Two very different speeches in New Delhi last week, on the eve of India’s 64th Independence Day, drew attention to the strategic role of industrial policy. Harvard economist Dani Rodrik, renowned for his influential work on industrial policy and a source of inspiration for India’s National Manufacturing Competitiveness Council, told a Confederation of Indian Industry audience that “strategic collaboration and co-ordination between the private sector and the government” could help uncover the bottlenecks in industrial growth and encourage investments in “non-traditional” areas. “Industrial policy is a process of discovery rather than a list of policy instruments,” said Professor Rodrik.
Just a day earlier, India’s National Security Advisor Shivshankar Menon had told an audience at New Delhi’s India International Centre that all the Indian “talk of strategic autonomy has little meaning unless our defence production or innovation capabilities undergo a quantum improvement. A country that doesn’t develop and produce its own major weapons platforms has a major strategic weakness, and cannot claim true strategic autonomy”. For a country that has to modernise and upgrade its defence capability and one that is excessively dependent on imports and an inefficient domestic state sector, manufacturing for defence can offer a way forward for industrial growth.
That vision seemed to have informed the Union government’s Defence Production Policy (DPP) announced in January this year. After paying the expected, if ill-deserved, obeisance to the role played by public sector defence enterprises in promoting self-reliance in defence production, the DPP 2011 said, “The objectives of the Policy are to achieve substantive self-reliance in the design, development and production of equipment/ weapon systems/ platforms required for defence in as early a time frame as possible; to create conditions conductive for the private industry to take an active role in this endeavour; to enhance potential of small and medium enterprises in indigenisation and to broaden the defence research and development base of the country.”
However, for defence production to become a vehicle for industrial development at home, a transitional phase would be required in which domestic private sector and foreign companies can work together and the playing field of policy does not tilt against them and in favour of public sector enterprises. As Professor Rodrik correctly reminds us, industrial policy is a “process”, not a set of “instruments” with which bureaucrats, however enlightened, can create new engines of growth. The processes of industrialisation require space to unfold and the government policy has been far too restrictive and intrusive. The preference shown by DPP 2011 for “indigenous design, development and manufacture of defence equipment” does not adequately recognise that industrial design and production has become a global operation, with backward and forward linkages, supply chain and logistic links that bring different countries into the loop. There is nothing called 100 per cent “indigenous” in the modern industrial economy. Be it a jet fighter or a nuclear plant, an automobile or a mobile phone, different parts of any given product, platform or technology have different nationalities. Indeed, many Indian companies are now increasingly global, in terms of market and investor base. The goal of a strategic industrial policy should, therefore, be to create employment and capabilities at home. Who does that is secondary.
