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Mayank Bahuguna asked: What are the relevant lessons for Make in India from the role of private companies in the American defence industry?

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  • Amit Cowshish replies: The business practices, professionalism, and potential of the private sector in India for undertaking the design, development and production of sophisticated defence equipment are second to none in the world. If, despite this, India has not become a defence manufacturing hub, it is largely because of the economic and geopolitical milieu of the country, which is vastly different from the one in which the private defence companies bloomed in the US after the Second World War.

    Given this crucial difference, it would be naïve to expect that the Indian industry can emulate the trajectory of the US defence industry. The financial capacity of the government to buy the locally manufactured defence materiel, and the limited exportable high-end product range of the Indian industry, are not comparable with that of the US. These are essential pre-requisites for the defence industry to flourish anywhere in the world.

    Be that as it may, three broad lessons—to which more could certainly be added—can be drawn by the Indian industry from the overall American experience to promote defence manufacturing in India.

    First, considering the persistent budgetary constraints faced by the Ministry of Defence (MoD), the Indian companies will need to focus on dual-use technologies which have civilian applications to reduce their dependence on the MoD as the sole buyer. Tie-ups with foreign manufacturers and technology providers will help the industry achieve this objective.

    Second, integration with the global supply chain of foreign manufacturers would provide impetus to the manufacturing industry in the immediate run. The Indian companies will benefit from the expertise gained in the process and can use the lines of credit extended by India to some countries to expand their footprint in the export market. A scheme on the lines of the US government’s Foreign Military Sales programme would help India export military materiel to the smaller nations.

    Third, higher investment in defence R&D in niche areas and manufacturing technologies can give an edge to the Indian industry over its competitors. A well-coordinated initiative in a few selected areas like artificial intelligence, where India may have an advantage, can be taken by a few major companies which have the stomach for taking investment risks in developing and manufacturing sellable defence products.

    In the ultimate analysis, however, defence being a monopsony, the ability of the private companies to make India a defence manufacturing hub will depend on the government policies and their implementation. It is an area in which the government has more to learn from the experience of the US and other leading defence manufacturing countries than the private companies.

    Posted on 2 November 2021

    Views expressed are of the expert and do not necessarily reflect the views of the Manohar Parrikar IDSA or the Government of India.