In the wake of the selection of the Rafale the offset clause currently in force must be used to revamp India’s domestic aerospace industry, making it more technologically current and capable of taking on advanced design and development tasks in future.

While Mahindra’s foray into defence production and the acquisition of foreign companies demonstrates the private sector’s initiative, the government needs to introduce further reforms to promote the role of private companies in Indian defence industry.

The effectiveness of the procurement process needs to be viewed in context of the operational and structural readiness of the armed forces. If the existing framework proves to be weak and unable to deliver required levels of military preparedness, the framework may have to be re-laid for its effectiveness and deliverability.

With the growth of the public sector in Defence Production a large number of industrial units in the Private Sector has also grown with varied scales of operation in areas like outsourcing of raw materials, components, sub-systems, assemblies and sub-assemblies.

The present global economic crisis has slowed down the growth of the Indian economy, affecting among others, the fiscal situation and the revenue mobilisation potential of the central government. Defence being one of the largest recipients of central government expenditure, the present crisis casts a doubt on the adequacy of future resources. This commentary discusses some major options that India’s Ministry of Defence needs to consider in order to withstand the likely resource constraints in the coming years.

What does it take to be ‘a vibrant industry’ or more specifically ‘vibrant defence industry’? Broadly, it would demand that the industry should be innovative in terms of processes and products, its base and structure should have large dimensions horizontally, vertically, and technologically to be responsive enough to keep pace with the changing strategic expectations of the nation. Defence exports and imports should be a matter of deliberate political or commercial policy choices and not a result of security compulsions.

The Ministry of Defence (MoD) recently issued a new set of rules for the procurement of arms, ammunition and other defence related products and services. The rule book, known as Defence Procurement Procedure 2008 (DPP 2008), has revised, among others, the offset policy that was first promulgated in 2005 and subsequently revised in 2006. The revised offset policy which retains the earlier minimum 30 per cent offset requirements in defence imports of Rs. 300 crore or more has added a provision of offset banking, besides enlisting a number of categories of defence products.