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Waiting to revive

Defence procurement, FDI in the sector, have still to pick up after the lull of the UPA years.

By: Editorial |
Updated: August 10, 2016 12:02:59 am

In June, the Union government took the decision to allow 100 per cent foreign direct investment (FDI) in defence, with the expectation that it would bring access to modern technology. No FDI has come into the defence sector since. As the defence minister told parliament earlier, only Rs 1.12 crore has come as FDI in defence since May 2014. For a government that has identified the defence sector as one of the pillars of its Make in India scheme, this is an unimpressive amount. Besides foreign investors, even domestic private defence firms have stopped short of making major investments. This can’t be blamed on a lack of enthusiasm from the private sector because defence has been identified as a sunrise sector by most Indian corporate houses. Nor can it be blamed on government policies which have been revised to encourage foreign and domestic investment in this strategic sector.

In the last two years, the defence ministry has accepted the necessity for equipment worth nearly Rs 2 lakh crore for the armed forces. These approvals, however, will take a few years to go through the process of tendering, trials and price negotiations before resulting in firm orders for a company. No industrialist is going to invest in a production facility unless she has firm orders from the defence ministry. This is the nub of the problem. Since May 2014, only five orders of more than Rs 2,500 crore have been placed by the defence ministry, and that too, with either foreign suppliers or defence public sector units. The inability to conclude ongoing procurement projects, and give firm orders where trials have concluded more than a year ago, has emerged as a big weakness in the system.

The previous defence minister, A.K. Antony, was blamed for slowing down the procurement process. But even under the current BJP dispensation, as pointed out by the parliamentary standing committee on defence, the actual expenditure on defence acquisition as a percentage of the allocated amount has been lower than in the UPA era. This is something that needs to be fixed urgently, if needed, by shaking the bureaucracy out of its stupor. The Indian defence sector is important for its economic potential but it is also critical for the armed forces, which must always be prepared to fight a two-front war.

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