NEWS HIGHLIGHTS
Theme : Indigenization of Technology
Paper : GS - 3
Defence-Expo 2022 held in Gandhinagar, Gujarat in October drew attention to a major policy initiative, the need for India to acquire the appropriate degree of “Atma-nirbharta” (self-reliance) in the defense sector.
TABLE OF CONTENT
- Context
- Indian Defense Sector
- Need of Self Reliance in Defense
- Challenges
- Reasons for the Lacking Points in Industry
- Intervention by Centre to boost the defense production
Context : Defence-Expo 2022 held in Gandhinagar, Gujarat in October drew attention to a major policy initiative, the need for India to acquire the appropriate degree of “Atma-nirbharta” (self-reliance) in the defense sector.
Indian Defense Sector :
- India has the third largest armed forces in the world.
- India has one of the largest defense industrial complexes in the developing world. Currently, it consists of 39 ordnance factories, 9 defense public sector undertakings under the administrative control of the Ministry of Defence (MoD); and 150-odd companies in the private sector.
- In addition, there are 50-odd dedicated research laboratories and establishments under the umbrella of the Defence Research and Development Organisation (DRDO), the premier research and development (R&D) wing of MoD.
- Together, these entities, which employ over 200,000 people, produced arms and other stuff worth over Rs. 46,428 crore ($7.6 billion) in 2014-15.
- It is the world’s fifth-largest spender on defense. India’s annual defense budget for Financial Year (FY) 2018-19 was about Rs 2,95,511 crore (at the BE stage). It spends approximately 35 percent of its defense budget on capital acquisition.
Need of Self Reliance in Defense :
- Reducing import dependence: India was the world’s second-largest arms importer from 2014-18, ceding the long-held tag as the largest importer to Saudi Arabia, which accounted for 12% of the total imports during the period, says 2019 SIPRI report. Such higher import dependency leads to an increase in the fiscal deficit.
- Security Imperative: Indigenization in defense is critical to national security also. It keeps intact the technological expertise and encourages spin-off technologies and innovation that often stem from it. India is surrounded by porous borders and hostile neighbors who need to be self-sufficient and self-reliant in defense production.
- Economic boost: Indigenization in defense can help create a large industry which also includes small manufacturers. Example: the USA has a strong defense industry with companies like Lockheed Martin contributing to economic growth as well.
- Employment generation: Defense manufacturing will lead to the generation of satellite industries that in turn will pave the way for a generation of employment opportunities. As per government estimates, a reduction of 20-25% in defense-related imports could directly create an additional 100,000 to 120,000 highly skilled jobs in India.
- Counter China: If India doesn’t develop its defense industry, China will emerge as the sole defense equipment manufacturer and supplier in the region.
- Improve Global standing: India is striving for a permanent seat at the United Nations Security Council (UNSC), however, it cannot remain effectively a net importer of security from four out of five permanent members of the UNSC.
Challenges :
- High import dependence: India imports nearly 60 percent of its military hardware requirements from global arms manufacturing countries. As per SIPRI data, the value of imports of defense systems by India for the period 2013-16 was approximately Rs 82,496 crore. India accounts for 14 percent of all global arms imports and has the dubious distinction of being the largest importer of arms in the world.
- Low self-sufficiency levels: Despite having a strong DIB, the long-cherished goal of achieving a minimum of 70 per cent self-sufficiency in defense procurement remains elusive. Currently, India’s self-reliance is hovering at around just 35- 40 per cent.
- Technology transfer dependence: India is mostly involved in the licensed production or manufacturing of defense equipment based on the Transfer of Technologies (TOT) obtained through the purchase of main equipment/systems in the past from the Original Equipment Manufacturers (OEMs).
- Dependency even for raw materials: The Comptroller and Auditor General of India (CAG) in a 2011 report to Parliament had expressed its displeasure at the 90 per cent import dependency of the state-owned Hindustan Aeronautics Ltd (HAL) for ‘raw materials and bought out items’ for production of what is touted as indigenously designed and developed Advanced Light Helicopter (ALH).
- Lack of funding: There is a lack of funding, as the incremental increase in the country’s defense budget is not enough to undertake big-ticket modernisation plans for the armed forces.
Reasons for the Lacking Points in Industry :
- Weak domestic industry: This is largely due to the non-availability of modern, hi-tech and advanced weapon systems through the domestic industry (public and private). Though such imports serve the immediate needs of the country, in the larger perspective, they delay the process of indigenisation. There has been very limited participation of the private sector (less than 5 per cent) in the overall defense acquisition.
- Failure of DPSUs: The DPSUs/Ord Fys/DRDO were raised with the expectation to create self-reliance in the field of defense manufacturing, however, the same has remained elusive so far. Over the years, the contribution of the DPSUs/Ord Fys has been dismal, which is adequately mirrored in their decreasing stake in India’s capital budget.
- Gaps in the capacity and capability: There are gaps in the capacity and capability of the DPSUs/Ord Fys/ DRDO vis-à-vis the requirements of the armed forces for modernisation/ upgradation of the equipment profile, which leads to the off-the-shelf procurement of arms/weapon systems ex-import.
- Dismal participation in R&D: There is enormous scope for investment in defense R&D by the public as well as the private sector. As per a study carried out by Institute for Defence Studies and Analyses (IDSA), the OFB invests only 0.7 per cent of its budget in R&D against the minimum inescapable requirement of 3 per cent. It was also revealed that four of nine DPSUs do not own a single patent or copyright.
- Low FDI inflows: There is a lack of Foreign Direct Investment (FDI) in the defense sector. The aspect of FDI has not received adequate importance so far and, hence, there has been very low FDI in the defense sector.
Intervention by Centre to boost the defense production :
- Licensing relaxation: Measures announced to boost exports since 2014 include simplified defense industrial licensing, relaxation of export controls and grant of no-objection certificates.
- Lines of Credit: Specific incentives were introduced under the foreign trade policy and the Ministry of External Affairs has facilitated Lines of Credit for countries to import defense products.
- Policy boost: The Defence Ministry has also issued a draft Defence Production & Export Promotion Policy 2020.
- Indigenization lists: On the domestic front, to boost indigenous manufacturing, the Government issued two “positive indigenization lists” consisting of 209 items that cannot be imported. Recently, the 4th indigenization list has been launched.
- Budgetary allocation: In addition, a percentage of the capital outlay of the defense budget has been reserved for procurement from domestic industry.
- Defence Industrial Corridors: The government has also announced 2 dedicated Corridors in the States of TN and UP to act as clusters of defense manufacturing that leverage existing infrastructure, and human capital.
- Long-term vision: The vision of the government is to achieve a turnover of $25 bn including export of $5 bn in Aerospace and Defence goods and services by 2025.
- Push for self-reliance: The govt has identified the Defence and Aerospace sector as a focus area for the ‘Atma Nirbhar Bharat’ or Self-Reliant India initiative.
FAQs :
1. Where does India Stand in Ranking of Armed Forces?
Answer : India has the third largest armed forces in the world.
2. Where was the Defense Expo - 2022 held?
Answer : Gandhinagar, Gujarat