Policy Support To Enhance Private Sector Participation Commerce Essay

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46. Evolution of DPP. The DPP 2011 is a progressive version of the forward looking DPP 2008. The DPP 2008 gave guidelines for offsets in addition to the "Make" procedure and introduction of a new category "Buy Indian", all of which were introduced for the first time. "Buy Indian" category was introduced to provide a focus for Indian industry. In 2009, the MoD made changes and introduced a new category of procurement, i.e., "Buy and Make Indian". This is a progressive step towards encouraging Indian industry to forge relationships with foreign OEMs and manufacture the production indigenously; the RFP will be issued to Indian companies only. The MoD has been constantly engaged in providing a boost to indigenous industry with an increased focus on procurement from indigenous sources.

47. DPP-2011. It incorporates measures aimed at simplifying procedures, speeding up procurement and enhancing benefits for the Indian defence industry. New guidelines for shipbuilding by private shipyards and new categories to the production list for offsets namely Civil Aerospace, Internal Security and Training have been included. Other changes have been incorporated with respect to the validity of RFP, post accord of Acceptance of Necessity (AON), Exchange Rate Variation (ERV), the constitution of a Technical Oversight Committee (TOC), Transfer of Technology (ToT) for maintenance infrastructure, trial evaluations, performance and warranty bond, and fast track procedure. Key issues are enumerated below:-

(a) Offset Policy. The offset policy mentioned in DPP-2011 aims at strengthening the Indian industry by essentially guaranteeing business for the industry; the OEMs were mandated with a modest 30 percent of all capital acquisitions to be reinvested in the defence sector in India. The effects are already visible in the form of exponential increase in Indian companies applying for an industrial license, greater awareness and increased exports, besides a number of joint ventures. The MoD made it far easier for the vast majority of SMEs and MSMEs to become eligible to forge partnerships with foreign primes directly. Today we have in our country more than 5000 companies interested in participation in offsets programmes, partnerships and technology as they have found necessary motivation to take the leap.

(b) Capital Procurements. To provide enabling provisions and to improve private participation, DPP 2011 is fiercely progressive in a rapidly developing Indian industry. The concerns of the primary stakeholder, the Armed Forces are however yet to be adequately addressed. Capital procurements are riddled with huge time over-runs leading to cost escalations. The policy addresses quite a few concerns in the capital procurement procedures and with a pragmatic approach expands the scope of discharge of offset obligations, displaying seriousness and genuine intent of strengthening the indigenous industry.

48. Benefits - Indian Industry.

(a) Manufacturing Sector. The manufacturing sector can truly benefit by investing in dual use technologies like airframes and aircraft engines which demand a huge investment. By allowing the technologies and products to be usable in the civil aerospace as well, the economics of the venture will become attractive and more investments can be forthcoming in these strategic sectors.

(b) Services Sector. The services sector could create teaming arrangements and joint ventures for maintenance, overhaul, up gradation, design services, flying training institutions and technical publications with a view to carry out the entire services from the warranty stage onwards for a better stated efficiency and management of spares and assured support that the forces will always look forward to. The service sector benefits with excellent expertise creation and the forces benefit with assured and timely support from indigenous sources.

49. Analysis. The policy provides an even platform both for the manufacturing sector as well as the service sector and the information technology sector gets a focus on the design services that they need to concentrate upon. In many ways than one the policy is pragmatic. The policy however has not addressed the concern of one of the important stake holders who are an essential partner in driving the industry to greater heights, i.e., the DRDO. Thus the MoD has to address the concerns of the DRDO and technology infusion while providing the opportunities to the industry. The industry can exploit these opportunities if and only if the right technology flows in as part of the overall effort in strengthening the Indian industry.

50. Recommendations. The MoD has made progressive changes in the DPP 2011 and need to initiate steps to address the concerns listed below:-

(a) Address the concerns of DRDO by providing a dedicated focus on technology.

(b) They also need to address the concerns of the primary stake holders, the Armed Forces and provide them with the state of the art technology weapon systems in the shortest possible time.

(c) All changes must be applicable for all acquisitions that are in various stages of readiness except those that have already been signed.

(d) MoD must be flexible and act as an enabler to get the policy moving forward. It must have an effective offset authority in place for effective monitoring and implementation of the policy. The conflict between DOFA, acquisition wing and user be resolved and a single window mechanism be introduced.

Defence Production Policy (DPrP)

51. Policy and its Objectives. Though long overdue, the MoD unveiled in early 2011, the first ever DPrP, intended to give a focussed direction to industry. The vision stated is to "achieve self-reliance in production of weapon platforms, arms, ammunition and other materials required for the defence of our nation" [1] . The policy document, which came into force since 01 Jan lists four broad objectives:-

(a) To "achieve substantive self reliance in the design, development and production of equipment / weapon systems / platforms required for defence in as early a time frame as possible" [2] .

(b) To create conditions conducive for the private industry to take an active role in this endeavour.

(c) To broaden the defence R&D base of the country.

(d) To enhance potential of SMEs in indigenisation.

52. Aim of DPrP 2011. To achieve these objectives, the policy document has included various enabling provisions with the broader aim to create a self sufficient domestic defence industry. The DPrP's first objective of enhancing self reliance in defence production reiterates the Defence Ministry's long standing policy goal of achieving indigenous production up to a value of 70 percent. At the same time, the DPrP has expanded the scope of self reliance and made certain changes starting from the planning level.

53. Analysis. The DPrP is well timed to bring about a synergy between the filling up of immediate operational voids and that of a sustained strategic development with the ultimate goal of self reliance. "A modest beginning has been made in the "Make" category where two major programmes, the Fighting Infantry Combat Vehicle (FICV) and the Tactical Communication System (TCS) have been opened to private and public sectors to compete for development and trials" [3] . The policy dictates that the procurement agencies and planning committees will resort to recommendations for purchase from foreign sources, termed in the MoD as "Buy Global" and "Buy and Make with Transfer of technology", if the systems cannot be designed and developed within the specified time frames. A detailed analysis of this forward thinking policy is as listed below:-

(a) Self Reliance. The policy has thirteen operational paragraphs and each one with a theme. The first paragraph dictates adoption of "self reliance" in defence and elaborates its importance. The government allowed a major portion of the defence sector to be removed from the reserved category and shifted to the restricted category. While the arms and ammunition and allied items of defence equipment including defence aircrafts and warships continue to be retained in the reserved category, the electronics, aerospace and defence equipment was shifted to the restricted category with compulsory licensing. DPrP has evolved since 2002 onwards to a progressive document in the form of DPP 2011.

(b) Creation of an Ecosystem. The policy also outlines its objectives while bringing out the underlying theme in it, i.e., creation of an ecosystem. The MoD has now stated that they would create conditions conducive for the private industry participation in a more active role. The emphasis on self-reliance in design, development and production continues to flow, which is a very positive indication of the reflections in the policy.

(c) Long Term Integrated Perspective Plans (LTIPP). The theme of the fourth article in the policy states that the projections of weapon systems and equipment in the LTIPP will be made within the country due to the long lead times available.

(d) Development of Indigenous Industry. The policy also addresses the competitiveness and provides for a competitive edge for the indigenous industry and proactive involvement of the private sector. It calls for development of our domestic industry to global competencies by involvement of academia, DRDO, scientific institutions of repute, while simplifying the "Make" procedure. It also dictates that all upgrades to existing systems will be through indigenous route.

(e) R&D. The policy addresses the R&D effort required in the industry, but does not lay down a policy direction. The policy must state a minimum percentage of the revenues/capital allocated to the R&D effort within each industry. Unless the government proactively engages the DRDO to take ownership of technology initiatives, driven by the Defence R&D Board and the Defence Production Board(DPB), this policy will only remain a piece of paper filed in the dusty confines of the government offices.

(f) R&D Funding. The policy dictates institution of a separate fund to provide necessary resources to the industry and scientific institutions to support R&D to enhance cutting edge technology. This is a very welcome step and the challenge lies in its implementation. There have been many such initiatives in the past, such as the technology development fund but they have not seen the light of the day.

(g) FDI. Since 2001, India has allowed FDI up to 26 per cent in the defence industry. This policy has not been successful in getting any worthwhile financial or technological inflow. "Ministry of Commerce and Industry has recommended an increase of FDI to 74 per cent in the paper circulated in the parliament in July 2010" [4] . FDI policy has not been successful so far in attracting any meaningful inflow in the defence sector as the foreign companies feel there is very less scope for worthwhile returns due to limited control. "Even the FDI inflow into defence sector has been minimal (USD 0.15 million) even behind soaps and cosmetics (see Table)" [5] .

Table: Select Sector-wise FDI Inflow, Apr 2000 to May 2010



Amount in FDI Inflows (US $ million

% of Total FDI Inflow


Services Sector




Computer SW and HW







Housing and Real Estate







Soaps, Cosmetics and Toilet Products




Defence Industries



Source: DIPP, Ministry of Commerce and Industry, Government of India, Factsheet on FDI from Aug 1991 to May 2010.

54. Recommendations.

(a) Accountability. The policy is a welcome step in right earnest, but will fail to deliver anything substantive, unless the government creates accountability. DPB and the Defence R&D Board, need to be enabled and empowered. This will on a regular basis provide an update to the Defence Minister in a formal forum and observations should be placed on record and hence the system may gain more accountability.

(b) R&D. The production policy is a welcome step and this would lay the foundation for the creation and sustenance of a dynamic, vibrant and strong industrial base with fundamentally strong R&D wings. The Indian Institutes of Technology, Regional Engineering Colleges may include in their curriculum a dedicated syllabus for defence/aerospace manufacturing and undertake projects at various levels.

(c) Fine Tuning of the Policy. The policy in the existing form lacks certain clarity, especially with regard to specific areas of self reliance, quantum of investment and mechanism for R&D funding in the industry, industry's role in qualitative requirements formulation and the like. If the required clarity is brought out in the revised version as promised by MoD, it will provide greater impetus to India's defence industry.

(d) Licensing. The licensing conditions for eligibility for participation in defence production may be reviewed to mandate a minimum percentage of capital allocation towards R&D for the industry, private and public alike. "DIPP has now mooted simplified procedures for grant of extension of validity of licences" [6] . Initiatives have been taken to remove the duplication of procedure in grant of Letter of Intent or IL.

(e) FDI. Government may increase the cap on FDI to 49 or even up to 74 per cent on a required basis. This would facilitate greater investments financial and technological inflow. FDI inflow should be to the defence industry and this should be included in the Memoranda of Understanding (MoU).


55. The defence sector of India has gradually started moving towards increased private sector participation. "Out of the three services, only Indian navy has outsourced majority of its requirements to private sector, so as ISRO and HAL" [7] . Positive steps have been initiated in this regard; however the policies have not been implemented properly. The present process of interaction between the Government, public sector and private enterprises should be continued, albeit with renewed vigour and purpose. All joint committees should be represented at the level of decision makers, so that follow up action can be taken in a time bound manner.

56. India is being counted as a future economic and technical powerhouse. "Huge strides have been made by the country in space exploration, nuclear power generation and leadership position in software and information technology" [8] . Defence industrial base is a must to support defence innovations and high technology weapons production. Indian DPSUs, have so far failed to achieve set targets, barring some successes. The private sector has been on the fringes owing to complex Government policies and non conducive environment. Refer to 'Appendix A' for the key private players in the Indian defence industry. The technical capability and resource base of the private sector has to be lifted to enable India grow as key player in the world defence market. The broad recommendations for developing a sustainable defence base with the private industry as a key are listed under the following heads:-

(a) Optimised R&D - DRDO and Private Industry.

(b) Measures to Enhance Interface between Armed Forces and Private Industry.

(c) Recommendations based on Indigenisation Approach.

(d) Recommendations for Collaborative Approach.

(e) Policy Framework.

(f) Technology Management.

(g) Production.

(h) Human Resource Development.

(l) Public Private Partnerships.

Optimised R&D - DRDO and Private Industry

57. Defence spending on R&D, besides maintaining a high standard of technology, is a key to maintaining a high standard of economy. Properly standardized defence spending can create a good measure of self sufficiency. The salient recommendations in this regards are as follows:-

(a) Involve Private Sector. There is a need to synergise private sector for supporting defence oriented R&D.

(b) Arms Export. Arms export and sales should be encouraged. The DRDO projects should be chosen, tailored and suitably integrated with production agencies so as to enhance their attractiveness to foreign buyers.

(c ) Involve Universities. There is a need to provide a congenial R&D environment and exploit the creative mind of young talent available in our universities. DRDO has been involving universities but there is scope for improving the level of involvement and seriousness accorded to such research as done by private industry.

(d) Integrate R&D Effort. What is required is a symbiotic relationship between the various agencies participating in R&D, sharing each other's problems with an overall aim of technological advancement. Encourage CII /FICCI to set up a consortium of leading manufacturers to undertake defence related R & D projects so as to initiate R & D culture in the private sector.

(e) Technology Development Bank with involvement of private industry needs to be established to foster progress in R&D. This would help DRDO in acquiring the available technology and streamline its efforts more profitably.

(f) High Technology Espionage. We have our elite students and scientists community working in leading international institutions including NASA. It would be a boon if such 'sons of the motherland' be exploited to contribute for the national interests.

(g) Collaboration. This is the need of the hour. Project like LCA suffered largely because of lack of collaboration with private firms which had the experience.

(h) Spin-Offs for Civil Sector. DRDO pursues projects in communication, materials, food products, medicine including nuclear medicine, electronics, computers, software, vehicles and many other fields, each of which can yield rich dividends in civil sector.

(k) Cost Of R&D. Kelkar Committee recommended "selected funding of defence related projects to enable the entry of private sector in 2005" [9] . R & D costs are very high and the government must subsidise R&D costs.

(l) Develop institution like DARPA within MOD / IDS for sponsoring cutting edge development projects in India with private sector, CSIR labs or academic institutions of repute.

(m) Introduce the concept of concurrent engineering where the production team from selected private sector, design team and the users (armed forces) work simultaneously and not in a sequential order.

Measures to Enhance Interface between Armed Forces and Private Industry

58. A holistic approach to interfacing the two has the following pre-requisites:-

(a) Attitudinal Transformation. A radical change in the attitudes of both, the Armed Forces and the civil industry is a must. Recognise that as defence looks for quality products, industry expects reasonable returns on its investments. Both must understand that in any relationship, natural trusts and benefits form the bedrock on which partnerships are built and nurtured.

(b) Identify the Existing Strengths and Lacunae. A joint effort to identify the strengths and lacunae / shortfalls in the two sectors is essential, so that strengths can be fully exploited and lacunae can be strengthened up with mutual co-operation.

(c) Identify Defence Requirements. Defence needs in military technology, weapon systems, equipment, supplies of all types and rendering of services be given to industry. Armed forces must utilize the strong points of the Indian Industry in R&D facilities and skills, manufacturing and product support facilities, financial infrastructure and human resource base.

59. The DDP, DRDO, the armed forces, DPSUs and private sector need to be institutionally brought under an organization. A Military Industrial Commission may be formed with experts from all fields to monitor progress, performance and standards. This should function under Cabinet Committee on Security and play a facilitation role for smooth functioning of key players. It is essential to create areas where such interaction can be made to take place so as to derive the maximum benefit from each other. The areas of interaction could be manifold, in each of the following four stages:-

(a) Formulation of the requirements by the Armed Forces and throwing open the inquiries to the civil industry.

(b) R&D.

(c ) Production and standardisation of mutual assets.

(d) Maintenance and replenishment of spares.

60. Demarcation of Manufacturing Responsibilities. Private sector may not be preferred in the manufacture of items in the 'lethal/ sensitive' category, whereas, items of the 'non-lethal / non-sensitive' category may be thrown open for manufacture. There is a specific requirement to draw up a clear cut list of such categories.

Recommendations Based on 'Indigenisation Approach'

61. Major thrust of the changes in policies as well as participation of the defence industry is based on indigenous manufacture of the product. In this context, the recommendations are as given below:-

(a) Procurement Procedures.

(i) Open tendering be resorted to, instead of selective to broaden the base of supply and inculcate competitiveness.

(ii) Treat Ordnance Factories and DPSUs as tenders and allow them to compete with the civil industry.

(iii) Arrive at qualitative requirements in consultation with the industry representatives as well as the services.

(iv) Order for complete assemblies as far as possible and insist on continued supply of spares and service backup from private industries.

(v) Publish a detailed list of the items required and their specifications along with the quantity for the next 15 years in the form of a 'Defence Procurement Directory'.

(vi) Streamline the defence procurement infrastructure from the level of offset implementation, DPSU and OFB procurement and MoD centred capital procurement. Prepare a centralized pool of private vendors who wish to participate in the defence procurement process to make the system more transparent.

62. Reaching Out to the Industry.

(a) Structural Reforms. A representative of the designated industry association should be a permanent invitee to the DAC. His inputs on the technical prowess of the private sector will prove invaluable while deciding whether to import technology or not. Similarly, selected agenda points of Defence Procurement Board, Defence Production Board and Defence Development Board should be circulated to the industry associations for advice. These steps will go a long way in integrating the private sector.

(b) Early Interaction with Industry on Acquisition Proposals.

(i) The acquisition wing should indicate broad parameters of equipment under procurement to the industry associations six months prior to the issuance of RFP. This will give adequate time to the interested companies to carry out technology scan and scout for foreign collaborations, if required.

(ii) Equipment Directorates of the Service Headquarters should seek advice of the industry before finalising parameters. The industry with its massive pool of knowledge will be able to help the authorities in getting a better understanding of the latest technological advancements worldwide and in India with their degree of stabilisation.

(iii) To help the Indian companies in taking decisions regarding investment of resources, RFP should invariably indicate the total requirement envisaged over the years.

(c) Use Instruments of Mass Communication. The Defence Exhibition Organisation (DEO), maintains permanent exhibition pavilions at Pragati Maidan in New Delhi. Interactions through seminars, workshops, exhibitions and demonstrations (as done in case of OFs and DPSUs) with private industry must be more frequent and also more broad based in its locations across the country.

(d) Wider Representation. Establish offices of the defence procurement authorities at all major cities and industrial centres to provide industry a ready interface to clarify queries and offer their products for consideration from all over the country. Network these offices through communication and cyber channels for quick dissemination of information to other similar centres and to standardize the product intakes.

(e ) Exclusive economic zones to be set up along dedicated freight corridors (Delhi - Mumbai or Delhi - Kolkata) for defence related industries with adequate infrastructure, good roads, uninterrupted power and water supply.

(f) Updating of Policies. Hold review meetings every year with national bodies representing the industry to update the policies and technology for consideration.

(g) New entrants or start-ups must be given some extent of initiation and hand holding by the government to raise up to the desired standards and challenge the established players.

(h) Government should encourage and fund the industries in their research of future weapons and critical technologies which may not be shared by other countries.

(j) A directory of credible defence manufacturers should be compiled and should be made available to all the defence procurement agencies for issuance of tenders. The directory could also help foreign producers to locate potential Indian partners for collaboration.

(k) Advisory service could be extended to companies as regards the availability of opportunities for the supply of their current products. The service could also suggest defence products which a company can manufacture with marginal addition to its facilities.

63. Incentives for Production. The industry works on returns / profits. Incentives of any credible nature are considered as 'Value Additions' to the returns. Various types of incentives can be proposed for industries commensurate with their participation in production for the Armed Forces as given below:-

(a) Awards. A scheme of National Award for excellence in indigenisation has already been introduced in the year 1993-94. A parallel award for highest participation in defence production could be instituted. The parameters for judging could be laid down in detail and publicised over a wide range of media including the internet and regular newspaper advertisements. DRDO has instituted two such awards in each category of industry annually.

(b) Tax Holidays. Private firms which show participation in defence production and supply to the Armed Forces may be considered for tax holidays for the teething years of their endeavours.

(c) Export Permission. To enable the Indian industries to prosper the government must provide assistance in exporting their hardware. If the export policy on defence related items is relaxed, a number of private companies will vie for securing export orders. "India's export of military hardware was USD 1.4 billion" [10] . Vast markets exist in East and West Asia and Africa for the hardware. The Ministry of External Affairs may be allowed a major say in deciding the target countries to whom the items can be exported, however, it should be gradually be realised that without exports, the industry will have no bright future.

(d) Liberalised Licensing. The policies of the Government have already undergone a radical change towards permitting the private sector to produce the import substitutes either by reverse engineering or under license. Liberal licensing with a stricter control on the quality of the end product and legal contractual obligations on the part of the private sector should be the guiding principle behind the licensing policy.

(e) Development Costs. Government should fund 80 % of the development costs and balance 20 % may come from the industry. "This is the same model followed for the country's first Make India Project for Tactical Communication System awarded to L&T, Tata Power and HCL" [11] .

(f) Government should support indigenous producers by giving them purchase and price preference. Foreign producers should be given incentives for collaborations with Indian companies as has been done by Great Britain.

64. Dual Use Technologies. It would be most appropriate if the developmental orders are placed on the private industry for dual-use technology items so that the benefits of its development could be enjoyed by the firm in producing the items for the civil sector as well as the defence sector. This will also increase profits, foster willing participation and the equipment of the Armed Forces will remain in the contemporary technology market with all support services also available.

65. The 'GOCO' Concept. The American approach of establishing 'Government Owned Civilian Operated (GOCO)' firms for production of strategic items, where the Government will retain strategic control, but the running of the establishment will be entrusted entirely to civil experts who could form their policies of management, build contacts and conclude contracts including with foreign firms, while abiding by the strategic guidelines. The proposal appears a step above the concept of DPSUs in India, but with due incentives, the establishments are likely to flourish.

Recommendations Based on 'Collaborative Approach'

66. Collaborative Manufacturing. Allowing upto 26% FDI, it is now possible to set up plants under collaboration with a foreign partner and manufacture the product. The overseas suppliers of defence products and systems should be instructed to tie up with an Indian partner who would provide sizeable indigenous value addition. The second option is that the foreign partner will have a financial share in the profits of the company. Availability of technology and quality assurance are expected to be higher in this case than total indigenous manufacture after reverse engineering of imported products.

67. Trading of Information Technology Capability for Defence Products. An arrangement to trade off the information technology talent available in the country to bargain for defence oriented projects for collaboration could be an avenue for exploration.

68. Interface of Agents. There is presently a ban on dealing with foreign companies through agents consequent to the exposes of TATRA, BOFORS, Tehelka and similar other cases. Government now deals directly with the firms concerned whenever the need to import items arises. Until the quality of Indian Industry rises to the required level of expertise, there will always be a need for some items to be imported. In such cases, dealing with the foreign industry through the interface of an agent renders many practical advantages to include ability to make design alterations, change requirements, establish a day to day working relationship and progress the project vigorously. However, if the representatives of the firm are directly available for regular interfacing with the Government authorities, dealings sans agents will be preferable.

Policy Framework

69. Policy sets the aim clearly and spells out the methodology to be followed to implement the organisational aim. Recommendations based on the study carried out in respect of policy are listed under:-

(a) Reform of the bureaucratic controls to develop defence industrial base in India. Bureaucratic control has to be loosened to become a facilitator from a controller. Recommendations of numerous high powered committees and government organizations should be implemented in stipulated time.

(b) Policies should create an enabling mechanism and not barriers to growth in the desired direction.

(c) Establish a coordinating agency at the apex between industry, defence and ministries on the lines of Bureau of Industry and Security on priority.

(d) Private industry must play a greater role in defence industry and the attitude must change from "granting permission" to "encouraging growth".

(e) Highlight need for the political leadership and policy support at the highest level for making private industry a key player to achieve national vision for an Integrated Defence Technology Advancement Strategy.

(g) Re-engineer and reform Government structures, public sector and Government research institutions to pave way for private industries inclusion and thus ensure timely and qualitative results.

(h) Ensure greater transparency, user friendliness and sharing of information by Government departments, public sector and exploit private industry to fill up the existing voids.

(j) Prioritise Indian private firms in defence acquisitions to launch a drive to identify and match procurement and import requirements with capabilities available in world and internal market.

(f) Policy on grant of waivers for deviations from parameters, easier grant of waivers, albeit within acceptable limits to Indian companies to encourage them to commit resources more willingly. Even commercial terms should be made more favourable.

(iii) Indian companies should also get payment like the foreign vendors on submission of proof of dispatch.

(k) Designate Indian firms or consortia as lead integrators for defence acquisition and all other high-tech projects. This will ensure that they remain in the driving seat of all high-tech production programmes.

(l) Reform the Defence Offsets/FDI/TOT policy, guidelines and implementing agencies to give priority to indigenisation and kick start a defence led industrialisation drive encouraging a holistic (dual-use) high technology manufacturing base established by the private industry.

(m) Expand and extend defence offset obligations by removing the minimum threshold, levying 100 percent offset obligations and extending it to all major purchase orders.

(n) Formulate a model National Offsets Policy and set up a National Offsets Agency. This will ensure development of a dual-use, high technology manufacturing base which can support the defence production sector through supply of critically needed precision tools, composites, electronics, software and other items.

(o) Policies should facilitate private industries participation and accept the delays and cost escalation due to delays as seen in the case of Project 28. "Indian government accepted the delay of two years and the costs escalation from 2800 to 7000 crores primarily to encourage indigenous production by private industry" [12] .

Technology Management

70. Reduction in technology development cycle, delay in negotiations and consequent delay in implementations needs to be looked into in detail. The absorption of imported technology has been very limited and concerted efforts with involvement of private sector are must for futuristic technology management. The specific recommendations are given below:

(a) The technologies which are difficult to obtain should be leveraged through multi channels on a case to case basis.

(b) Appoint a central coordinating agency for defence technology management to include representatives of three services, government and private production agencies.

(c) The potential procurement plan must be leveraged to private bidders to obtain technology.

(d) An annual review on progress of participation by private sector and reasons for delay must be included in the annual report of ministry of defence.

(e) Effect of variations in rate of exchange of foreign currency must be spelt out in the DPP for the benefit of Indian private sector.

(f) The time frame for according an approval or rejection to private sectors must be fixed and not open ended.

(g) Implement multiple strategies to develop and acquire technology, including acquisitions of firms abroad and synchronise user end agreements and maintenance plans.


71. Production is at the heart of building a defence industrial base and requires a coordinated effort at the national level between all resources for success. The major recommendations to enhance production are given below:-

(a) Introduce the concept of competition wherever possible among the units in government sector also.

(b) Encourage private sector by providing level playing field and through suitable mechanisms like development order for 'Make' category of items.

(c) Focus of production has to shift to constantly upgrade technology and thus more avenues need to be explored with exploitation of private databases.

(e) Private industry models should be incorporated into Government organizations' systems to sharpen production mechanisms.

(f) Popularise awareness regarding economic modes of private industry for successful production of high technology defence innovation systems.

Public Private Partnerships(PPPs)

72. The public sector possesses excellent infrastructure, manufacturing facilities and a highly experienced task force. The private sector, on the other hand, can bring in latest technology, managerial practices, marketing skills and financial management. Therefore, a well-blended fusion of both will result in synergising of their strengths and prove mutually beneficial. The Government has to realise that both public and private sectors are national assets and harnessing of their potential is essential if India wants to achieve self reliance in defence production.

73. There has been considerable growth of PPPs in the last 10 years. Refer to Appendix B for the few successful Indian Examples. Sivathanu Pillai, Managing Director, BrahMos Aerospace says "partnership between DPSUs and private sector is the best way forward for indigenisation" [13] . BrahMos missile manufacturing involved more than 200 private industries which helped in reducing the production cost as well. Core competency of public and private sector could be optimally utilised if worked together. "PPPs are seen as the preferred execution mode as the elaborate eco-system for PPPs has developed including policies and procedures" [14] . DPSUs should use the new changes in the policy for creating conditions conducive for Private industries to play an active role. They should mentor and enhance the potential of SMEs, assist tier-II and III industries to meet their production targets by JVs /PPPs and facilitate them to graduate to Tier -I level.

74. Department of defence production should be made responsible for defence industry and not for DPSUs. "Presently the department is linked on ownership syndrome with DPSUs" [15] . Shielding of DPSUs should take a backseat and a level playing field for private industries must be provided. This may generate a good mix of collaboration and competition between the two and initiate the steps for value based partnerships.

Human Resource

75. A concurrent planning for requisite technically qualified manpower from educational institutions and retention of existing talent needs to be done. The recommendations on human resource management are given below:

(a) Convert "brain drain to brain gain". Highly qualified/experienced persons should be inducted from private sector to develop high technical projects on project basis for a limited time.

(b) Delink terms of service of production units and follow the corporate principles.

(c) Internal and external communications must be made available to maximum possible involved agencies.

(d) MoD should develop policy for compulsory upgrading the educational and technical skills of key manpower of defence manufacturing workforce. These should focus on short term goals to cover the skills gaps and long term goals to integrate system and large scale program management.


"Unless some drastic action is taken quickly and the private sector is incentivised to come into the defence production, the situation is not going to work"

Kutub Hai,

Head, Mahindra Defence Systems

76. Indeed, for quite some time now, there has been an animated debate in the country over the viability of building a robust domestic military industrial complex to help India usher in an era of self reliance in defence production by including private sector. India's pro active Defence Minister K.Antony has all along been making a strong pitch for the Indian defence self reliance and involving private sector. The Indian private sector is maturing towards self reliance and self realisation. It has seen itself growing from a captive, Government dominated business arm of the nation in the early fifties to a vibrant, competitive and wide based economic arm of national power in the world today. It has realised the importance of self reliance, particularly in the defence sector, after learning hard lessons and it now flows in a very carefully guided channel to attain its goals through modernisation.

77. During the last five years, a serious and concerted effort has been made by the Government to streamline the production process. The Government has come to appreciate the potential of the private sector and wants it to complement the efforts of

the public sector. The present process of interaction and integration should be continued, albeit with renewed vigour and purpose. Technological prowess of the private sector should be given due recognition and considered a national asset. The objective of achieving self reliance will remain elusive unless the private sector is duly integrated and its potential fully harnessed to build a viable indigenous defence industrial base. The Government has to create an environment where in the private sector feels assured of just business opportunities, level playing ground and fair play.

78. In an oligarchic market, with a handful of design houses, and IPR hiccups, governmental policy and mentoring would be critical for fostering joint technology partnerships, joint ventures in manufacturing and public-public and public-private partnerships. Both in terms of policy facilitation and implementation, we need to take a leaf out of Brazil's successful tryst with Embraer Aircraft and China's preeminence in the manufacturing sector. The strategy to put in place a robust Indian military industrial complex geared to make India self reliant in defence production should harness the resources, expertise and infrastructure available in the country with a thrust on developing innovative, cutting edge technologies to help in the constant up-gradation of military equipment and combat systems.

79. Public private partnership, floating joint ventures with foreign partner willing to offer the latest in technology and manufacturing process, nurturing the talent in academic and research institutions, acquisition of overseas companies focusing on aerospace and defence, enhancing the domain skill of Indian IT companies, setting up aerospace and defence parks in the exclusive economic zones as well as a pro active government policy oriented to support defence research and development and private sector enterprises taking up the development of technologically challenging defence systems could pave way for the long cherished Indian self reliance in defence production. In the ultimate analysis the focus should be self reliance and enhancing our defence capability by harnessing private sector. And that alone could qualify India to lay claim to being a global military power. The temples of modern India viz, the Indian industry must rise to this challenge in a globally networked environment to create a vibrant Military Industrial Complex. Thus the hypothesis identified has been proved.