Make in India – Defence

India’s manufacturing sector contributes merely 16 % to the total GDP and the National Manufacturing Policy aims to increase this share to 25% in next 10 years.

A vibrant domestic defence manufacturing can play a very important role in realizing this goal. Expansion of the manufacturing base in collaboration with foreign entities will help in bringing new technology thereby increasing not only domestic capability but will also provide a platform to tap export markets. Apart from economic benefits a self reliant defence manufacturing base has strategic importance. It reduces the dependence on foreign countries thereby enhancing our security.

In this backdrop, NDA government has launched the concept of Make in India in defence and aerospace sector. The major thrust is to enhance investment in the defence sector with the focus on R&D, indigenization and developing a domestic manufacturing base thereby resulting in higher self reliance.

To give a push to the make in India the government has introduced various policy measures like increasing the FDI cap to 49% ,e procurement to facilitate the online submission of tenders, easing of licensing requirement for non-core and dual use defence products etc. However still there are challenges to implement the concept.

Issues and Analysis of Make in India – Defence

The Make in India – Defence should be analyzed in the light of the below statements.

• Private sector can play an important role in Make in India but does our policy provide it level playing field?
• Do we have skilled labour force that is needed in aerospace engineering vital for Defence sector?
• What role MSME could play and what are impediments to its role in Make in India – Defence?
• What about R&D in Defence?
• What about Ease of Doing Business in terms of Defence?

We take these issues here in brief:

Private sector can play an important role in Make in India but does our policy provide it level playing field?

Currently, the Private sector has not been provided with the level playing field which acts as an obstruction in their expansion. For instance, unlike private entities, the DPSUs and contractors of the government enjoy exemption from custom duty on import of defence equipments. This places the private companies at a disadvantageous position in terms of cost, thus making them non competitive to foreign suppliers, DPSUs and even the contractors of DPSUs. Another problem faced by the private sector is the selection of DPSUs through nomination instead of bidding process which results in favoring PSUs over private entities. It is important to understand that a strong industrial base requires the government’s pro active support to the private sector in terms of funding, policy and an enabling environment.

We note here that recently, government has set up a task force under DRDO chief VK Aatre to select Indian private companies as strategic partners for mega ‘Make in India’ defence manufacturing projects like aircraft manufacturing, warship production etc. This proposal is somewhat on the lines of suggestion made by the Kelkar Committee which asked to identify certain firms based on their technical, managerial and financial strength as Raksha Udyog Ratna and proposals for major systems could be given to them.

Do we have skilled labour force that is needed in aerospace engineering vital for Defence sector?

Lack of skilled workforce is the biggest challenge faced by the aerospace industry. Defence production especially aerospace involves high precision training that requires specialized training. But there is a huge shortage of industry-ready personnel with the requisite skill sets. This is high time that government should develop a better training and education infrastructure with the involvement of the industry to tap the huge employment potential. The government can integrate the national skill mission goals with the aim and priorities of defence manufacturing.

What role MSME could play and what are impediments to its role in Make in India – Defence?

Despite the fact that MSMEs employs large workforce and contributes highly to our GDP numbers, MSMEs in defence sector has not been able to contribute in a significant manner. Some challenges faced by them are:

• Lack of finance and technology with the MSMEs leading to low quality standards and reliability.
• Stringent certification process dampens there spirit.
• Lack of skilled workforce with no training facilities.
• Entrepreneurs face difficulty in getting business permits.

Further, Defence sector manufacturing is known for long gestation period. So special funding schemes are needed.

There are a few pragmatic solutions to this specific to defence sector. Firstly, Development of MSME clusters dedicated to defence is one solution. Secondly,  DPP may have some mandatory procurement from MSMEs provide it does not prove to be an impediment to defence sector overall. Thirdly, there may be a separate department for MSMEs in Defence Ministry to facilitate interaction between foreign and Indian MSMEs, organize awareness programmes for MSMEs, bridging the demand and supply cap with respect to technology, required skills etc. These changes will go a long way in integrating MSMEs into the supply chains of domestic and foreign companies thereby expanding our manufacturing base.

What about R&D in Defence?

One of the biggest reasons due to which our defence sector lags behind is the

antiquated Research & Development infrastructure which is constrained in the finance as well as design capability. DRDO has around 52 laboratories but the total budget on research is 7% of the total defence budget. Also there are frequent cost overruns and project delays. One example is Tejas. It took 30 years to Tejas to fly. There is a need to overhaul the organizational set up in DRDO to speed up the process of modernization of defence forces.

Ease Of Doing Business

India ranks very low in all the parameters of currently released ease of doing business report by World Bank. Delay in decision making, corruption, implementation problems etc. impedes the smooth flow of business. Domestic as well as foreign companies are struggling to get the business permits. In addition to this taxation differs from state to state which makes difficult for the foreign entities to expand their business. Often there is a demand for creating a single window for defence licensing and FDI approvals.

Therefore the government should ensure industry friendly eco system through speedy decision making, by bringing in GST, transparency in procurement of projects etc.