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Towards a defence industry sans frontiers?

The government said on Monday that it would further open up India’s lucrative defence sector to private players. HT presents the state of play in the segment that offers strong growth potential

business Updated: Jun 11, 2014 11:29 IST
Gaurav Choudhury

Which are the agencies involved in defence production and purchases in India?

The ministry of defence (MoD) is the final authority on defence purchases in India. The department of defence production oversees defence purchases. The department is vested with the overall responsibility for growth of indigenous defence industry as well as framing of policies.

What is the present state of the Indian defence industry?

There are nine defence public sector undertakings, with each of them catering to a specific class of items such as Hindustan Aeronautics Ltd for aircraft and helicopters. There are also about 40 ordnance factories or departmental manufacturing facilities and about 90 private companies licenced to manufacture a wide range of items.

What role does ordnance factories play in defence production?

The ordnance factories are strategic and dedicated production base for armoury. The product range includes small, medium and heavy calibre guns, propellants, explosives, armoured vehicles such as T-90 and Arjun, transport vehicles and parachutes and troop comfort equipments among others.

What about indigenous missile development programme?

Bharat Dynamics Ltd is the primary production agency for all missiles developed by the Defence Research and Development Organisation.

What is the role of domestic private players in the defence industry?

The defence industry was opened for the private sector in May 2001 with foreign direct investment allowed up to 26% subject to licensing. Guidelines for licensing of production of arms and ammunition were notified in January 2002. Many private companies such as the Tata Group, Larsen and Toubro, Boeing, Mahindra Group, and Wipro have already entered into agreements with foreign companies for manufacturing diverse items. In July last year, the government approved a new policy in defence production through which Cabinet Committee on Security can approve proposals on case-to-case basis beyond the existing 26%, which are likely to result in “access to modern state-of-the-art technology in India.”

What are the guiding principles of the defence procurement process?

Defence procurement procedures (DPP) and accompanying policies have to balance three competing aims: facilitate the expedient acquisition and scaling up of new technologies and capabilities for the Indian armed forces, conform to the highest standards of transparency, probity and public accountability and develop an indigenous Indian defence industry capable of providing near autonomy in defence production.

Why has India had significant annual defence ‘underspends’?

Over the last decade, sizeable funds have been surrendered as ‘unspent’ and returned to the finance ministry every year. A major reason for the underspends is the timeframe allotted to the services for the expenditure. Currently, the procurements undertaken by the ministry of defence are done according to the Annual Acquisition Plans (AAP) and the Services Capital Acquisition Plan (SCAP). Given the estimated length of a typical acquisition, it is sometimes difficult to plan in which particular year a major procurement spend will be incurred. This can lead to underspending of the allotted budget since the spend fails to materialise in the relevant planned years but is deferred to later years. The surrendered amount is relocated to the finance ministry and may not be available for the MoD under the following year’s annual budget. Hence, there has been a demand from the industry to introduce the concept of rolling budgets, allotting the under spends from prior years to the following year’s annual budget in order to ensure that on-going procurements are not stopped for lack of funds.

What are Army’s acquisition plans over the next 10 years?

The 10-year acquisition plan includes ultra-light howitzers, towed and wheeled 155m guns, self-propelled tracked and wheeled guns, mounted gun systems, air defence guns, surface to air missiles with different ranges, futuristic infantry combat vehicles, artillery rockets, assault rifles, battle field surveillance radars and night vision equipments among others.