India’s defence sector needs around $150 billion for modernisation and restructuring in order to become self-reliant.
The Government has allocated over $40 billion for the development of the sector in this fiscal year.
Despite having the skill sets and capabilities, importing most of our defence equipment and continuing with a sub-developed manufacturing base is a cause of concern.
What are the problems in this regard?
The capital intensive defence industry is caught up in stringent and ambiguous financial and regulatory policies.
Availability of basic resources at highly competitive prices is a barrier to the development of the sector.
Private manufacturers lack the incentive to make investments into the sector considering risk on returns.
On the one hand, despite all the facilities, growth of PSUs is stagnating, while private sectors are not keeping pace with other countries.
Government is taking steps to bridge the gap with the Indian industries but considering the potential of the sector, the Government should assume more responsibility.
What is to be done?
Currently foreign investment up to 49% is permitted under the automatic route and those beyond 49% and up to 100% is permitted through Government approval route in defence.
A more liberalised FDI regime along with right checks and balances can promote investments into the defence sector.
FDI should be complemented with an equal platform for Indian subsidiaries of foreign companies vis-a-vis Indian public and private undertakings.
Collaborating foreign investors with top scientific and technical institutes in India can bring in advanced technical knowhow and manufacturing capabilities.
Different policies in regard with defence sector could be harmonised and synchronised to work towards a single window clearance mechanism.
This could rule out multiplicity of approvals and bureaucratic delays, thereby promoting foreign investment and ease of doing business.
Cutting down duties on import of capital equipment and manufacturing defence products would help in strengthening the manufacturing base.
Giving the defence sector an infrastructure status would allow manufacturers to enjoy 100 per cent of profits for a stipulated number of years and work as an incentive.
PSUs should outsource more to SMEs (Small and Medium Enterprises) thereby increasing investments and absorbing the distinct characteristics of innovative capabilities in the industry.
Government has recently notified the strategic partnership policy for all major defence procurements by the Government.
The policy focuses on selecting an Indian strategic partner in key segments like helicopters, submarines, etc. This can work towards indigenisation and capability development in defence production.
India needs a proactive management of the current and potential resources to capitalise on the promising defence manufacturing industry.
