Challenges to the defence procurement
India is having the 3rd largest armed forces of the world, with an annual budget of US$ 38 billion and 40% of this is used for capital acquisition. In the next 7-8 years this budget would be increased to around US$ 130 billion for modernization of armed force. The high domestic demands and its dependency on foreign imports is biggest challenge that the defence sector is facing. Though some of the public sector enterprises like the ordinance factory, DRDO produce the defence equipment but insufficient to meet the demands. India’s 70-80% of defence requirement is filled by imports.
Challenges to the defence procurement in India
The domestic private industry faces entry barriers to get the licenses to produce. Getting licenses for entering the defence manufacturing production even for small scale industry making some specific parts is a cumbersome procedure. The limitation to the FDI policy and the restricted private investment is another factor contributing to its slow growth. The existing enterprises lacks in developing state-of-art technology and the products do not competes the global products. Hence India according to a report becomes the world’s largest consumer of arms and ammunition in the world.
Steps taken by GOI in this regard
In 2001, private sector industries are allowed to enter defence manufacturing obtaining license under IDR act. In India’s defence procurement policy a preferential treatment is given to ‘Buy (indian)’ and ‘Buy and make (Indian)’ categories of acquisition over ‘Buy (global)’. Indian companies are allowed to partner with foreign companies and joint venture firm are established to ease technology transfer. The liberalization of FDI policy regime for defence sector increasing the limit from 26% to 49% through government route (with FIPB approval) and above it would be done on case-to-case basis with the approval of cabinet committee on security. Restriction related to FII and majority share holding held by single Indian shareholder have been removed.
Defence export strategy has been formulated outlining the specific initiative taken by government. A standard operating procedure (SOP) for issue of NOC (No Objection Certificate) for export of military stores has been finalized. A web based online system for receiving the application for NOC for export of military store is put in place.
The Make-in-India in defence sector offers opportunity to the Indian industry to benefit both business as well as nation. Attainment of self reliance in defence sector in the present context is necessity rather than choice, both for strategic and economic perspective. We need to focus on Research & Development and state of art manufacturing capabilities.
