in some cases as the MMRCA even up to 50 percent. Managing the same will
continue to be the biggest challenge for the foreign companies particularly
when the FDI limits in defence in India are at 26 percent. Given this
dichotomy there may be some reason to believe that the new policy on defence
procurement may consider some concessions to the foreign manufacturers.
Their lobby is also very strong and hence will tend to nudge the government
to move further to extend the FDI limits in investments.
There are many indications however that the co production model is already
functional in the Indian defence industry. The BrahMos is not only a joint
venture between India and Russia but also a public private partnership
involving many private firms as Tata and Godrej. In the multi barrel
launcher Pinaka, Tata and Larsen and Toubro have undertaken production.
While the DRDO and European defence consortium EADS have successfully
developed an advanced missile warning system and will start its serial
production in Bangalore said a media report against the back drop of the
Berlin Air Show. EADS and the Defence Avionics Research Establishment (DARE)
of Defence Research and Development Organization (DRDO) are said to have
collaborated on the missile warning system, based on Missile Launch
Detection System (MILDS). Chief Executive Officer of EADS' Defence and
Security Division, Stefan Zoller stated, "Due to this success, the missile
warning system has been accepted as indigenous equipment by the Indian
authorities," he said. "After initial cooperation of Defence Electronics and
(Bangalore-based) Alpha Technologies which has already been started, the
transition of series production at the Alpha manufacturing base is foreseen
in near future."
The Akash air defence missile system which will be inducted in the Army and
the Air Force soon, is also a joint venture between public sector Bharat
Electronics Ltd (BEL), Bharat Dynamics Ltd (BDL) and Electronics Corporation
of India (ECIL), the private sector Larsen and Toubro and Tata Power.
So the Indian defence industry is set to undergo a revolution wherein apart
from public private partnerships there would be scope for tie ups with
foreign firms. But the path is not likely to be easy with massive
allegations of corruption and slow procedures, it is only those with deep
pockets who can invest in defence in India, largely the reason for the
sector remaining with the government so far.
June 22, 2008
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