Why this is a good time for private sector in India defence manufacturing – Part 2

Photo: India’s defence production secretary Raj Kumar e-flagging off from New Delhi the K-9 howitzer at Hazira in Gujarat Nov. 10.

(Editor’s Note: The views are that of the author’s. For the writer’s other interests, read the credit line at the end of the article.)

By Lieutenant General (Dr) V. K. Saxena

From the perspective of self-reliance and ‘Atmnirbhar Bharat‘, India has a reason to cheer in the festive season in 2020, as realisation dawns that the nation’s private sector in defence manufacturing is finally arriving in more ways than one. Yet, there are certain challenges that actually measure the gap between the status today and the lofty targets that are set out in the Ministry of Defence (MoD) policy driving documents in the recent past. Here is the second and final part of this two-part series:

Challenges Ahead

The Indian government in the recent past has released two important documents in quick succession, spaced out by just two months. These are the Draft Defence Production and Export Promotion Policy (DPEP 2020) released on Aug. 3 and the Defence Acquisition Procedure (DAP) 2020 released on Sep. 28. Both these documents have very strong and enabling provisions to strengthen the defence private sector. Some of these are:

  1. Encouraging Foreign Direct Investments in defence sector.
  2. Providing holistic support to Micro, Small, and Medium Enterprises.
  3. Earmarking a distinct budget head for domestic capital procurement.
  4. Working on a target for year-on-year increase of 15 per cent in domestic procurement.
  5. Bringing in specific reservations for Indian vendors in certain categories (Indigenously Designed Developed and Manufactured, Make-I, Make-II, production agency in design and development projects, Strategic Partnership model and more.
  6. Encouraging ‘make’ and ‘innovation’ through vehicles like ‘Innovation for Defence Excellence‘ (iDEX), Technology Development Fund, and internal armed forces organisations.
  7. Bringing in industry-friendly commercial terms such as price-variation clause for large and protracted contracts, and parallel processing in payment to vendors.

All the above provisions more certainly indicate the will of the government to enable and strengthen the defence private sector, but still there are huge challenges. Some of these challenges are:

Targets versus Current Realities

The DPEPP 2020 sets an ambitious target of achieving a defence manufacturing turnover of $25 billion (1,75,000 crore) and an export target of $5 billion (Rs 35,000 crore) by 2025. How far these are spaced from current realities? Here are the figures:

  1. In the year 2018-19, the annual defence production turnover was Rs 80,558 crore (approx. $11 billion) and export turnover was Rs 8,320 Crs (approx. $1.2 billion) . Compared to the targets, the current levels are at 45 per cent and 35 per cent respectively for production and exports.
  2. While India’s defence exports declined by a net 32 per cent in the two periods 2010-14 and 2015-19, the country still remains the world’s second largest arms importer with a near 14 per cent of the global import share. India’s defence export share in the global format is at a mere 0.2 per cent.

Some Positive Signs

While the challenges (read target gaps) are indeed huge, some positive signs are visible:

  1. Ever since the ‘Atmanirbhar Bharat‘ got the political wind in its sails, it is getting an all new traction. The same is increasingly impacting across the public, as well as, private sectors.
  2. It has been argued many times for the need for an ‘attitudinal change’ in the mind of the decision-makers towards the private sector in defence and the need for realisation that the private sector in defence has arrived. Thus, the private sector deserves its due share of orders, allocations, subsidies, hand-holding and more.
  3. Some positive signs are visible in this regard as well:
    (a) The share of private sector in the total defence production has gone up from 19 per cent in 2016-17 to 22 per cent in 2018-19. Consequently, in the same period, the public sector share has shrunk from 75 per cent to 72 percent, yielding three per cent to the private players. While three per cent may give a minimalist feel, but taking the overall kitty of total defence production budget as whole, it is a considerable amount.
    (b) The Make-II procurement procedure, the Public-Private Parnership, and the Strategic Partnership model seem to be getting a move forward. Big names like the Larsen and Toubro, the Tata Group, the Mahindra Group, the Adani Group, the Hinduja Group, and the Kalyani Group are posting successes in the defence sector.
    (c) The Tata Advanced Systems Limited and the Kalyani Strategic Systems Limited have posted respectable revenues in the recent years from the defence sector. In Sep 2020, L&T bagged a deal of Rs 2,580 crore for the manufacture of Pinaka Multi-Barrel Rocket Launchers.
    (d) Even the smaller players are benefiting. Indian Army has recently short listed several small companies for the $310-million project for designing and developing ammunition for its main battle tanks under the Make-II project.

All the above and more are good signs and one more reason to celebrate in this festive season, as has been argued in Part-I of this article posted on Defence.Capital yesterday. You can read it here.

That such reasons may continue to present themselves as reasons for abiding celebrations is the nation’s hope.


(The writer is a retired Indian Army officer and former Director General of the Corps of Army Air Defence)

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1 reply »

  1. A well researched and well structured article in two parts which strengthens the views and kindles the belief that private sector is well poised to deliver technologically world class military equipment, on time to the Indian Armed forces, as well pressuring PSUs to follow suit or give way.

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