USING DEFENCE FOR DEVELOPMENT: NEW POLICY OPTIONS FOR INDIA – ANALYSIS

By Bhartendu Kumar Singh

NOVEMBER 13, 2014 

Defence and development have remained watertight compartments in India’s national security discourse and are largely perceived within the ‘guns versus butter debate’. Both compete for the scarce resources and hesitate to reach out to each other, both in terms of academic literature or through policy manifestations.

While former Indian Prime Minister Manmohan Singh’s model of ‘inclusive growth’ attempted to bridge this divide in conceptual terms, the incumbent Prime Minister Narendra Modi’s government has gone a step further and announced an investment of Rs. 50,000 crore towards the development and construction of six submarines on indigenous platforms. The move is likely to usher in another chapter where the defence sector would adopt a development approach in expanding the domestic military industrial complexes (MICs).

The new decision points towards an optimistic future in many ways. First, it is a significant step towards saving foreign exchange that is spent on the purchase of imported weaponry. According to the Stockholm International Peace Research Institute (SIPRI), in the past five years, India accounted for 14 per cent of international arms imports. Its weapons imports are almost three times higher than China and Pakistan; and certainly embarrassing for a great power candidate that imports its 70 per cent armory through imports. An inflated dollar in the international market has only complicated India’s woes. Second, India funds the revitalisation process of foreign MICs. Russia and Israel export 38 and 33 per cent of their arms respectively to India; and many European countries follow.

The sick MICs of these countries owe a lot to Indian benevolence for their resurrection. However, investing this money in domestic MIC will create jobs apart from the proliferation of ancillary industries in different geographical hubs. Third, such investments would also contribute in capacity development of defence Public Sector Undertakings (PSUs) and help them compete in the global market. It is quite a tragedy that there are only two Indian defence PSUs that figure in world’s top 100 arms producer: the Hindustan Aeronautics Ltd (40th position) and the Ordnance Factories (47th position). Their shares in arms exports are quite negligible and make a mockery of the taxpayers’ investments.

Past experiences in defence manufacturing, however, engender certain apprehensions. First, many defence projects have stretched beyond a reasonable period of time and have had excessive cost over-runs. The Light Combat Aircraft (LCA) project, for example, has been delayed for ages and now when it is ready for induction, the preference is for the French-made Rafale. Thus, the opportunity for self-reliance in a critical area like fighter jet technology is again being missed out. The progress in another ambitious project, MBT Arjun has been rather self-defeating, forcing the army to look for substitute purchases from Russia. Similarly, India’s Indigenous Aircraft Carrier (IAC), INS Vikrant, being built by the Cochin Shipyard Limited in Kochi, is delayed by four to five years, and is now likely to be on sea only around 2018. The 2011 defence production policy therefore needs to be made more robust to cater to these issues.

Second, as has been experienced in some projects, the ‘make in India’ efforts ultimately lead to ‘assemble in India’ wherein foreign components still dominate; technological growth does not take place and the efforts to expand the domestic MIC fail miserably. Dependence on foreign countries in critical technologies will dilute the efforts to make commercial use of indigenous defence products since a heavy forex would still fly abroad in royalty.

Additionally, several contemporary challenges thwart the government’s effort to create a mutually supportive environment where defence would promote development. First, the domestic MIC is dominated by defence PSUs and ordnance factories; with very little contribution from the private sector. Worse, their geographical distribution is mostly in developed pockets where the cost of labour and infrastructure is high. Backward states like Bihar, Jharkhand and Orissa etc. should, therefore, also get an equitable pie in the development cake. Fresh capital investments must consider these issues since they will act as ‘engines of growth’ and could arrest outward migration from these regions.

Second, while the present capital investment is a generous step, sustaining it on a long-term basis would be difficult unless the revenue capital ratio (presently at 57:43) in the future defence budgets is rationalised. Rightsising of manpower based on global experience is the sin-qua-non for transferring the rupee towards the domestic MIC.

Third, getting the best from defence PSUs, despite fresh investments, remains a challenge since they work in a monolithic environment, behave largely as departmental extensions and resist corporate reforms. Its time to look beyond them; and the government’s incentives must indeed be reserved for investment in new technologies, patents and innovations in defence that could be marketed and put through commercial utilisation. If the private sector joins the bandwagon, it would be encouraging.

A developmental approach to defence that allows it to promote growth and development rather than treating it as only ‘cash outgo’ is required in administering the defence budget. Many middle powers like Germany, Sweden, Italy, Ukraine etc. make a killing from vibrant MICs providing jobs to millions and earning foreign exchange. India can similarly reorient its defence expenditure and unleash harmonious progress of defence and development.

Note: Bhartendu Kumar Singh, PhD, is in the Indian Defence Accounts Service. Views are personal.