In today’s scenario, India is finding itself with multiple serious issues all at once. The country is constantly grappling with cross-border tensions such as multiple faceoffs between Indian and Chinese armies. Simultaneously, the country is also dealing with terrorism by extremist groups from both inside and outside the country. The recent news where twenty-two CAPF lost their precious lives in a clash with Naxalites sends the whole nation in deep anger and sadness. On the other hand, the coronavirus in India is on its brutal rise. The present recession, military tensions, Ukrainian crisis, and internal inefficiencies are putting the government to a real test to allocate the resources accordingly.
It is essential to understand that a sustainable and modernised defence sector is vital for the citizens’ safety for a country like India. It is, thus, necessary for the nation to continually invest and innovate in this sector. The need for such high investment originates from India’s geographic location and the past and present diplomatic relations of the country with its neighbours.
A deeper look
Here is a picture to consider, India is surrounded itself with hostile neighbours such as China and Pakistan. These countries have fought several wars with us in the past and have encouraged extremist groups originating inside India. The diplomatic relations with Nepal and Sri Lanka have also been moderate in the past years, and extremist groups are always lurking at India’s borders to carry out another assassination. Overall, it is critical to understand that India is in a position where neighbouring countries are putting consistent efforts to dismantle India’s peace to its core. Thus, India needs to boost its defence sector to safeguard its citizens, peace, and integrity.
However, the problem doesn’t end here. The overall lifestyle of its citizens is also a concern. Consider the following data: in 2019, India was the fifth largest growing country overall in the world as per the GDP ranking provided by the International Monetary Fund (IMF). On the contrary, the nation ranked 147 as per the GDP per capita compared with the rest 158 countries, whereas its growth competitors such as the United States and China were in the top ten positions.
The data from SIPRI also implies that after paying pensions and salaries of Indian soldiers on land, the government does not have adequate funds to equip them with state-of-the-art machines and weapons.
To put things in perspective, the government also has a responsibility to safeguard the nation from its neighbours and increase the overall lifestyle of an average Indian, who earned just only more than a lakh rupees in 2019-2020. Thus, the budget allocation done by the Ministry of Finance has to balance the importance of the nation’s security with the average citizen’s lifestyle.
Various governments have tried to solve this conundrum by investing crores of rupees in uplifting the general population through various employment schemes, tax rebates, and infrastructure projects. However, high public spending has limited the scope of innovation and modernisation of the defence industry due to the shortage of capital and inefficiencies in R&D. This amount also gets depleted due to corruption and money laundering scandals done by various politicians and people in business, leaving less money to invest in defence forces.
To illustrate with numbers, the data from the world bank suggests that in 2019, India’s defence expenditure was 2.1% of the GDP, the lowest since 1960. The data from SIPRI also implies that after paying pensions and salaries of Indian soldiers on land, the government does not have adequate funds to equip them with state-of-the-art machines and weapons.
What riddles the defence sector?
The present situation of the Indian government demonstrates the classic problem of state-owned enterprises and sectors. The ordnance factories operating in the country have poor inventory management, lesser R&D capabilities, and higher pricing of weapons and machinery. Moreover, due to a lack of internal innovation, India has become the second-largest importer of weapons and machinery, depending even more on foreign vendors and technology.
Before the present, many governments implemented procurement programs to empower the private industry players in the defence sector. For example, in the Defence Procurement Procedure in 2006, the ‘Make’ category for private manufacturers was announced. In DPP-2013, the order of categorisation of procurement orders was laid out as follows: (1) Buy (Indian) (2) Buy and Make Indian (3) Make (Indian) (4) Buy and Make (5) Buy (Global).
However, even due to such initiatives in procurement procedures, between 2011-12 and 2013-14, India spent more than 83,000 crore rupees on defence imports. Furthermore, there was a substantial foreign exchange amount spent on India’s indirect arms import. The core reason for such failure lies in the bureaucracy and inefficient processes of industrial licences, financial terms of engagement, and level playing field for private players. Furthermore, the contracts of crores of rupees that private companies secured resided with big players in the industry such as TATA, L&T, and Ashok Leyland, leaving little room for other Indian manufacturers to grow.
The privatisation done in various sectors has shown an improvement in the company’s overall processes and frameworks. Moreover, private companies’ motive to achieve high-cost efficiency in operations through innovative frameworks has resulted in a higher quality to price ratio. As seen in multiple sectors in different countries, privatisation has increased the industry’s overall output with more allocation to innovation and R&D.
Translating the effects of private players’ entry into the defence industry can prove to be a fruitful decision. The higher participation of private players will help the MoD effectively increase its citizens’ lifestyle while enhancing its military capabilities. In the present times, India’s defence sector’s capital allocation is relatively low compared to other advanced economies with similar military capabilities. Plus, given the threat of strategic encirclement, India has to constantly innovate and modernise its military capabilities to safeguard its citizens.
The catch
The Society of Indian Defence Manufacturers (SIDM) consists of more than 400 private companies in various defence verticals. Even though the private companies’ innovation and financial strengths are limited, the industry can potentially eliminate India’s dependency on foreign technology if given appropriate support and government guidance. As per the DPP-2020, the government restricts its funding to publicly owned companies in the ‘Make’ category, a set of companies which have been proven to be inefficient multiple times. The absence of government support into the industry creates an entry barrier for many private companies, resulting in only a few big private players such as L&T and Ashok Leyland.
However, it is also noteworthy that the defence sector, unlike other industrial sectors, has to be regulated by government entities. Even though private companies’ high participation will improve the process and product innovation, the motive to maximise the profit might lead to information espionage, hurting the nation’s security. Furthermore, the private companies’ high autonomy in this sector might turn out counterproductive. Lastly, the intention to innovate any product and process would be to generate more profit rather than enhance the nation’s defence services and reduce dependency.
A potential solution is to privatise the defence sector partially. The government and private companies can form a coalition where the government possesses the coalition’s significant stake. The higher stake of the government will allow the government to monitor the activity of the private companies. It will be able to regulate the coalition’s action in the direction of India’s best interest. Moreover, this would also boost these private companies through the association with the government. The companies will get projects based on expertise, increasing the innovative capacities of the defence sector. The solution of partial privatisation will create a win-win scenario for the government and the private sector players.
In conclusion, although India is surrounded by countries that are a potential threat to its peace and security, India’s private sector possesses the untapped potential to reduce India’s import dependency on foreign vendors. The optimum resonance between the government and the private sector can create a balance between defence and public expenditure, helping the country to safeguard its soil while increasing the general population’s overall lifestyle. With the recession due to fallout of Covid-19 and the ongoing Ukrainian crisis, it is imperative for the Indian government and private players to work alongside each other to finally solve the conundrum and take the country to new heights.
