The saga of India’s indigenous defence production
India is dependent on imports due to skewed incentives among key stakeholders and lack of policy predictability
In an increasingly uncertain world, India’s security challenges are likely to increase. Tensions with Pakistan remain a major concern, as the events following the Pulwama terrorist attack and Balakot air strike made clear. The power disparity with China continues to widen. And the Indian Ocean and India’s broader neighbourhood are becoming more contested. As India’s global exposure increases – with implications for the security of its diaspora, energy flows, and sea lines of communication – its international security obligations are also set to grow. For all these reasons, the need of the hour is a capable defence industrial establishment, one that is able to adequately supply the Indian armed services to meet the country’s national security requirements.
However, India is a long way from reaching this objective. It remains heavily dependent on defence imports, generally ranking one of the top two defence importers over the past few years (along with Saudi Arabia). It is particularly dependent on foreign suppliers for major military platforms such as combat aircraft, heavy lift and reconnaissance planes, anti-aircraft systems, and submarines. Meanwhile, Indian defence exports are negligible, other than some success with offshore patrol vessels. This is despite India having a massive public sector defence industry, when the laboratories of the Defence Research and Development Organisation (DRDO), nine defence public sector undertakings, and over forty ordnance factories are taken into account.
The situation that India finds itself in today was not preordained. In fact, Indian leaders, beginning in the 1950s, set about trying to create an indigenous military industrial complex. They even had some early successes with foreign assistance from over ten countries belonging to both the Western and Eastern blocs during the Cold War. But these efforts were reversed by a process of centralisation, a preference for license production, and policy decisions in the 1990s that entrenched vested interests.
Since that time, a series of government task forces and reports – led by grandees such as APJ Abdul Kalam, Arun Singh, Vijay Kelkar, Narendra Sisodia, and Naresh Chandra – recommended steps for the country to achieve defence industrial objectives. Some of their recommendations were adopted, including initial steps to incentivise a private defence sector. Nonetheless, India’s armed services still remain heavily dependent on foreign suppliers. Why has India failed to escape a recurring cycle of delayed defence procurement followed by expensive panic purchases?
The reasons, unfortunately, are not so simple. Some of it has to do with the economics of the defence industry, which due to precise specifications, high exposure to risk, technological safeguards, and uncertain demand, do not ascribe to the economics of other industrial sectors. The demands of the government - high levels of technology at low-cost in short time-frames - are impossible for any supplier to deliver.
While on paper, there is plenty of money for India to spend on defence – roughly 2% of GDP – the reality is more sobering. Three-quarters of defence spending goes to such things as salaries, maintenance, and pensions, and the remaining 25% meant for new equipment often goes unspent or is reclaimed by financial managers. These conditions remain applicable amid rapid changes taking place to the defence industry, both in terms of technology and the nature of industrial production. Policies that once made sense in an era when India was starved of technological access and foreign exchange are no longer particularly applicable.
If these factors were not complicating enough, the key stakeholders do not necessarily have the right incentives to promote policies that facilitate indigenisation. The defence public sector obviously does not want to cede space to private competitors, and its presence within the decision-making apparatus creates an inherent conflict of interest. The ministry of defence lacks specialisation, with few notable exceptions. The armed services, for their part, often demand unrealistic requirements, both as a bureaucratic negotiating tactic and as a way to factor in delays in procurement. The finance ministry, which holds the purse strings, has little incentive to prioritise defence, preferring to focus funds on bridging fiscal deficits or increasing social spending. And the political leadership often lacks awareness, has little access to independent information, and remains sensitive to perceptions of corruption in the defence acquisition process.
All of this has created an untenable situation, in which India is unable to put in place the necessary conditions for defence indigenisation. That would require a long-term vision for defence requirements; objective assessment criteria for technology; transparent and predictable processes; partnerships between the armed services, research establishments, and industry; and greater civilian expertise in defence matters.
But more than anything else, policy predictability will be necessary if India is to truly develop an indigenous defence capability. Long-term requirements must be established, taking into consideration technological sophistication, life-cycle costs, industrial capabilities, and export potential. Equally, predictable spending through some kind of arrangement between the finance and defence ministries is needed, without which there will be little incentive for long-term investment. Ultimately, policy predictability will remain a necessary but insufficient condition for India to realise its objective of defence industrial self-reliance.