The data thrown up by the recent Stockholm International Peace Research Institute (SIPRI) report on global arms transfers is startling—India’s arms imports are almost three times as high as those of the second and third largest arms importers respectively, China and Pakistan. Between 2004-08 and 2009-13, the volume of Indian imports of major weapons rose by 111%. The fact that India is the largest importer of defence equipment is a cause for concern as it reflects on our failure to develop an indigenous defence manufacturing sector by effectively engaging the private sector.
The strategic and economic importance of self-reliance in the defence sector cannot be ignored. We need to focus on the immediate need to build a thriving domestic defence manufacturing sector. Few years ago, as part of CII, we had released a report jointly with Boston Consulting Group and had made some recommendations for this sector.
The government should set up a National Defence Manufacturing Commission under the PMO to directly monitor the key policies. This will help bring together the private sector, the government and the ministry of defence. The PM has stated in the past that private sector participation is essential for national security and it is critical to implement this.
The government should also enforce make or buy and make (Indian) classification for all flagship defence contracts and mandate that the prime contractor be an Indian entity. To ensure that technology gaps are overcome, this entity can be a JV between local and relevant global vendors. Eventually, more and more projects, even the smaller ones, should be brought under this.
Providing access to critical technologies available with research agencies is important. A royalty fee model can be developed, allowing private sector to commercialise these technologies. Skill up-gradation of defence manufacturing workforce is essential, focusing on both short-term actions to plug existing skill gaps and long-term initiatives to ensure projected skill requirements are developed. We must enable a support structure for up-gradation of defence manufacturing facilities (SME specific) and the government should set up an ‘innovation fund’ of R1,000 crore for SMEs in the defence sector. This will help SMEs achieve manufacturing certifications like ISO and will help establishment of licensed defence units.
We need to revisit the current cap of 26% for FDI in defence production. If we can bring it up to 49% on a case-to-case basis, we can attract adequate participation of interested parties and ensure genuine technology transfers