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Context

• The Ministry of Defence has been allocated a total budget of Rs 5.25 lakh crore for Financial Year 2022-23.
• It focuses on modernisation of Defence Services and Defence Security Infrastructure development including the Border Road Infrastructure and Coastal Security Infrastructure.

In this article, we will discuss and analyse as to how this budgetary allocation will lead to India becoming self-reliant in Defence sector and what more needs to be done.

India’s defence outlay this year

• The total allocation under Capital Outlay of the Defence Services has been increased from Rs 86,740 crore in 2013-14 to 1.52 lakh crore in 2022-23.

What makes it special?

• 68 per cent of the capital procurement budget will be earmarked for domestic industry in 2022-23, up from 58 per cent in the previous year.
• This indicates the Government’s commitment to reducing imports and promoting Atmanirbharta in equipment for the Armed Forces.
• While Defence R&D will be opened up for industry, start-ups and academia, Private industry will also be encouraged to take up design and development of military platforms and equipment.

Why the fuss over self-reliance?

1) Reducing import dependence

• India was the world’s second-largest arms importer from 2014-18, ceding the long-held tag as the largest importer to Saudi Arabia, which accounted for 12% of the total imports during the period, says 2019 SIPRI report.
• Pakistan stood at the 11th position, accounting for 2.7% of all global imports.
• Such higher import dependency leads to increase in the fiscal deficit.

2) Security Imperative

• Indigenization in defence is critical to national security also. It keeps intact the technological expertise and encourages spin-off technologies and innovation that often stem from it.
• Indigenization is needed in order to avert the threats associated with the frequent ceasefire violations like that of the Uri, Pathankot and Pulwama attacks.
• India is surrounded by porous borders and hostile neighbours need to be self-sufficient and self-reliant in defence production.

3) Economic boost

• Indigenization in defence can help create a large industry which also includes small manufacturers.
• Example: USA has a strong defence industry with companies like Lockheed martin contributing to economic growth as well.

4) Employment generation

• Defence manufacturing will lead to the generation of satellites industries that in turn will pave the way for a generation of employment opportunities.
• As per government estimates, a reduction in 20-25% in defence-related imports could directly create an additional 100,000 to 120,000 highly skilled jobs in India.

It was the military-industrial set-up of Germany that enabled it to launch its offensive practically against the entire western world both in World War I and World War II.

Issues retarding defence exports

1. Excess reliance on Public Sector: India has four companies (Indian ordnance factories, Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL) and Bharat Dynamics Limited (BDL)) among the top 100 biggest arms producers of the world.
2. Policy delays: In the past few years, the government has approved over 200 defence acquisition worth Rs 4 trillion, but most are still in relatively early stages of processing.
3. Lack of Critical Technologies: Poor design capability in critical technologies, inadequate investment in R&D and the inability to manufacture major subsystems and components hamper the indigenous manufacturing.
4. Long gestation: The creation of a manufacturing base is capital and technology-intensive and has a long gestation period. By that time newer technologies make products outdated.
5. ‘Unease’ in doing business: An issue related to stringent labour laws, compliance burden and lack of skills, affects the development of indigenous manufacturing in defence.
6. Multiple jurisdictions: Overlapping jurisdiction of the Ministry of Defence and Ministry of Industrial Promotion impair India’s capability of defence manufacturing.
7. Lack of quality: The higher indigenization in few cases is largely attributed to the low-end technology.
8. FDI Policy: The earlier FDI limit of 49% was not enough to enthuse global manufacturing houses to set up bases in India.
9. R&D Lacunae: A lip service to technology funding by making token allocations is an adequate commentary on our lack of seriousness in the area of Research and Development.
10. Lack of skills: There is a lack of engineering and research capability in our institutions. It again leads us back to the need for a stronger industry-academia interface.

Steps taken to boost indigenous production

• Licensing relaxation: Measures announced to boost exports since 2014 include simplified defence industrial licensing, relaxation of export controls and grant of no-objection certificates.
• Lines of Credit: Specific incentives were introduced under the foreign trade policy and the Ministry of External Affairs has facilitated Lines of Credit for countries to import defence product.
• Policy boost: The Defence Ministry has also issued a draft Defence Production & Export Promotion Policy 2020.
• Indigenization lists: On the domestic front, to boost indigenous manufacturing, the Government had issued two “positive indigenization lists” consisting of 209 items that cannot be imported.
• Budgetary allocation: In addition, a percentage of the capital outlay of the defence budget has been reserved for procurement from domestic industry.

Policy initiatives: Defence Production and Export Promotion Policy, 2020

The DPEPP 2020 is envisaged as overarching guiding document of MoD to provide a focused, structured and significant thrust to defence production capabilities of the country for self-reliance and exports.

The policy has laid out the following goals and objectives:

1. To achieve a turnover of Rs 1,75,000 Crores (US$ 25Bn) including export of Rs 35,000 Crore (US$ 5 Billion) in Aerospace and Defence goods and services by 2025.
2. To develop a dynamic, robust and competitive Defence industry, including Aerospace and Naval Shipbuilding industry to cater to the needs of Armed forces with quality products.
3. To reduce dependence on imports and take forward “Make in India” initiatives through domestic design and development.
4. To promote the export of defence products and become part of the global defence value chains.
5. To create an environment that encourages R&D rewards innovation creates Indian IP ownership and promotes a robust and self-reliant defence industry.

The Policy brings out multiple strategies under the following focus areas:

1. Procurement Reforms
2. Indigenization & Support to MSMEs/Startups
3. Optimize Resource Allocation
4. Investment Promotion, FDI & Ease of Doing Business
5. Innovation and R&D
6. DPSUs and OFB
7. Quality Assurance & Testing Infrastructure
8. Export Promotion

Way forward

• The development of a thriving indigenous defence industry needs an overhaul of existing regulations and practices.
• A long-term integrated perspective plan of the requirements of the armed forces should give industry a clear picture of future requirements.
• DPP 2020 should incorporate guidelines to promote forward-looking strategic partnerships between Indian and foreign companies.
• The definition of indigenisation itself needs to privilege technology over value or volume.