Defence production needs to open up: study
Despite having one of the largest defence industries in the developing world, India has not managed to attain self-reliance in defence production and its export performance has been way off the mark, says a study.
And excessive protection given by the government to public sector undertakings (PSUs) and Ordnance Factories (OFs) has bred incompetence and made these non-competitive, says the study by industry body Assocham and consultancy firm Ernst & Young.
"The state of our DPSUs/OFs, their production capabilities in terms of both quality and quantity, their accountability, competitiveness, the production accorded to them and their management are directly responsible for the present state of affairs," the study says.
Also, an assured and captive domestic market, it says, has reduced the competitiveness and led to complacency.
"Excessive protection extended by government to defence undertakings including their management and Ordnance Factories has bred so much non-competitiveness in defence production that a meagre sum of Rs 11.6 billion was earned in foreign exchange through export items of defence items in last three years," it says.
India's defence industry consists of 40 OFs, eight defence PSUs and a small but emerging private sector.
"Even with an assured order from Defence Ministry to the tune of Rs 200 billion every year, defence PSUs and OFs, which have the capability to ramp up, have not made a dent in the export market and also failed to stop imports," the study says.
In such an environment with immediate emphasis being on only developing “import substitutes”, India lacks cutting edge technology to produce state-or-the-art equipment. "So it is clear that exports were never a priority for either DPSUs and OFs," it says.
The study says the export performance is unlikely to improve until India changes its current 'skewed' defence industry policies, including the 26 per cent FDI cap.
India needs a well-defined export policy, it argues, clearly mapping out current potential countries and defence products for exports.
Defence exports, according to the study, could be accelerated with proper coordination between the Defence and the External Affairs ministries.