For now, ‘Make in India’ is a mere slogan

http://www.thehindu.com/opinion/op-ed/comment-article-by-josy-joseph-on-narendra-modi-visit-to-moscow-for-now-make-in-india-is-a-mere-slogan/article8022380.ece?homepage=true

December 24, 2015,   JOSY JOSEPH

Yet another prime ministerial visit is being accompanied by big-ticket defence purchases. This time it is in the deep winter of Moscow, and deals worth over $10 billion are expected to be finalised, bringing Russia back on the list of top defence suppliers after a break of several years.

Earlier, a few hours before the Prime Minister took off for the U.S. in September, the Cabinet Committee on Security cleared deals worth over $3 billion, approving the long-pending purchase of Apache and Chinook helicopters.

The story was not very different in April in Paris, when Narendra Modi surprised many by announcing a decision to buy 36 Rafale fighters from Dassault through a government-to-government deal, overriding years of ongoing negotiations with the same company to buy 126 fighters under the MMRCA (Medium Multi-Role Combat Aircraft) open tender.

While the big-ticket defence purchases help improve atmospherics of the Prime Minister’s high-decibel visits and immediate military preparedness, they also raise troubling questions about the honesty behind the ‘Make in India’ slogan of the government. If anything, these purchases are only affirming the fact that the Modi government is only following the legacy of past several decades in defence procurements — import-dependent, risk-averse and corruption-riddled.

A missing military-industrial complex

India is probably the only large democracy without a robust military-industrial complex. According to data released earlier this year by the Stockholm International Peace Research Institute (SIPRI), India accounted for 15 per cent of the volume of global arms imports in the previous five years. In terms of financial value India was only second to Saudi Arabia in 2014 on military purchases from the global bazaar, said IHS Jane’s.

India’s imports are three times that of China, which in the early 1990s took a dramatic turn towards indigenisation after following a pattern very similar to that of India. Between 2010 and 2014, China also turned into a major exporter of arms, increasing exports by 143 per cent over the period. China is the world’s third-largest military exporter today; India does not even figure in the top ten. Realists would argue that even if stolen from foreign countries and reverse-engineered, China has rapidly built itself a very robust military-industrial complex.

The Prime Minister has been pushing the Make in India policy — especially vis-à-vis the defence sector — on his foreign trips and in speeches at home. However, his government has committed several mistakes that have compounded to ensure that no dramatic turnaround takes place.

Significantly, like its predecessor United Progressive Alliance government, the Modi regime has also failed to leverage defence procurements for strategic national goals. The best leverage would have been to deploy money spent in the international bazaar into rapidly building the domestic military manufacturing base. Instead, what could have been the biggest offset provision in a foreign defence deal — whereby 50 per cent of the $20-billion MMRCA deal worth would have had to be sourced from indigenous suppliers — was scuttled by the off-the-shelf Rafale purchase.

The big-ticket purchases announced in world capitals are taking away a major pie from the capital budget of the Ministry of Defence (MoD). Already, most of the capital budget is going towards committed liabilities — payment for contracts concluded in the past. In 2014-15, 93 per cent of the capital budget went into committed liabilities, leaving just 7 per cent for new purchases. The penchant to gift away major defence deals will thus also ensure that the capital budget will, for years to come, be heavily committed to previous contracts.

Pending reforms

In the wake of Kargil conflict of 1999, among the major reforms was the effort to end the stranglehold of government-run public sector units (PSUs) and the Ordnance Factory Board over military supplies, with the Indian private sector allowed entry into defence contracts. Over the years, the FDI limit has also been raised to 49 per cent.

However, none of it seems to have created enough momentum to create a large domestic defence manufacturing base and any significant technology transfer. Larsen and Toubro has almost 1,000 skilled engineering staff who built hulls for indigenous nuclear submarines; there are such capabilities on various fronts with various Tata Group firms such as Tata Power SED (Strategic Engineering Division), Kalyani Group, Mahindra Group, etc. But there is no clarity about how to nurture the nascent capabilities in the private sector without being seen as a crony capitalist state. There are already murmurs of protest from foreign executives about the way sections of the government are rooting for some private sector players.

Ultimately, the creation of a robust military-industrial complex would require an overhaul of higher education to create well-trained manpower. A 10-member committee set up by the MoD in May this year to evolve a policy framework for facilitating Make in India in the defence sector has come up with several recommendations. Among its most significant recommendations is that Make in India should not end up being “assemble in India with no IPR (intellectual property rights) and design control”. The comment comes against the backdrop of what has happened to the defence sector PSUs, which have largely become local integrators for foreign systems.

A committee under Dr. A.P.J. Abdul Kalam, then scientific adviser to the defence minister, had recommended that India should look at increasing its defence acquisition from within India from 30 per cent to 70 per cent by 2005. The year was 1995. However, today indigenous acquisition is still hovering around 35 per cent. The MoD expert committee has now suggested that 2027 should be the target year to achieve 70 per cent self-reliance.

The defence budget is 13 per cent of the Central government’s total expenditure, and almost 2 per cent of the GDP. Discussions about guns versus butter (defence versus civilian goods) can be endless, but it would be practically stupid to wish away the merits of an indigenous military-industrial complex, especially given its repeatedly proven ability to better lives beyond the military realm, its criticality for securing the nation state, and ability to bring down corruption in purchases.

For now, ‘Make in India’ is a mere slogan.