National security dividend

Private sector in defence equipment will create jobs at home

The Indian Navy’s reported preference for imported submarines over domestically manufactured ones because of delays in getting the latter is understandable. If the navy’s requirement is that it needs 24 submarines to deal with extant maritime security requirements, while it has only seven or eight that are actually operational out of a fleet of 15, then there is good justification to shop around the world and bridge the gap with whatever is available. However, if early delivery becomes an overriding criterion for defence equipment, an indigenous defence equipment industry may never come into being. And, certainly not unless the Indian private sector is allowed to invest in it. Indian private sector companies like L&T are, therefore, justified in their complaint that government policy is not helping the growth of an indigenous private sector defence industry.

The “make or buy” dilemma is an old one. An important reason why the armed forces have long preferred to import equipment rather than wait for domestic supplies is long delays on the part of domestic public sector companies. This is not to deny the allure of kickbacks from imports that domestic purchases, especially from public sector companies, are unable to so easily offer and the seduction of foreign travel for civilian and defence staff. Not ruling out such considerations, the fact remains that the policy of delaying decision-making at home that, in turn, delays project implementation, and then at the eleventh hour settling for imported equipment, has had the effect of hurting the development of indigenous manufacturing capability in defence industries.

One way in which the government can deal with the problem of project implementation delays is to allow domestic private sector, perhaps with some foreign technical collaboration if necessary, to invest in defence equipment manufacture. Unless large orders are placed and long-term contracts given out, an indigenous private sector defence industry will never develop. Of course, the existing public sector companies will lobby against such moves. But the government must have the courage to break public sector monopolies and encourage competition. Private sector players can only spur public sector companies to greater efficiency, and shorter delivery schedules.

The most important benefit of indigenising defence equipment production would be creation of employment and promotion of related industries at home. Given the difficulties India is having in promoting its manufacturing sector, and given the synergy between defence equipment manufacturing and other manufacturing industries, a policy of promoting private sector in defence can become a variant of industrial policy aimed at increasing the employment potential of Indian industry. An indigenous private sector defence industry will also contribute to technological development at home. Given India’s rising defence budgets, it is time the benefits of that spending are retained at home and not doled out to foreign suppliers or inefficient government ones only. Companies like L&T have demonstrated their capability to build and deliver high-quality equipment on time. India should learn from the experience of major powers like the US, Russia and China as well as countries like Israel, South Korea, Brazil and an assortment of European economies, all of whom have large domestic defence industries. Among the major powers, India has, perhaps, the highest dependence on imported equipment. This dependence must be reduced over a period of time without hurting national security and the immediate requirements of the armed forces.