Make In India For Defence Industry Not An Option But An Imperative
The width and magnitude of India's security concerns requires us to continuously modernise our defence forces and take up new asset procurement
Defence is a sector of strategic importance for any nation. The width and magnitude of India's security concerns requires us to continuously modernise our defence forces and take up new asset procurement to maintain balance of power and achieve adequate level of operational preparedness. This ultimately translates into India being one of the top 10 defence spenders in the world, with $200 billion-plus expected to be spent on capital acquisitions over the next eight to 10 years.
The government has a responsibility to balance dual priorities:
Priority has been given to the former to manage mission-critical asset deficit of the forces, due to which we have seen G2G purchases of platforms and recent relaxation of offset limits by DAC. To address the priority of increasing industrial capacity and capability, and make India an attractive destination for private investments and participation in defence, the government has brought about certain refreshing shifts in policy over the past 1.5 years:
Some points are still to be addressed - rolling out of the new DPP, taking tangible measures to make MRO cost-effective in India currently prohibitive due to high taxation, issuing list of 'friendly countries' for exports.
While these measures are expected to draw in the Indian private sector companies to participate in defence production, it also means that the foreign OEMs and their value chain partners need to shift their strategy - an imperative to be able to qualify and to continue to play in most defence programmes in India by having some local presence via ToT, co-development, manufacturing or MRO services. Global OEMs are forging relationships to 'Make in India', and to be seen as 'originating' from here rather than 'exporting' into India to (a) drive growth, (b) leverage low manufacturing cost for global supply chain, and (c) improve efficiency on current platforms via ER&D as new platforms are not coming up due to declining global budgets.
However, it is required that the government enablers and private sector efforts go much beyond this, as Make in India in defence is not an option anymore; it's rather an imperative, and that's where the incentives get aligned.
Past performance or situation must not be the barometer of future performance and possibilities in the Indian defence sector. Given the demand-supply gap, opportunities are endless, and the right time to enter the Indian market and to 'Make in India' is now - later may be too late when things are sorted and entry barriers / longer gestation period may exist for newer entrants.
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