The long and protracted struggle for defence production reforms in India is on the verge of generating yet another task force report, this time on the issue of anointing certain defence industries as strategic partners. This idea is not without merit. Defence is the sort of high-risk, high-return and high-security sector that lends itself to an oligopoly. Unfortunately, in independent India the oligopoly that has emerged is dominated by public sector units with a record of non-performance when it comes to weapons making. Nurturing a new set of companies, hopefully largely private, that would be exempt from the tortured defence procurement process and lowest-bidder obsession is a path many other countries have followed with success. Without some sort of purchase guarantees and close relationship with government, a genuine indigenous defence sector will remain stillborn.
The VK Aatre task force has been asked to set criteria for a new set of such strategic defence companies, both from the private and public sectors. While that is a major step forward compared to the past, the committee’s final recommendations should not make the issue of government versus private ownership important to the selection of such firms. The ability of a firm to deliver in terms of technology and products should be the primary criterion for being given strategic status. Ownership should be irrelevant, otherwise all that will happen will be what has already occurred: The entrenchment of mediocrity. Initial reports say the task force also wishes to restrict foreign holdings in such firms, possibly as low as 5%. This makes no sense for a country that imports almost all of its weapons, including the boots worn by its soldiers, and has struggled to make a battle-grade assault rifle. Indian private sector firms have repeatedly argued that they need to partner with foreign firms to get access to world-class defence technology. This was the reason the Narendra Modi government raised FDI in defence to 49% and allowed for 100% in special cases.
Any recommendation on this front must recognise that such a restriction on a defence strategic partner will guarantee technological backwardness. All governments place tight restrictions on defence technology and the lower the FDI limit the more obsolete the technology that one receives. Ultimately, any defence production policy with the goal of indigenisation should see the process on a sliding scale. In the initial decades, India should expect to allow a larger role for foreign partners and provide state support to Indian private sector firms. Over time, the foreign role can be potentially scaled back, only after it is clear that India has a defence sector that can stand on its own.