Defence Min signals growing acceptance of private sector

The defence minister, AK Antony, talks to crewmen from 75 Armoured Regiment atop an Arjun tank at the Defexpo India 2012

By Ajai Shukla

Business Standard, 30th Mar 12

A series of policy statements by top ministry of defence (MoD) officials today highlighted the government’s growing belief that India’s private sector should be entrusted with a significantly larger role in defence production.

Defence Minister AK Antony, while inaugurating Defexpo India 2012, the seventh in a series of Indian Land and Naval Systems Expositions that began in 1999 and is organised every alternate year, also indicated that India’s defence spending would remain at a modest level of about 2% of the country’s Gross Domestic Product (GDP), which he termed “consistent with our security needs, as well as our requirements in the area.”

Projecting an optimistic view of India’s economic growth, the defence minister stated, “With the projected growth of the Indian economy expected at a trajectory of 8-10% for the next two decades, expenditure on defence in absolute terms is bound to increase.”

Speaking later at a Defexpo seminar, the MoD’s top procurement manager, the Director General (Acquisitions) Vivek Rae put a figure to the spending growth. Rae projected, “you will see a growth in defence modernisation budgets of about 13-14% per year, which means that the budget would double every five-six years.”

The capital allocation in the defence budget for 2012-13 is Rs 79,578 crore (US $15 billion).

The defence minister also sought to dampen longstanding disquiet over the Indian defence industry’s failure to sufficiently indigenise equipment development and manufacture. Antony said, “the ratio of foreign to domestic industry procurement by the Armed Forces was 70:30 some years back, but it has started changing and is (today) approaching 60:40.”

Antony’s own indigenisation target, announced through repeated public statements, has been to reverse the 70:30 import-to-export ratio to 30:70.

Most significantly for the private sector, Minister of State for Defence, MM Pallam Raju, affirmed that the MoD would very soon concede a long-standing private sector demand that the three services’ long-term equipment plans be communicated to them, to enable private companies to make timely decisions about developing futuristic equipment. Currently, the public sector industries are party to long-term plans, while the private sector has often learned about future equipment requirements too late to participate meaningfully.

Acknowledging this concern, Pallam Raju said, “The lack of adequate information regarding the (military’s long-term) defence requirements has been one of the major impediments in the growth of the defence industry in India. The government is in the process of finalizing the Long Term Integrated Perspective Plan (LTIPP) of the Armed Forces.”

The LTIPP specifies the equipment and technologies that the military will require over a 15-year time horizon. The LTIPP was initially supposed to cover the period 2007-2022, but after five years of delay will now cover the period 2012-2027.

Once this is finalised, says Pallam Raju, “a public version of the document outlining the ‘technology perspective and capability roadmap’ of the armed forces covering a period of 15 years will be published and placed on the MoD website. This would enable the domestic industry to plan investment in the defence sector and take up Research and Development, technology upgradation and forge tie-ups and arrangements of collaboration with their associated foreign industry partners in order to meet the future requirements of the Armed Forces.”

DG (Acquisitions) Vivek Rae provided another indication of the MoD’s new inclination towards private sector participation by strongly supporting the “Make” procedure. According to the Defence Procurement Procedure, this allows private industry to bid for building complex military platforms, with the MoD funding 80% of the cost of development. There are currently only two “Make” projects being pursued: the Future Infantry Combat Vehicle (FICV); and the Tactical Communications System (TCS).

“To build up the defence base, we need to generate a lot of “Make” procedure (procurements). We will make a list of 150-180 “Make” procedure projects…. I think we could energise the industrial base of the country.

Pallam Raju, however, cautioned the private industry not to expect a fully-funded stroll into defence production. “The industry also needs to commit itself to the field in terms of establishing the required infrastructure and develop the capacities. Commitment to R&D effort is also required by the defence industry both in the public and private sector if the long-term goals are to be met,” said Raju.