Structural tuning is needed to translate India’s decision to impose import embargo on 101 items to boost military industrial capacity in real terms

On August 9, 2020, under the ambitious Atmanirbhar Bharat initiative, the defence ministry (MoD) announced the imposition of an import embargo on 101 military products with a declared intent on boosting national military-industrial capacity. This much-publicised announcement has been cheered by all stakeholders of the Indian defence sector, especially the private manufacturers.

The embargo on imports will be effective in three phases: 69 items (from Water Jet Fast Attack Craft to Field Artillery Tractor (FAT) 6X6 for Medium Guns) by December 2020, 11 items (Wheeled Armoured Fighting Vehicle (AFV) to Conventional Submarines) by December 2021 and the remaining 21 (40mm Under Barrel Grenade Launcher (UBGL) to Long Range Land Attack Cruise Missiles) by December 2022. The includes low to medium technology items like Transportable Radar and Mini Trucks of different sizes to high technology items like Astra Mark I Beyond Visual Range Air to Air Missiles (BVRAAMs) and Communication Satellites. It includes both sub-systems as well as complete systems.

The press release by the government lays out the larger intent of the Negative List: ‘……to assess current and future capabilities of the Indian industry for manufacturing various ammunition/weapons/platforms/equipment within India’. It also outlines the lucrative domestic market size by announcing ‘…with the latest embargo, it is estimated that contracts worth almost Rs 4,00,000 crore will be placed upon the domestic industry within the next five to seven years’. The embargo is to be progressively implemented between 2020 and 2024, thus indicating that by late 2020s, Indian military industry should be ready to undertake further challenging military technology projects and be a part of the global military-industrial universe.

Noble intents to re-energise the Indian military industry invariably appear lucrative, but once fine prints are understood, digested and ready to be implemented, such intents find themselves intricately lost in the world of military bureaucracy, complicated institutional dynamics and political apathy. Political or other blame games aside, the soldier is the final victim left to defend the country with whatever weapon he has at his disposal.

Not to be pessimistic, but an interesting parallel announcement with similar intent had occurred earlier – the lucrative world of ‘defence offsets’ introduced in 2005 and implemented since then. It was designed to boost Indian military-industrial capacity. Various changes were made to the offsets policy from ‘direct’ to ‘indirect’ model, from project based to ‘offsets multipliers’ from time to time. Various estimates were made to show how the industry had benefited from this policy. However, as the saying goes – more things change, more they remain the same – not much progress has happened in the offsets universe in India, resulting in perpetuation of ‘muddle through’ syndrome in Indian military industry.

This is not to say that all noble attempts are ill-directed. The latest Negative List prepared by the MoD is distinct from earlier attempts like offsets. The list is prepared and available for stakeholders with much clarity. It lays out an estimated market (Rs 4,00,000 crore) for domestic private players. It has taken a pragmatic approach by listing out those products, which incidentally many of the Indian private sector companies were already involved earlier, but as sub-suppliers or junior partners. The intent is to make them transit from sub-suppliers’ to ‘prime contractors’. Importantly, the government has also decided to bifurcate capital procurement budget for FY 2020-21 between domestic and foreign capital procurement routes. An indicative figure of Rs 52,000 crore (roughly translating into about 45 percent of the total capital budget) is earmarked for the private sector for this year.

Oh! To Be On The Same Page …

It is rarely that public sector and private sector participants are on the same page, when a new policy or reform attempt is made by the government. Interestingly, all three employee unions of Ordnance Factory Board (OFB) have welcomed the list with a demand that production rights be given to OFB in identified items. It is not often known that the most pilloried of the public sector entities, it is the OFB that has least import component (13 percent against 40 – 60 percent for HAL) in its products. This is indicative of larger noble intents.

Intents notwithstanding, it is the translation of ideas into tangible results that matter. In between lies the structure and institutional dynamics, which on many earlier occasions have diluted intents. The press release says, ‘all necessary steps would be taken to ensure that timelines for production of equipment as per the Negative Import List are met, which will include a co-ordinated mechanism for hand holding of the industry by the Defence Services’. More than the services, it is the administrative mechanisms and institutional rivalries, which are capable of playing spoilsport. Relative success of the idea is actually dependent on structural reforms within relevant branches of MoD, which is still underway.