A tank being constructed at Ordnance Factory Board (OFB)

HOW volatile is our border that needs no strategic discussion when places like Galwan keeps burning under the vicious attack by next door China? Not to mention the constant barrage of cross border terrorism, Armed Forces’ task of operational readiness is the utmost priority. And, it is the time to build up critical capability gaps, optimise the defence budget cuts and give real shape to our defence industry through simple & workable Defence Acquisition Procedure 2020. In an exclusive interview, Indian Defence Minister for States Shripad Naik talks to BW Businessworld’s Manish Kumar Jha about such critical issue.

What happened in Galwan was premeditated and planned action by China which was responsible for the sequence of events. Is it time to declare our position very clear in reference to China? 

The conduct of the Indian Army along the Northern Boarders is guided by four Protocols signed between the two countries in 1993, 1996, 2005 and 2013. Thus far, the 3488 Km LAC has been managed in accordance to the four Protocols. This has been possible as both the countries have been restricting their activities in the area of differing perception. 

Since 05 May 2020, the Chinese side escalated the situation in Galwan area, where there is no differing perception of LAC. On being stopped for doing infrastructure development on own side, the face-off turned violent. The de-escalation process is ON. Engagement and dialogue at military and diplomatic level is continuing to arrive at mutually acceptable consensus.

Defence budget is messed up with expenditure of pensions or salaries of armed forces & civilians, pensions. The Standing Committee on Defence (2018) had recommended that the MOD should be allocated a fixed budget of about 3% of GOP to ensure adequate preparedness of the armed forces. Are we undertaking such budgetary reforms? . 

The total Defence Budget (including Miscellaneous and Pensions) is Rs. 4,71,378.00 Crore, for the year 2020-21, which is 15.49% of total Central Government Expenditure and 2.10% of GOP for the year 2020-21. Also, Capital Budget of Ministry of Defence for 2019-20 is approximately 28.71 % of the total capital expenditure of the Central Government Expenditure. 

Data on growth of Defence Budget in comparison to central budget and GOP, in absolute and relative terms, for the last five years is given below.

Note: GOP figures from FY 2015-16 to 2018-19 are as per Economic Survey 2019-20 (Vol-2) Table 1. 6-Components of GOP at Current Prices. GOP figures for 2019-20 (RE) and 2020-21 (BE) are as per Budget at a Glance (2020- 21) - BE= Budget Estimates,. RE=Revised Estimates, PE = Provisional Estimates 

It may not be always appropriate to link Defence spending in terms of national economic output. If the economy grows at a faster rate, spending decreases as a percentage of GOP. 

But it doesn't mean that the level of spending has fallen, or has even become inadequate. Looking at the spending as a percentage of GOP thus creates an illusion of declined spending by ignoring the size of economy.

What is the likely impact of budget cuts due to the pandemic on the defence production industry of the country?

As on date there is no budget cut of Ministry of Defence. However, there has been some restriction on expenditure during the first quarter of 2020-21.

There is new provision for separate budget for defence procurement. How will it be structured and what are finer elements of such budgetary allocation?

The Fifteenth Finance Commission (XVFC) has been given additional terms of reference to identify mechanisms for funding the defence and internal security. One of the proposals under consideration by the XVFC pertains to creation of a Capital Revolving Non-Lapsable Fund. The Commission has constituted an expert group comprising reps of MoD and MoF to consider detailed modalities, implementation plan and utilisation of the Capital Revolving Non-Lapsable Fund. 

Under the Creation of Capital Revolving Non-Lapsable Fund, a capital Non- Lapsable fund would provide the required certainty in availability of budget for planning defence acquisitions. It is proposed that a sum of Rs 50,000 Crores to 60,000 Crores Non-Lapsable fund over and above normal budgetary allocations by MoF be created. 

The source of the fund would be receipts from monetisation of defence land, disinvestment proceeds of PSUs, savings from internal reforms with equal top-up as incentive and certain percentage of Finance Commission grants.

The fund will be recouped annually and any surplus collections would be deposited in the Consolidated Fund of India. Expenditure incurred towards services offered to the States for HADR, public good as well as to the UN could be reimbursed into this fund.

COVID-19 has severely impacted the economy. How are we prioritizing our critical acquisition for the Armed Forces? What are the major platforms and weapons being acquired for the forces?

Defence of the Nation will always be given the highest priority and necessary funds will be available to our brave soldiers to do their task. All this is being done while ensuring that maximum possible defence procurement is done through indigenous sources specially the MSME

In the last few months the Government has sanctioned purchase of 83 TEJAS fighters, 21 MiG-29, 12 Su-30 MKI aircraft, aerial fuses, long range land attack cruise missile, air-to-air missiles, Pinaka rocket ammunition, Light Machine Guns, Thermal imaging sights, communication equipment and many more.

All the three forces have been delegated powers to procure critical items in quick time.

As you are aware the COVID-19 has impacted the entire world including the manufacturers of some of our weapons. The delivery and payment schedules are accordingly being adjusted to remain within the fund allocation.

What is status of 114 multirole fighter project for the Indian Air Force? While we talk of building a next generation aerospace ecosystem through such mega project, the key capability gap of engine is missing? Does the project embrace such TOTs along?

Development of an indigenous fighter jet engine is a priority area for strategic autonomy. Development of indigenous jet engine through Kaveri programme has produced a good amount of know-how and industrial eco system in the country.

Presently, we are working on a programme to develop Advanced Medium Combat Aircraft (AMCA). It requires an advanced 110 kN thrust class engine, which will be developed in collaboration with aero engine houses, involving academia, industry and Defence PSUs.


FDI to 74% is step up in defence but still does not attract meaningful investment? Could you elaborate on potential and also the investment in Defence corridors so far?

With the revised policy of FDI up to 74% through automatic route, we expect that Foreign defence OEMs will be willing to set up their manufacturing units in the country, as they may now have better control over the company and may feel comfort in deploying their technologies and set up manufacturing facilities within our country.

This will help in bridging the critical technology gaps in defence manufacturing ecosystem in our country. Moreover, keeping in view the geo political scenario post COVID-19, many of the foreign companies engaged in Defence sector may like to move to or make investments in countries which may be more conducive for their operations. By liberalizing its FDI policy, India would surely grab this opportunity to attract global OEMs in Defence sector to shift their manufacturing facilities to India and expand our presence in international supply chains.

As far as investments in Tamil Nadu & Uttar Pradesh are concerned, so far, investments of over Rs. 4000 Cr. have been announced in Uttar Pradesh Defence Industrial Corridor and investments of over Rs. 3000 Cr. have been announced in Tamil Nadu Defence Industrial Corridor.

The Ministry is regularly monitoring the progress of investments in these corridors.

There were cost issues for the 670,000 Kalashnikov AK-203 rifles under the Indo-Russian plan the joint venture (JV) in Amethi. When do we expect the plant to start rolling?

Committees formed under the Defence Procurement Procedure are currently examining the cost estimates submitted by the joint venture, Indo Russian Rifles Prt Ltd. The process is likely to be concluded by this month end. The production of rifles at Korwa will commence this year.

Army has been raising the issue of sub-par quality products produced by OFB that is leading to a higher number of accidents. What are the steps government taking to ensure that OFB products match the standard set by the forces?

The Government is keeping a track on “Transformation of Ammunition and Explosive Manufacturing in Ordnance Factories”. 

In this regard, the OFB has developed a Customer Complaint Monitoring System (CCMS), where factories resolve complaints of the user units and resolution is certified by QAG (an independent Quality Audit Group).

Special drive was initiated by OFB to resolve the long pending complaints and take measures to avoid occurrence in future, which helped reduction of pendency of complaints to a great extent.

The Finance Minister also mentioned that barring strategic sectors all PSUs will be disinvested. Are there plans to divest from any of the DPSUs?

Disinvestment of PSUs including Defence PSUs is an ongoing process which is carried out by DIPAM, MoF as per it’s Annual targets and plans.