FDI policy leaves India Inc defenceless

More than a year later, bottlenecks in the defence procurement policy have made sure nothing has moved beyond the paperwork. ‘‘There may be bodies like CII and Ficci to certify the private sector, but the government would like to make its own assessment. This is the stage we are in right now, it is taking time,’’ admits a Department of Defence (DoD) official.

At the same time, both the government and industry say the private sector’s participation is badly needed in the Rs 40,000-crore market for defence production, which relies heavily on imports.

In 2003-04 alone, the ordinance factories’ shopping list stood at Rs 3,700 crore. One-third of this, or Rs 1,209 crore, was imports.

The government has woken up to the issue, asking Vijay Kelkar, former advisor to the finance minister, to take a look. But a solution is unlikely soon. ‘‘I am working on suggested policy changes. They can’t be expected any time very soon,’’ says Kelkar.

To be sure, Kelkar has lots on his plate, as India Inc’s list of complaints range from the DoD’s unwillingness to share its R&D facilities to a tax regime that favours foreign-only companies.

Industry is peeved most with what they call ‘‘the DoD’s bias for imports’’. ‘‘Indian firms face a six to seven month payment delay and a 20 to 35 per cent higher tax burden than international defence firms. Why would international players team up with them?’’ says a CII analyst.

Besides, low private participation means India will remain a net importer of defence equipment and will be unable to tap the lucrative export market worth billions of dollars.

However, the DoD is not oblivious to the advantages of having indigenous capabilities. ‘‘If foreign-grade technology is available within India, the procurement procedure would take less time and preclude travels to other countries for technical evaluation and inspection,’’ says a DoD official.

But, clearly, timing is of essence. ‘‘The DoD definitely wants private participation, but wants the rollout to be gradual, from non-critical equipment to warfare essentials,’’ the official said.

But for players like Mahindra & Mahindra, one of the 10 companies with the LoI, such debate is academic. ‘‘Defence procurement procedures are fairly well-established. The trouble is we (industry) don’t know what those procedures are,’’ says Bri. K.A. Hai (Retd), head of the company’s defence production.

‘‘The ordinance factories reinvent the wheel. Why shouldn’t they outsource what is already available?’’ says Hai.

Besides, a swarm of smaller players are expected to benefit from the ancillary supplies to the defence forces. ‘‘Opening up will be a boon for smaller players. The government often imports products that Indian companies are already exporting,’’ says Col J.S. Duggal (Retd), Vice-President, M Kumar Udyog Pvt Ltd, a mid-sized player, exporting safety equipment.

And industry asserts that only indigenous capability can plug deficiencies and delays in critical areas like repair and R&D. In times of peace as well as war.

(With inputs from Shiv Aroor)