Gautam Moorthy | MoD embargoes: Private sector has to play a key role

August 9, 2020, will go down as a red-letter day in India’s history. While the world and India, too, remained largely immobilised owing to the ubiquitous Chinese virus, the defence minister, Rajnath Singh, announced what is arguably the most historic reform ever undertaken by India’s ministry of defence (MoD).

It put out a list of 101 major war fighting equipment, platforms and systems whose imports are to be progressively terminated from December 2020 to December 2025. There is supposedly yet another “negative import” list due. This left observers hard put to count the systems/platforms left out for future import.

A quick glance at the list indicates that 69 systems/platforms have the cut-off date of December 2020, 11 with December 2021, four with December 2022, eight with December 2023, eight with December 2024 and one with December 2025.

A cursory look at the timelines would indicate to the astute observer that these have been drawn up keeping in mind the indigenised content already incorporated into the system.

With this announcement closing the tap on imports, India’s ranking as the second largest defence importer in the world next only to Saudi Arabia will certainly drop much to the relief of its government and citizens.

Besides saving precious foreign exchange, it will also indicate to the world that India is no longer punching below its weight.

While all this is music to the ears of most Indians as it would boost manufacturing, employment and trade, thereby giving a fillip to the economy, how this would be operationalised is the question that needs to be addressed.

There is a lot of apprehension that has been expressed in the media. Some commentators have stated that this is nothing but new wine in old bottles being as it is a reiteration of the Defence Procurement Procedure 2016 (DPP-2016).
However, if one examines that document in some detail, it is seen that this is simply not the case, but a logical conclusion of that policy four years down the line.

In the foreword prefacing that document, the then defence minister, late Manohar Parrikar, very presciently forecasted this conclusion.

He had written, “Hence, the Ministry of Defence (MoD) is determined to treat DPP 2016 as a dynamic and an evolving document and is committed to making improvements based on emerging data and anecdotal evidence, to realise the vision of ‘Make in India’ in the defence sector.” It is evident that this import embargo list is neither a reiteration of that policy nor something completely new, but simply a consequence consistent with that policy.

The other apprehension is that India’s military-industrial complex has not matured enough to be standing on its own feet and delivering the goods. This too is fallacious as a number of platforms/systems that are now being manufactured in India is a testimony to the level of expertise achieved.

This has taken place either through tie-ups with firms abroad (the strategic partnership model) or through the Defence Research and Development Organisation (DRDO) route.

Going forward, how this embargo would be operationalised is the question rightly asked. First, India’s defence industry complex, tightly controlled by the government, represented by 41 ordnance factories and nine defence PSUs have now to compete with the private sector and can no longer bank on the Armed Forces to bail them out with orders whose pricing in many cases is exorbitant.

Second, within the private sector, there is a humongous scope for medium and small scale industries to rise to the occasion by ramping up capacities and building up a huge defence industry base to cater for ancillaries, sub-systems and components that would be required if India is going solo and not relying on government imports.

This leads us to the third important factor, which is that the private sector and the corporatised Ordnance Factory Board along with the defence PSUs are free to sign MoUs with original equipment manufacturers abroad to also import critical ancillaries, sub-systems and components for manufacture within India with transfer of technology and with proportionate offsets.

This single significant step frees the government from getting involved in complex negotiations with foreign firms and being compelled to adhering to stringent policies and rules laid down in the government financial regulations and the DPP (Defence Procurement Procedure 2020).

All such manufacturers will also be free to export their products making India a net exporter of defence products.

The requirement to drastically reduce imports has long been felt but it needed a strong political dispensation and the will to carry it out.

The road ahead is not going to be smooth but this single significant step taken by the government to wean itself away from imports in this crucial domain needs to be applauded.

That it was in the making since 2016 is known. However, it appears to have been pushed through now because of the combination of a slackening economy, the deleterious effect of Covid-19 and, above all, by China’s transgressions in Eastern Ladakh. How this will play out remains to be seen.