Becoming a Defence Manufacturing Hub

What is the issue?

• The four-day DefExpo India took place recently in Chennai.
• India's ambitious objective of being a defence manufacturing hub demands a lot more efforts.

What were the stated aims?

• The DefExpo has ambitiously positioned India as an emerging defence manufacturing hub.
• It places it as an exporter of defence systems and components.
• Such an objective seems uncertain to be achieved in the near future.

Why is the uncertainty?

• It's because India is the world’s top importer of arms.
• It accounted for 12% of total global arms imports during 2013-17.
• It spends around 30% of total defence budget on capital acquisitions.
• 60% of defence-related requirements are currently met through imports.
• It does not even figure among the top 25 arms exporters.

Why is indigenisation critical?

• About 62% of India’s arms imports in 2013-17 originated in Russia, 15% in the US and 11% in Israel.
• India is the largest customer for the Russian and Israeli defence industries and the third-largest for the French.
• Significantly, India’s imports from the US jumped around 500% between 2008-12 and 2013-17.
• India’s rising imports of arms is in sharp contrast to China.
• China reported a 19% drop in overseas purchases between 2008-12 and 2013-17.
• It accounts for 4.6% of the global arms export market.
• With this, it has emerged the fifth-largest exporter of arms.

• Given this high level of dependence, indigenisation of defence procurement is critical for strategic reasons.

What are the measures taken in this regard?

• Private sector - 'Make in India' focuses on increasing indigenous defence manufacturing and becoming self-reliant.
• The resultant private participation in defence sector has helped foreign OEMs (Original Equipment Manufacturers).
• They have entered into strategic partnerships with Indian companies.
• It has leveraged opportunities in the domestic as well as global markets.

• Duty exemption - The preferential treatment given to DPSUs in excise and customs duty has been discontinued.

• This is to create a level playing field for all Indian industries (public and private).
• Indigenisation - The Defence Procurement Procedure 2013 was amended with effect from April, 2016.
• This was to encourage indigenous design, development and manufacture of defence equipment.
• India’s focus on indigenous manufacturing is paying off.
• Evidently, the ministry of defence over the last 2 years unveiled several products manufactured in India.
• These include

1. the HAL Tejas light combat aircraft
2. the composite Sonar dome
3. a portable telemedicine system for the Armed Forces
4. penetration-cum-blast and thermobaric ammunition specifically designed for Arjun tanks
5. a heavyweight torpedo called Varunastra manufactured with 95% locally sourced parts
6. medium range surface to air missiles

• Defence deals - The Defence Acquisition Council under the ministry of defence has cleared many defence deals.
• Deals worth over Rs 820 billion under the “buy and make” and “buy Indian” categories were cleared.
• FDI - 100% FDI is allowed in the defence sector.
• Of this, up to 49% is under the automatic route.
• FDI above 49% is permitted through the government route.
• This is done on a case-by-case basis where it is likely to result in access to modern technology.
• Budget - The government increased the defence budget by around 5.9% for 2018-19.
• Accounting for around 12% of total government expenditure, it is around 7.8% more than the last year's budget.
• Industries - It is planned to develop two defence industrial production corridors.
• Formulating an industry-friendly military production policy is also under consideration.
• An industry-friendly “defence production policy 2018” to promote domestic production by the public sector, private sector and MSMEs is also underway.
•  Foreign trade policy - It provides guidelines for engaging with Indian missions abroad.
• It facilitates exports of indigenously developed defence systems.
• In an unprecedented move, India recently called in all its 44 defence attaches from missions abroad.
• It aimed at tapping the potential for defence exports and strengthening the interface between the government and industry.
• The measures have contributed to increasing defence manufacturing and exports.

What lies before India?

• India has still a long way to go, to become a defence-manufacturing powerhouse.
• The government should place large orders with defence public sector undertakings (DPSUs) with proven skills.
• Private-sector defence players who have tie-ups with global players for technology transfers should also be roped in.

Source: Business Standard