The publication of a negative list will throw much-needed light on GoI’s plans for indigenisation. It will encourage the armed forces, weapon designers and producers to develop a common interest in ensuring the success of indigenous projects. The publication of a negative list will throw much-needed light on GoI’s plans for indigenisation

by Sujan R Chinoy & Laxman K Behera

Following Prime Minister Narendra Modi’s May 12 call to go ‘vocal for local’ through Atmanirbhar Bharat Abhiyan (Self-Reliant India Mission), finance minister Nirmala Sitharaman announced a slew of measures on May 16 specific to defence production and procurement. These measures, in tandem with other policy initiatives of the past six years, have the potential to promote self-reliance and transform India into a major defence manufacturing hub.

Despite its large defence R&D base and significant production capacities, India remains one of the world’s largest arms importers. Lack of clarity in policy has encouraged this dependence. The FM’s announcement of a ban on import of certain items, to be notified in consultation with the Department of Military Affairs (DMA) headed by the chief of defence staff (CDS), and indigenous manufacturing of spares that have been hitherto imported for domestic production, are expected to provide the necessary direction.

The publication of a negative list will throw much-needed light on GoI’s plans for indigenisation. It will encourage the armed forces, weapon designers and producers to develop a common interest in ensuring the success of indigenous projects.

Given the financial and technological capacities of the public and private sectors in India, there is no reason why the armed forces should import fully made artillery guns, tanks, troop carriers, ammunition, electronic warfare systems, warships and even helicopters and fighters. There could be some exceptions though.

Sitharaman’s announcement of a separate budget provision for procurement from local sources could not have come at a better time. Owing to manpower-intensive defence allocations and a resource crunch in recent years, the domestic industry was apprehensive about the funding aspects of key capital procurements. COVID-19 is expected to put additional stress on budgets across the board. However, GoI’s announcement should assuage any such concerns.

Ideally, the defence ministry should reflect the newly announced budget provision for local procurement in its defence services estimates (DSE), the annual document that provides break-ups of allocations for defence services, including Defence Research and Development Organisation (DRDO) and Ordnance Factory Board (OFB). DSE could be modified to clearly indicate whether a specific item is being procured through import or indigenous sources.

Perhaps the biggest reform measure announced is the proposed corporatisation of the Kolkata-headquartered OFB, an umbrella organisation with 41 factories and a mammoth workforce of nearly 80,000 personnel. It currently functions as a departmentally run entity under the defence ministry’s Department of Defence Production.

OFB’s corporatisation is intended to unlock its vast potential and usher in a new era of autonomy, transparency and accountability. It could, if carried without half-measures, also pave the way for its listing on the stock exchange, improving its corporate management, and allowing ordinary shareholders to benefit from its prosperity.

Another reform announced pertains to a hike in the foreign direct investment (FDI) cap in defence production under the automatic route from 49% to 74%. This is intended to help reduce direct imports by encouraging foreign companies to manufacture in India. This measure will not only improve India’s import substitution efforts, but could contribute to the local economy and generate employment. The increase in the FDI cap will, however, be subject to security clearance, to prevent unwanted investors from countries inimical to India’s security interests from acquiring stakes in a strategic sector.

A faster and time-bound defence procurement process was also announced. Under ‘Make in India’ and as part of GoI’s efforts to streamline the arms acquisition process, the defence ministry has twice before refined its defence procurement procedures (DPP), with the latest iteration being released as a draft document (DPP-2020) for public comments. The setting up of a project management unit to support defence contract management, and a realistic setting of the general staff qualitative requirements (GSQRs), and overhauling trial and testing procedures, are going to significantly improve defence procurement.

Unrealistic articulation of GSQRs has not only derailed many an acquisition programme before but has also proved to be a key hindrance promoting local design and manufacturing. The Comptroller and Auditor General (CAG) has repeatedly pointed out that overly ambitious weapons specifications have favoured imports at the cost of the domestic industry. CDS, too, has recently called for a realistic articulation of GSQRs to reduce arms imports.

Devising a GSQR formulation process that is objective, transparent and supportive of domestic manufacturing would truly help advance ‘Make in India’ in the defence sector and make India Atmanirbhar.

Chinoy & Behera are director general and research fellow, respectively, Manohar Parrikar Institute for Defence Studies and Analyses (MP-IDSA), New Delhi