Indian Defence Industry:
The Co Production Revolution
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.
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Col. Rahul K. Bhonsle
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