Estimating Self-Reliance in India's Defence Production

July 20, 2012
Fellows' Seminar

Chairperson: Shri Vinod Misra
Discussants : Dr Selvamurthy and Shri Amit Cowshish

This paper attempts to estimate the self-reliance index of India’s defence production. While estimating the index, it also focuses on three important issues; the approach towards self-reliance (as understood in the Indian context), data problems in estimating the index and the methodology used to arrive at the index. The paper suggests that a separate budgetary classification be made in the Defence Services Estimates to facilitate computation of self-reliance in a more objective manner. This necessitates suitable changes in the classification handbook for defence that mandates the concerned officials of the Indian Defence Accounts Department to book a particular expenditure.

Mr. Behera argued that the concept “self-sufficiency” differs from “self-reliance”, though these have alternatively been used in the Indian context. Self-sufficiency means producing everything in-house that the armed forces need, whereas self-reliance refers to “equipping the armed forces with a whole range of equipments that may come from foreign and domestic sources”. However, he argues that ‘self-sufficiency’ is not an ideal path for a country like India since India’s industrial and Research and Development (R&D) base is not yet sufficiently developed.

Mr Behera describes three phases of India’s defence industrialisation process from the perspective of the aim of self-reliance; from independence to mid-1960s, from mid-1960s to mid-1980s, and from late 1980s till present. In the first phase, self-sufficiency was an overall economic principle behind its industrial development as the leadership at that time felt that the state-led intervention was the best way to overcome the de-industrialisation of economy that was caused by two centuries of the British rule. However, despite some successes, this model had faced considerable weaknesses because of the low level of defence allocation and defence R&D, in addition to the lack of a civil industrial base which had a major impact during this phase.

In the second phase, according to the author, the events of 1960s, particularly the 1962 border war with China and the 1965 Indo-Pak war, brought a major change in India’s defence policy, and the term self-reliance replaced self-sufficiency in defence production. Not only India’s defence budget as percentage of Gross Domestic Product (GDP) increased in the subsequent years but also the approach towards arms procurement policy and indigenous defence production. Moreover, unlike in the first stage of industrialisation, in the second stage of India’s defence industrialisation, more attention was paid to license-production rather then indigenous production, based on its own design and developmental efforts. However, this led to dependency on the license-based defence production, particularly on the Soviet Union. India’s aeronautics industry is such a case whose dependency continues till now. And, in the third phase, with increasingly aware of the pitfalls of the overdependence on Soviet Union, India began to change its approach to defence industrialisation, from license-based production to production based on indigenous design. In this regard, India and Russia signed in 1998 an intergovernmental agreement to jointly produce a supersonic cruise missile, BrahMos and in 2007 two more intergovernmental agreements were signed for co-development and co-production of a Multi Role Transport Aircraft and a Firth Generation Fighter Aircraft. Thus, there has been emphasis on self-reliance and co-production with higher importance on promoting the participation of Indian private sector defence production.

A 10-year self-reliance plan formulated in 1992, under the then Scientific Advisor to the Defence Minister, Dr A.P.J. Abdul Kalam, defined the self-reliance in the form of an index, reflecting the percentage share of indigenous content in total procurement expenditure. Mr Behera held that this definition serves as the only methodology for estimating the self-reliance index, primarily because of the difficulty of putting together a log of information about what is critical and what is not, and updating it regularly with technological development. However, this estimation is not straightforward, primarily because of lack of consistent data in the public domain.

Mr Behera pointed out that India’s heavy dependence on arms import for defence preparedness defies the very objective of self-reliance that it has set for itself. The 1992 Abdul Kalam committee indicated that the share of indigenous contribution to total procurement expenditure would progressively increase from 1992-93 estimation of 30 per cent to 70 per cent by 2005. Although India has developed a vast defence industrial base over the years, the objective of achieving 70 per cent self-reliance has not been achieved till now. He concluded by stating that the self-reliance index has barely improved from 1992-93 estimation of 30 per cent to 36.4 per cent in 2011-12 which indicates the failure of India’s defence industrialisation process and demands serious retrospection.

Major Points of Discussion and Suggestions:

  • At present, India’s total defence R&D budget accounts for about six per cent of defence budget which in itself is less than two per cent of GDP. Compared to this, other countries, particularly the US and China spend a higher percentage of their defence budget on R&D.
  • It would be significant to look into and assess where India now stands at the global scenario on self-reliance in defence production. As the Indian economy is growing, it is looking for the indigenisation of defence production. This is important not only to meet its own defence requirements for safeguarding its vital national security interests but also to play a larger role beyond its immediate neighbourhood.
  • Although today India has reached 100 percent self-reliance in terms of deterrence, it needs to minimize the dependency on foreign countries for its defence needs by further enhancing and indigenisation of its defence production sectors.
  • India has already developed a good platform for co-production and development of defence equipment with Russia, now it should look for such joint production with other countries.
  • India’s private defence sector is very weak, and it cannot take big projects. However, it can contribute in the defence production sector by joining with public sectors. For this, capacity building of the private sector is very important if it is to undertake future defence projects.
  • The author pointed out that Kalam Committee Report has weaknesses which needed to be addressed. In this regard it was suggested that the methodology adopted by Kalam Committee and others such as Dr. Balachandran’s can be analysed in order to find out their strengths and weaknesses, and then the author can refine and adopt his own methodology for this study.
  • The conclusion part of the paper also needs to be moderated. As the kind of data required for estimating self-reliance index is not available in public domain, the author needs to state it as a limitation in the paper’s conclusion. The author also needs to mention what kind of data is required to estimate the self-reliance in India’s defence production.

Remarks by the Chairperson

Outlining the present status of self-reliance in India’s defence production, Mr Vinod Kumar Misra said that the extent of India’s arms imports hamper indigenisation of its Defence Public Sector Undertakings (DPSUs). Imports of defence raw-materials and technologies have also been a problem. In addition, it needs to sustain those imported technologies for a long time. However, self-reliance in defence production is a log term process and it will gradually take place in India. In this context, India’s new offset policy can be a significant game changer. However, for its success, it needs to identify the kind of defence technologies that it wants to manufacture and then should focus on creating capacity on those core items. Mr Misra pointed out that India’s defence production sector and R&D also suffer capability gap and the Joint Ventures with Russia and Israel for co-production and development of defence equipment can be one way of meeting this capability gap. There is also a strong case for increasing Foreign Direct Investment (FDI) in the defence production sector but India has to find out the ways to give a push to it. So far as policy announcement is concerned, Indian government has recently issued policy guidelines for engaging the private sector. Some progress has been made in this regard but still time will take in involving private enterprises in big projects.

Report prepared by Dr Saroj Bishoyi, Research Assistant, IDSA