At the time of its launch and commissioning to the services, Manohar Parrikar, the then defence minister, stated: “In these high technology areas, DRDO’s contribution with 95 per cent of indigenous content is an apt example for a product from the ‘Indigenously Designed Developed and Manufactured’ category.” The torpedo is an important milestone in pushing India towards self-reliance when it comes to underwater defence capabilities. Our current lot of submarines and warships will now be equipped with these new torpedoes, which will make them a potent force for the future. The capability of these torpedoes extends to knocking down stealth missiles in deep or shallow waters, if the situation demands it.

Tejas:

This light combat aircraft has been jointly developed by Hindustan Aeronautics Limited (HAL) and Aeronautical Development Agency (ADA). The aircraft can take up a variety of roles in war situations and is supersonic by nature. It took around 3000+ sorties to demonstrate the capabilities of this LCA prior to it being inducted into the Indian Air Force. Speaking at the launch of the Tejas fighter, Prime Minister Narendra Modi stated that the LCA demonstrated India’s skills and strengths in enhancing indigenous defence manufacturing. The Tejas is capable of firing air-to-air missiles, and can drop laser guided bombs. And most information gathered during sorties can be captured in real-time by the inclusion of a high-resolution display in the cockpit.

Long range surface-to-air missile (LRSAM):

This missile has been jointly developed by DRDO and the Israel Aerospace Industries, to complement the capabilities of the MRSAM (medium range surface-to-air missile). Last year, in September, LRSAM was tested on two pilotless target aircrafts, at different ranges and altitudes. And both exercises were successful. Among the versatile technologies used in the LRSAM are the radar guidance system, the communication system and the missile system.

Evaluating the lack of private sector participation in defence manufacturing

Private manufacturers lack the incentive to enter the defence sector because of a number of reasons. These include the risk on returns due to the rigorous checks in the sector, a stringent and ambiguous policy framework, irregular orders, lack of demand and the non-feasibility of small orders, the scarcity of resources and skilled manpower to meet the sensitive requirements of the sector, etc. These problems are made worse by the lack of economies of scale in production and the long gestation periods. There is also a feeling in the private sector that there isn’t a level playing field vis-a-vis the public sector. This is because of the lopsided rules of the government and the incentives that are provided to the public sector units in terms of vast infrastructure, investments, technology collaborations, etc. In short, in the current scenario, private players find manufacturing for the defence sector unsustainable.

With the defence sector at an inflection point, the government must take the necessary steps to bridge the gap between its intentions and the ground realities. Considering the potential of this sector, the government should assume more responsibility to boost its efficiency and ensure fair play, by creating strong policy frameworks while keeping the security aspects in mind.

The way forward

Considering the various aspects of the defence sector, here are certain recommendations for getting the private players more involved in manufacturing for this sector.

1. Policy simplification:

As of today, the sector is governed by varied policies that cover licensing, import and export duties, security checks, tax regulations and procurement. The controls and restrictions imposed on the players operating in an uncertain and unclear legal framework affect efficiency and productivity. The bureaucratic delays add to the challenges, affecting the inflow for foreign investments. All government policies must be harmonised and synchronised towards a single window clearance with prefixed turnaround times (TATs) and a smooth operational framework, which would aid in ease of doing business.

2. Tax holidays:

The government of the day should consider extending benefits to defence manufacturers by giving the sector an infra status, wherein it can enjoy 100 per cent tax subsidy for a stipulated number of years, and cut down the import duties on capital expenditure. This will help strengthen the base of the manufacturing industry.

3. Inclusive development:

The ministry must address the industry demands, and provide advanced infrastructure and functional funding in terms of prototyping finance for SMEs, ensure ongoing and regular orders, give R&D support and help in absorbing the risks on returns since defence manufacturing involves low volumes. Government policies should help in attracting angel investors to this sector, and the outsourcing model must be worked upon, whereby PSUs involve the SMEs. The overall idea is to balance out investments against the profits for the sector.