VVIP helicopter probe highlights need for defence PSUs overhaul

Ajay Vaishnav/ZRG

As the Central Bureau of Investigation (CBI) probes the VVIP helicopter deal, the policy formulation gap in building domestic capability with a focus on private sector has come up as a major area of concern.

India’s major defence deals have come under the scanner with majority of them involving an external vendor. Accordingly, the absence of a robust domestic industry has been deeply felt.

India has emerged as one of the world’s most lucrative markets for military products.

The ministry of defence’s spending on equipment has increased at double digits over the last few years. It’s expected to further bulge with several large equipment purchase and modernisation programs in the pipeline. The Union Budget has proposed a defence spending of Rs 2.03 trillion ($37.45 billion) for 2013-14, which is a 5.2 per cent increase over the last year. In 2012-13, the defence budget stood at Rs 1.93 trillion.

But, what’s perturbing is that despite staggering defence budget, India’s own defence industry has failed to take-off. It’s not that the size of the military-industrial workforce in India is small. In fact, nine Defence Public Sector Undertakings (DPSUs) and thirty-nine Ordnance Factories employing approximately 1.8 lakh people, our military-industrial workforce is similar to countries like UK and France. Yet the large set-up hasn’t yielded quality production to cater to the ever-growing needs of the services.

Key projects like battle tanks, artillery guns, combat aircrafts and ballistic missiles have suffered inordinate delays and cost overruns. A key reason behind this is a near monopoly of the government over defence industries and production. The lack of private sector participation and limits on foreign direct investment has further worked to disadvantage. India must leverage private sector skills and partner it in its expansion and modernisation plans. Over the years, Indian private sector has shown immense promise to build critical capabilities. Yet their participation in Indian defence industry has been limited to the production of intermediate products, components and spare parts.

While historically, India has always favoured the public sector over the private in the areas of defence production, post-liberalisation years have seen government agreeing in principle to the idea of greater involvement of Indian companies. Their entry into the defence industry could produce ‘multiplier effect’ in a host of manufacturing related sectors such as communications, automotive et al. World over, it has been observed that advancements in military technology have eventually filtered down to other sectors, giving companies a host of competitive advantages.

Creating a vibrant defence sector will augment India’s overall manufacturing capabilities and reduce unemployment. More importantly, the technical requirements for defence industry related jobs will improve the overall quality of education and experience in the workforce.

The creation of a domestic military-industrial complex will not only reduce India’s over dependence on foreign imports (many a times technology being denied) but also spur innovation, research and development across the sectors thereby boosting country’s underperforming manufacturing base.

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