India is surrounded by two military powerful countries Pakistan and China, and building a strong defense force is imperative for the country. India is counted as one of the super-powers in Asia region. It has second largest standing army in the world and possesses a potential to become a formidable power in the future.
India has long had the potential to become for success in the modern world – a large population of English speakers, a strong network of elite educational institutions, a booming high technology sector and established democracy.. Despite having all the necessary inputs for becoming a super-power, India has long surprised the foreigners for its inability to perform. However, last year, the newly elected PM Narendra Modi restored the faith in Indian economy through his various proposed policy reforms and initiatives. One of such initiatives is ‘Make in India”. Under this new initiative, probably, Indian defense sector will receive a major boost through public-private partnerships and Foreign Direct Investment. The government has already increased the foreign cap up to 49% in defense sector. Previously, the government had a monopoly on the defense manufacturing and the FDI was allowed only up to 26%.
India has been remained as one of the largest importers of defense arsenals. India is the world’s largest buyer of weapons, accounting for 14 percent of global arms imports, almost three times as many as China. . US, Russisa, France and Israel are the major arms exporters to India. To reduce the dependence on these countries, and also to strengthen the Indian defense sector through ‘know-how’ technology transfer, ‘Make in India’ promises a bright future for the country.
Modi wants to remove the largest importer tag and make India not only a defense manufacturer but also wants to have a larger share in global arms exports. It seems India is following China’s foot prints in this regard, because China was also the largest arms importer till 2006, but now it has become the 6th largest exporter. The miraculous rise of Chinese manufacturing was one of the reasons behind this transformation.
2015-16 Defense Budget:
According to Financial Year 2015 allocated percentage of GDP for defense expenditure is 1.74%. It amounts to total 39.8 billion US dollars. Last year, India cleared a bulk of defense projects worth of $13 billion, according to Defense Acquisition Council (DAC). It is also decided that six submarines will be made in India which worth more than 50000 crore Indian rupees. This decision is in line with ‘Make in India’ initiative.
India has 3rd largest armed forces in the world. Almost 40% of allocated defense budget is spent on capital acquisition. It is disappointing that India’s 60% of defense requirement is met through imports. Even the tears gas which is used by Indian police is imported. It shows that Indian defense sector is in a dire need of reformation, and ‘Make in India’ seems a good start. However, it will be early to predict the success of this initiative.
Conglomerate of Indian Heavyweights and Foreign Giants
Currently, domestic defense manufacturing is dominated by public-undertaking companies and the Ordnance Factories Board which accounts for 80-90% of the Indian defense manufacturing. There are few Indian private companies such as Tata Group, Mahindra Group, Reliance Industries Ltd and Larsen & Turbo Ltd, who have a marginal share in the big pie. Indian government forecasts that by 2022 Indian manufacturing will see a manifold growth and will reach $620 billion. The major Indian private players increasing interest in defense sector can turn around the largest importer tag into a global manufacturing hub. Indian private companies have partnered with many global firms this year; here are some of the biggest deals:
Tata Group is the oldest private defense manufacturer. It has built army vehicles to missile components for the Indian army. In 2014, it has partnered with Honeywell International to build defense navigators. Also, it has partnered with Airbus to build 56 aircrafts for the Indian Air force. The current order book of Tata Group has $1.6 billion worth of orders.
This company has been remained one of the major suppliers for trucks, armored vehicles and other equipment to the Indian army. It has opened a new underwater systems and naval applications manufacturing facility in Pune.
Reliance Group (Anil Ambani)
In the starting of this year, the company has announced that it will set up a smart city to import defense components and export finish products to world market. It is also planning to bid for 387 Army reconnaissance and surveillance helicopters and 100 naval utility helicopters, which worth $4 billion.
Mukesh Ambani led Reliance Industries have presence in all the critical sectors of Indian economy, but his presence in defense industry is comparatively new. In 2013, the company has signed a deal with Dassault Aviation which is planning to bulid combat aircrafts for Indian Air Force. However, this $20 billion has been in news for not so good reasons.
Bharat Forge is a flagship company of $2.5 billion Kalyani Group of companies. This year on 19 Feb, the company has announced a partnership with Israel’s Rafael which will make Spike anti-tank guided missiles. The company is also planning to set up a defense manufacturing facility in Gujarat.
Despite having a controversial history due to its alleged involvement in Bofors scandal, the company is investing heavily in Indian defense sector. Last year, it has partnered with Larsen & Turbo to make mounted guns artillery for the Indian Navy.
Currently, Indian private sector is estimated to have a very small share roughly 5% of the Indian defense equipment market. But now the companies are excited mainly because the government’s emphasis on indigenous manufacturing. The ‘Make in India’ is a good start but there is a lot to be done to make it successful.
To make “Make in India” successful, the Indian government may have to make structural changes in their policies. These are some critical areas where the government has to deliver to make this initiative successful to attract FDI and private players.
Establishing a high-powered institution
There is a lack of high-powered institution in India which can guide the defense industry. So, there is a need for creating an autonomous institution which can draw a map for the defense sector, set a target, monitor the progress, and bring all the stake holders under one roof. The idea of creating a Defense Minister’s Council on Production (DMCP) was a right step under the leadership of then Indian PM Mr. Vajpayee during his tenure 1999-2004. DMCP was meant to bring members on the board from department of space, atomic energy, science & technology, and eminent industrialists from the defense sector. The sad part of the story is that it was not fructified.
In order to make ‘Make in India’ successful, industry experts suggest that creation of such an institution is more needed than before.
Industry heads feel that R&D and manufacturing segments need restructuring in order to have a sustainable future for Indian defense sector, and also to bring favorable environment for ‘Make in India’ campaign. DRDO (Defense Research and Deployment Organization) has a monopoly over the R&D of Indian defense sector. This is a Ministry of Defense’s wing which has been kept at a distance from commercial manufacturing, and it has not been able to keep pace with other R&D organizations of developed countries. For example, the same institution which was able to design jet fighters back in 60’s, is not able to deploy Tejas fighter jet even after 40 years. So, it may be the right time for restructuring and re-architecting this 57 year old institution.
Human Resource Development
Dissimilar to other industries, defense industry requires highly skilled manpower. Currently, the government has no visible concrete plan for creating this specialized work force. The number of scientists has not been increased even in DRDO since 2001. It shows that India lacks a skilled workforce in defense sector. The defense industry is also weakened by plight of bright minds from India. The government has to provide not only quality education but it has to stop migration too in order to realize the ‘Make in India’ dream. Also, there is no dedicated defense institution which can reduce the skilled manpower deficit of defense sector.
Trust on Indian Private Companies
After the liberalization of Indian economy, the door of defense sector was also opened for private sector investment since 2001. But so far, the data shows that Indian private companies have not contributed in any meaningful manner. It seems that the government doesn’t trust Indian private companies and hesitates to provide big contracts to them. The Indian government finds it easy to import rather than looking for options at domestic level.
This mindset has to change and start treating private sector as an equal partner for making India a manufacturing hub as envisioned in the ‘Make in India’ initiative.
In coming 6-8 years, India is likely to spend $130 billion on defense modernization, according to official estimate of the Ministry of Defense. This hefty amount makes India one of the largest defense markets in the world. This is also a responsibility of the government to ensure that local companies are able to exploit this opportunity. This will make India self-reliant in defense manufacturing in the long run. Now, private companies are willing to invest heavily in the Indian defense sector and the government should provide a platform to them to realize the ‘Make in India’ dream.