Private sector in defence resurgence

ANIL D. AMBANI

March 3, 2015

With the Prime Minister outlining a new vision for defence resurgence, there is a need to acknowledge at every level of government that the private sector can be trusted to play as important a role in the modernisation of India’s defence capabilities as the public sector

When I once met Prime Minister Narendra Modi, I was struck by a telling comment he made during our conversation. He said, “Anil, do you know that even the tears we shed in this country are not our own? Every tear gas shell used by our security agencies is actually imported!”

The Prime Minister’s anguish was entirely genuine and for me, an eye-opener, literally.

It left me in no doubt about the Prime Minister’s ‘Make in India’ initiative and what a remarkable change of mindset it represented when compared to earlier governments, particularly in relation to the defence sector. For me, it was an extraordinary and personal glimpse into the Prime Minister’s thinking, his larger strategic vision, and his determination to make India a leading global player in defence manufacturing. This was reinforced by his choice of Defence Minister, Manohar Parrikar.

“ For far too long, indecisiveness in defence procurements, based on a play safe approach, has resulted in the armed forces suffering with suboptimal hardware. This is truly a travesty.””

Mr. Parrikar is among the most talented, intelligent, hardworking and ethical leaders India has seen. His brief, from what I have seen so far, is to push the ‘Make in India’ agenda, and provide our armed forces with the best possible, cutting-edge equipment and armaments. His reputation for being a man of principle and probity and one who is ready to change existing norms and systems for greater efficiency and transparency — are the two elements that will transform our defence sector into one that is modern and world class.

Troubled neighbourhood

We live in a troubled neighbourhood and defending our borders has become a huge challenge. There are frequent exchanges of fire with Pakistani troops along the Line of Control (LoC), infiltration attempts, and frequent face-offs with China on the Line of Actual Control (LAC). Growing military and political relations between China and Pakistan continue to define our strategic vision to counter this joint threat. One of the most illustrative examples of how our defence preparedness has suffered is the fact that for 25 years, the Indian Army has not been able to replace the Bofors 155 howitzer gun, a vital force multiplier in our artillery arsenal. This was because no Indian firm made similar weapons. Thus, the new policy of opening up the defence sector to private players will go a long way in ending such self-imposed handicaps imposed on our defence forces.

Therefore, defence preparedness holds the key to our future as a nation. I recently had the honour of meeting each of our three service chiefs — Gen. Dalbir Singh Suhag, Air Marshal Arup Raha and Admiral Robin Dhowan; three officers of exceptional integrity, dedication and commitment. I came away reassured that the defence of our realm is in very capable hands. Our greatest blessing is that we have the finest officers and bravest men and women in uniform anywhere in the world.

Importance of quality

Unfortunately, borders in today’s world cannot be defended by strength of character nor wars won by dedication, training, discipline and bravery alone. Without technological superiority, our country remains vulnerable, entailing disproportionate levels of sacrifice on the part of our valiant armed forces. The Kargil war exemplified this harsh reality. For far too long, indecisiveness in defence procurements, based on a play safe approach, has resulted in the armed forces suffering with suboptimal hardware. This is truly a travesty.

The outcome of war is never certain. However, success in warfare in our age is greatly aided by technological superiority, information systems and the quality and precision of weaponry. We owe it to our men and women in uniform to give them the best-of-class military hardware.

Most submarines currently operated by the Indian Navy are past their operational life, while the Indian Air Force is still saddled with MiG-21 aircraft of 1970s vintage. India has great power ambitions, and with justification. We are seeking a permanent seat in the UN Security Council and India is projected to be the world’s third largest economy by 2024. Yet, unlike all other major powers in the world, India remains the largest importer of defence hardware in the world. Nearly three-quarters of all our critical defence equipment is sourced from abroad.

Our record in developing our aerospace industry, quite unlike the remarkable strides we have made in other high-technology areas such as space, communications and missile programmes, is a sorry one, hobbled by missed opportunities, short-term thinking, a lack of controls on domestic manufacturers, and a blinkered strategic vision.

Recent industry surveys assess the maturity of India’s aerospace on a scale of 5 at 2.7, the lowest among all defence sectors, lagging far behind naval and land systems.

Studies also peg India’s defence hardware purchases at over $250 billion or nearly Rs.16 lakh crore. Sadly, based on our current record, nearly most of this equipment will have to be imported.

Our goal of minimum dependence in aerospace is nowhere in sight. It is clear that if we wish to peg our defence expenditure at the current or even higher levels of GDP, then we will have to manufacture a major proportion of our requirements indigenously and, in time, begin to export so as to rollback the net deficit in the defence sector.

Engaging the private sector

So, what’s the way forward? The Prime Minister has outlined a bold new vision for India’s defence resurgence. Underlying the many policy changes that his government has announced — starting with the raise in the foreign direct investment (FDI) cap in defence from 26 to 49 per cent and, with cabinet approval, even to 100 per cent in identified areas of critical technologies — is the recognition that what we need most of all is a total change of mindset and approach to boosting this vital sector. I have listed some urgent points that need to be addressed to make this change work for India.

There is need to acknowledge at every level of government that the private sector in India can be trusted to play as important a role in the modernisation of India’s defence capabilities as the public sector.

We need a common framework for defence procurement across research establishments, ordinance factories, defence Public Sector Units (PSU) and the private sector. Decision making needs to be simpler, faster and transparent.

There’s an urgent need to address and improve the ease-of-doing-business. The Ministry of Defence is the sole customer for the defence industry in the country. Without long-term contracts, certainty of volumes, a quick selection process, transparency and fair payment terms, there will be little incentive for private players to invest the huge resources required for defence production.

There is a compelling case for creating a single window for defence licensing and FDI approvals. For example, the Department of Industrial Policy and Promotion (DIPP) and the Foreign Investment Promotion Board (FIPB), which are currently under different departments/ministries, ought to be brought under one umbrella.

Any large-scale involvement of the private sector in defence would require a clear road map for engagement, with clearly identified thrust areas. We need to think of new modalities of public-private partnership (PPP). One answer is a joint working group, comprising leading representatives of the private sector and key decision makers in the government, who will work together from the planning stage so that private companies have a clear idea of the areas in which they need to invest. This will help the development of human skill sets and capital infrastructure.

We need to set up a sovereign defence fund, on a PPP model, in which the government holds 49 per cent while private defence sector players make up the balance, with no player contributing more than 5 per cent of the total. Professionally managed, such a fund can help invest in long-gestation research and development projects and facilitate strategic global acquisitions in key technology areas of defence and national security. This will also be a big support for the Micro, Small and Medium Enterprises (MSMEs), which form a critical part of any developed defence industrial base.

We need to accord infrastructure industry status to the defence sector, thereby paving the way for easier credit and a greater role and opportunity for the private sector.

For policy shift

The long shadow of the 3Cs — the CBI, the CVC and the CAG — have hamstrung decision-making in India’s defence sector with the fear of regulatory censure and investigative overreach. We need to move forward with courage and conviction and have necessary safeguards to protect the decision makers just as in the coal block allocation sector where the bureaucracy has been provided protection. The new model for India’s defence sector should be built on a cornerstone of the new 3Cs, namely Cooperation, Competition, and Collaboration.

There are also some obvious truths to be considered. Modern governments need to function with the need for discretion in policy formulation and implementation in a sector as sensitive as defence. However, the modernisation of India’s armed forces cannot be held hostage to indecisiveness or vacillation. It is no secret that procedural delays and departmental red tape have often caused a greater loss to the exchequer in defence procurement than any alleged improprieties.

The road ahead is long. But with the current leadership, I believe we have our best chance of success in evolving a world class defence manufacturing sector. With commitment, cooperation and a clear vision, we can turn the Prime Minister’s ‘Make in India’ slogan into a reality. It offers us the best chance to repay the brave men and women of our armed forces for their dedication, discipline, and sacrifice.

I’d like to conclude by recalling the words of the father of our nation — Manasa, Vacha, Karmana — “Happiness is when what you think, what you say, and what you do are in harmony.” We have thought long and hard and said a lot; it is now time for action.

(Anil Dhirubhai Ambani is the Chairman of the Reliance Group. He was an independent member of the Rajya Sabha.)