IDSA COMMENT

Defence Production Policy 2011: Need for Reinvigoration

October 25, 2012

India’s Defence Production Policy was released by the Ministry of Defence 22 months ago. This policy is a very incisive statement of the government’s intent to promote self-reliance in defence and a fairly lucid enunciation of the approach to achieve that objective. The policy envisages an annual review of the progress made during the year in self-reliance. No such review has, however, been carried out so far. Consequently, there is no official assessment of the impact the policy has had on the process of self-reliance in defence since the policy was promulgated.

The void has been filled by subjective assessments, which are not very encouraging, especially in regard to the tactical and operational dimensions of the policy. Whether or not these assessments are correct, the fact remains that much of the enthusiasm with which the policy was launched has waned and, but for the customary statements about the resolve to achieve self-reliance, no concerted and sustained effort is apparently being made to ensure that the policy is put into practice.

The policy seems to be in a state of drift. A thorough and honest review of the progress made so far is essential for arresting this drift and for course correction. The stated objectives of the policy should be a good starting point in this regard. These are to:

  • Achieve substantive self-reliance in design, development and production of equipment, weapon system and platforms required for defence in as early a time frame as possible.
  • Create the conditions conducive for the private industry to play an active role in this endeavour.
  • Enhance the potential of small and medium enterprises (SMEs) in indigenization. And
  • Broaden the defence research and development base of the country.

There is a need to develop strategies to achieve these objectives. Some of the issues that might need to be looked into are suggested here.

The very first objective of achieving substantive self-reliance in design, development and production of equipment, weapon system and platforms requires a more nuanced definition of what constitutes ‘substantive self-reliance’, transparency about the future needs of the defence services, clarity about the entry points for the public sector and the private industry, and an eco-system conductive for such entry. The very concept of self-reliance would need to be carefully defined. It needs to be considered whether the pursuit of self-reliance, overlooking its cost-effectiveness in specific projects, would be a good idea. The Long-Term Integrated Perspective Plan (LTIPP) 2012-27, approved by the Defence Acquisition Council on April 2, 2012, would contain the Services’ vision about their future requirements. Recognising the importance of sharing the future needs of the defence services with the industry, the Defence Procurement Procedure (DPP) 2011 provides that the headquarters of the Integrated Defence Staff will bring out a public version of this document outlining the technology perspective and capability roadmap covering a period of 15 years. This document is required to be widely publicised and made available on the website of the Ministry of Defence. More than six months after the LTIPP was approved, the public version is nowhere on the horizon. This assumes significance because the Defence Production Policy says that based on the approved LTIPP, equipment, weapon systems and platforms required 10 years and further down the line will by and large be developed, integrated or made within the country. The industry can start planning only if it knows what to plan for.

There is lack of clarity about the entry points for the public sector and the private industry. There continues to be a predisposition to nominate the Public Sector Undertakings and the Ordnance Factory Board as the production agency. Though DPP 2011 provides that the production agency could be selected from any of the public or private sector entities, the proviso that such selection could be made on the basis of inputs from the Department of Defence Production and, if required, the Defence Research and Development Organisation, gives an opportunity to these organisations to garner the new projects. Quite often they succeed because in the prevailing circumstances it is risky to press for nomination of a production agency from the private sector. The intent to achieve self-reliance by roping in the private sector seems to have made little dent on the tendency to root for the Public Sector Undertakings and the Ordnance Factory Board for acquiring technologies for production and maintenance of new equipment, weapon systems and ammunition. The Ordnance Factory Board continues to be routinely nominated for producing ammunition for new weapons systems also, despite the known fact that it has serious limitations in meeting the already existing demands of the Services, apart from quality control issues in some cases.

In fact, there are no guidelines for identifying a private entity for nomination as a production agency. When faced with this problem in the Avro-replacement proposal of the Indian Air Force, the modus vivendi of letting the prospective bidder select the Indian partner for manufacturing the aircraft in India was worked out, but even this approach was circumscribed by prescribing the eligibility conditions for selection of the Indian partner by the foreign bidders. The inability of the Department of Defence Production and the Department of Defence Research and Development to let go of the privilege of calling the shots in nomination of the production agency seems to have played an important role in this. The potential of the Avro-replacement model as a means of strengthening and widening the indigenous manufacturing capabilities has not been fully realised. In fact, its potential cannot be fully realised unless the rules of the game for entry of the private sector are clearly laid down, unshackling the selection from all unnecessary governmental control.

It is a big challenge to create an eco-system conducive to strengthening of the indigenous capabilities in design and development, manufacture and maintenance of equipment and weapon system. There are issues related to the limit on foreign direct investment, taxation and export licenses that need to be addressed to create a congenial eco-system. It would help if the Ministry of Defence were to assume the leadership role and provide a single-window solution for the defence industry, rather than leaving the private sector entities to fight their own battles with a host of government departments and agencies. This calls for a paradigm shift in the approach to encouraging participation by the private sector in the effort to achieve self-reliance through indigenisation.

The Small and Medium Enterprises (SMEs) have their own set of problems. One of the recommendations made by the Kelkar Committee was the creation of separate funds for technology development and for assistance to the SMEs. The Defence Production Policy also reiterates its commitment to create a separate fund for providing the necessary resources to the public and private sector, including the SMEs as well as academic and scientific institutions, to support research and development of defence equipment and systems with cutting edge technology. This commitment to create a fund is somewhat surprising. The recommendation made by the Kelkar Committee had been considered in the past but at that time it was not considered feasible. However, instead of creating separate funds, budget heads were opened in the year 2010-11 itself to provide budgetary support for technology development under the ‘Make’ procedure and assistance to the SMEs. A modest allocation of Rs. 89.31 crore has been made in the budget for the financial year 2012-13 (as against actual expenditure of Rs. 81.95 crore in 2010-11) for the projects of the Indian Army and the Indian Air Force that involve technology development but no allocation has been made for assistance to the SMEs since the time this budget head was opened in 2010-11. The Indian Navy has had no expenditure under either of the two budget heads. The scheme for providing assistance to SMEs was drafted by the Department of Defence Production a couple of years back but it was not promulgated. There is a need to address the concerns of the SMEs.

The Defence Production Policy promised that the government would simplify the procedures under the ‘Make’ category in such a manner that it enables indigenous design and development by the public and private industry in a faster timeframe. Some changes are contemplated as a part of the exercise that has been underway since February 2012 to amend the Defence Procurement Procedure. Whether the proposed amendments would result in the promised simplification of the procedure is not known but, in any case, the amendments to DPP 2011 need to be expedited.

A comprehensive review of the progress made after the promulgation of the Defence Procurement Policy is overdue. It needs to be undertaken immediately to identify the factors that are coming in the way of smooth implementation of a well-intentioned policy promulgated nearly two years ago. It would be advisable to engage the private sector in identification of the problems and possible solutions to those problems. A task force had been set up by the government on defence modernisation and self-reliance under Shri Ravindra Gupta, former Secretary Defence Production. The committee has submitted its report. Any review undertaken at this stage must also take into account the recommendations made by the task force. As of now, the report has not been made public but doing so would generate a healthy debate and consequently serve the cause of refining the defence production policy and evolving strategies for its implementation.