Decks Cleared For Entry Of Private Players In Big-Ticket Defence Manufacturing

Journalist Manu Pubby of The Economic Times reports today (8 May) that intervention by Prime Minister's Office (PMO) and Arun Jaitley, who is currently vested with the additional charge of Ministry of Defence (MoD), has resolved the stalemate that was delaying the roll out of strategic partnership (SP) model.

The ‘strategic partnership’ model was mooted for creating defence manufacturing capacity in the private sector on a long-term basis in strategic segments such as aircraft/helicopters, warships/submarines, armoured vehicles, missiles, command control systems and critical materials. As part of its efforts to usher in large-scale private investments in mega defence manufacturing projects, MoD has been engaging in continued discussion with leading Indian corporates to establish clarity and resolve contentious issues on the strategic partnership models.

According to Nitin Gokhale, one of country's leading defence analysts, "For months, two opposing schools of thought slugged it out in the MoD. Besides the divided opinion in the MoD, there were major differences of opinion among Indian and foreign defence manufacturers on the contours of the SP model. In the MoD, one lobby led by a senior official was batting to retain the primacy of the Ordnance Factory Board (OFB) and Defence Public Sector Undertakings (DPSUs). The other section wanted to keep the OFB and DPSUs out of this model."

The Economic Times report cites sources saying that these festering issues were resolved over a series of meetings, especially the one held in the PMO last week, which gave the final push to the initiative. The report also mentions that private sector representatives from three industrial bodies have now been invited by the MoD for a meeting tomorrow (9 May), where the government is likely to unveil the progress made.

As per the report, the first phase of the strategic partnership project will be used to manufacture new submarines, a naval utility helicopter, a single-engine fighter aircraft for the air force and armoured vehicles for the army.

Indian armed forces, the navy in particular, has expressed keen interest to get going on Strategic Partnership initiatives as it wants to meet its urgent requirements and address the lack of equipment.

India allocates about 1.8 per cent of its GDP to defence and meets 70 per cent of defence equipment through imports. It ranks among the top 10 countries in the world in terms of military expenditure making it a lucrative market for defence products..

Modi government is working to reduce this import dependence by atleast 35 to 40 per cent through a slew of measures, including actively promoting its signature ‘Make in India’ and policy reforms including allowing 100 per cent Foreign Direct Investment (FDI) in the sector.