The defence procurement wheel seems to have turned full circle with self-reliance becoming the government’s credo once again. The Defence Procurement Procedure-2013 (DPP) announced by the government a few days ago emphasises two major points — strengthening the defence manufacturing base in the country and making the procurement process more efficient. The policy says that “categorisation” — the process by which the Defence Ministry chooses between various options such as buying equipment and supplies from abroad, buying from within the country, making them in the country or importing technology to make them within the country — should clearly favour indigenisation. The option of importing a piece of defence equipment should be exercised only after exhausting the option of sourcing it from within. These laudable objectives are probably driven by the bad experience with middlemen and corruption in procurement of defence equipment from overseas suppliers. Yet, it would be naïve to believe that this is a workable proposition given the state of our indigenous defence equipment manufacturing base. Though India got off to an early start — the first ordnance factory was set up by the British in 1787 at Ichapore and the Defence Research and Development Organisation (DRDO) was set up in 1958 — it lost its way subsequently.
Two of DRDO’s highest profile projects — the Main Battle Tank and the Light Combat Aircraft — have proved that indigenisation is not an easy proposition, especially given the unwillingness of existing suppliers to share key technologies. Indeed, accessing technology will be the biggest challenge for the development of indigenous defence manufacturing. One way of circumventing this difficulty would be to open up the sector for foreign investment, a proposal recently mooted by Commerce and Industry Minister Anand Sharma. But the objective of developing an indigenous base without which domestic procurement will be impossible requires other steps too. Besides technology-linked FDI, the Ordnance Factories Board — a massive set-up under the Defence Ministry — must be encouraged to team up with private collaborators, both Indian and foreign. The OFB boasts of tremendous expertise and resources which should be capitalised upon. Finally, the government must strive for scale economies, encouraging domestic players — public and private— to invest in capacities with an eye not just on India’s defence forces as clients but also those of foreign countries. Defence equipment production is capital intensive and tying down suppliers to a single customer’s whims may not really result in adequate investment.
