Defence Can Boost Manufacturing Sector

India can get rid of its poverty only if it becomes a major manufacturing power. It will have to manufacture everything that the domestic as well as global consumers demand today and will demand tomorrow. If India is not in manufacturing in a big way, it can’t remain at top in services for long.

Manufacturing can get big boost in two ways: Firstly India’s private sector must enter all the sectors monopolized till date by public sector including defence manufacturing. Secondly, all the public sector enterprises including the defence production companies must encourage outsourcing the parts and subassemblies to local vendors in big way.

Defence production is a huge manufacturing business. As on today, major indigenous defence production remains with government enterprises mostly under defence ministry. On one hand, the defence forces have special liking for the hardwares from Russia, France, Israel, and other foreign sources, perhaps out of selfish interest. It keeps on finding reasons that sometimes appear as excuses, to import. So it doesn’t actively associate itself in indigenising or show interest in using the locally developed and produced products, machinery, arms, ammunition and equipment. Arjun main battle tank is an example. Same must be true with number of other locally developed armaments and equipment. On the other hand, the production enterprises under defence ministry have hardly grown in scale and technology with time. My experiences of some ordnance factories manufacturing guns and vehicles have been real poor. People in the establishments hardly work. The defence production organizations lack efficiency, competitiveness and aggressiveness that are necessary to grow. The existing factories must improve its productivity and cost competitiveness and must produce the contemporary products required by the defence forces. It requires factory based R&D and innovations.

India is spending billions of dollars importing all sorts of major weapons. With capability to manufacture precision mechanical as well as electronics components and highly talented human resources, India has all the potentials to manufacture them in the country. And the local production could have given a big boost to the local economy creating huge employment. And it can’t happen if private enterprises don’t enter the sector.

Why can’t the country see the coming up of an Indian equivalent of the US’s Lockheed Martin or the UK’s BAE Systems in private sector?

As reported, the total sales of the 39 ordnance factories and eight defence PSUs in the country added up to Rs 19,916 crore in 2005-06. That’s about 58 per cent of the country’s arms purchases for that year. India’s private sector defence companies aggregated sales of only Rs 4,606 crore ($1.02 billion) in 2005-06 in the form of raw material, components and sub-assemblies supplied to the ordnance factories and defence PSUs. More importantly, however, the local manufacture does not include sophisticated technology items.

India placed import orders worth $5 billion (Rs 22,500 crore) for all the critical items, according to Stockholm International Peace Research Institute (SIPRI).

As per one estimate, India will spend $45 billion (Rs 1,84,500 crore) on buying arms and equipment for its armed forces over the next five years.

About $30 billion (Rs 1,23,000 crore) of this will be on imports. However, India’s defence industry will get business worth about $9 billion (Rs 36,900 crore) through a new defence offset policy. Under this new policy, foreign suppliers with defence orders of more than Rs 300 crore are required to spend 30 per cent of the order value in investments in Indian defence companies or sourcing defence products and services from Indian defence units. This can’t be the way India can go in manufacturing in big way. India must have many more OEMs.

India’s defence industry has the potential to be 10 times its current size of Rs 20,000 crore within a decade given the current trend of increased arms acquisitions. Why can’t India take a lesson from the US defence industry that had a turnover of $183 billion (Rs 7,50,300 crore) in 2005, and employs more than 2 million people?

Defence production was opened in 2001 for private entrepreneurs. A few companies have already taken significant steps to become serious players.

 L&T has been working for DRDO on many projects, including development of missiles and rocket launchers, torpedo launchers, bridge-laying tanks and submarine hulls. It has now orders for 40 ‘Pinaka’ mobile rocket launchers that it developed along with Tata Power from the Army.

 Tata Power’s Strategic Electronics Division has also specialised in making computers for fire-and-forget weapons and surveillance and tracking systems.

 Mahindra & Mahindra (M&M) is making light combat and armoured vehicles.

 HCL Comnet, Noida has laid satellite and terrestrial communication networks for the Army

 Astra Microwave Products, Hyderabad makes radar components.

 Wipro has set up a cell to tap the offset opportunities in engineering design and software for weapons and aircraft components. WIPRO’s hydraulics division is looking to tie up with aircraft landing gear makers.

Many more big private players must join the defence industry and the government must facilitate that. Defence production can’t remain a government business any more.

A vibrant defence industry is in national interest. It always means a superb technological R&D, and that in turn could also be useful in the civil sector. Historically, military research has yielded many technologies or accelerated technological development. Military needs were behind familiar technologies such as the Internet, computers, satellites, and even high-definition television. Interestingly, in India, one example of military technology put to civil use is ready-to-eat packaged food. DRDO developed it for the troops, but later licensed to MTR Foods.

As reported, the private sector is battling two factions in the Ministry of Defence – one that favours imports in the name of providing the armed forces with the latest and the best in the market, and another that favours the public sector in the name of national security and jobs. And both are harmful for the nation. Defence production must get freed for the highly talented entrepreneurs off the country.

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