Six decades after India's 'economic constitution', the Industrial Policy Resolution of 1956, reserved defence production exclusively for the public sector, India is making a definitive push for the private sector to build a domestic defence industrial base in the form of 'strategic partnership' (SP) policy.
The SP model, announced last week, will enable Indian private sector companies to enter into agreements as 'strategic partners' with foreign defence companies, for producing certain types of defence equipment – such as single-engine fighter jets, helicopters, submarines, and armoured vehicles.
"For each platform, one private sector strategic partner will be chosen," said Union Finance Minister Arun Jaitley, who holds additional charge of the defence ministry, after the Cabinet Committee on Security approved the policy.
The strategic partnership policy is another step in the ambitious Make in India programme, launched by the Narendra Modi government three years back, to attract private sector and foreign investment.
The policy was long in the making and is a big boost for the private sector, which was initially allowed entry in defence production in 2001 but did not get any big-ticket orders. This shift happened largely due to the inertia of the Ministry of Defence and the stranglehold of the defence public sector units.
As a result, the private sector so far has built only minor and sub-systems. The strategic partnership policy is set to change all this by explicitly identifying the private defence companies which can forge a joint venture with foreign companies to build major equipment.
The intent is that this will hopefully contribute to making India's defence industrial base a reality, particularly in the aerospace, defence electronics and land weapons systems, whose import continues to cause a major outflow of valuable foreign exchange.
The story of the India's attempts to create a domestic defence industrial base is one of missed opportunities, extended deadlines and glaring inefficiencies – which became the hallmark of the defence public sector units’ functioning.
Tejas fighter aircraft and Arjun battle tank are the two most visible examples of this. Hopefully, a greater role for the private sector will bring in a breath of fresh air into the defence sector.
But, as in any case, the proof of the pudding lies in its taste. The same applies to the strategic partnership policy.
The ability of the Modi government to navigate through the Indian business environment, which thrives on cutting shadowy deals, kickbacks and cultivating contacts with the establishment, will determine the success of this policy.
Moreover, what happens to all those middlemen, who made their lives out of arms imports, is something time will only tell. Remember the Bofors controversy and the AgustaWestland VVIP chopper scam, and how they derailed India's military modernisation plans?
But, even more importantly, what will determine the success of the strategic partnership policy is whether the government is able to reduce the time taken for defence procurement – right from the initial clearance to placing the final order for the arms and weapons.
This is something which successive governments have found difficult, despite the rhetoric and the intent to push through the procurement cycles. For instance, the Modi government cleared a slew of acquisitions when it came to power in 2014. Three years down the line, not a single final order has been placed for that equipment, with the honourable exception of the Rafale fighter jet, which in itself is coming almost a decade late to the Indian Air Force.
This has been a major sore point for private defence companies, who in their naïve assumption invested crores of rupees in the defence business, only to realise that the orders were not forthcoming.
So, to expect that the strategic partnership policy will automatically entice private investment in defence would be foolhardy.
We should not expect an Indian made fighter jet or tank to roll out of a factory anytime soon. It will take some patience and deft handling of the defence manufacturing process to set the house in order and reduce the monopoly of the defence public sector units, to allow a meaningful role for the private sector.
Updated Date: Jun 05, 2017 11:23 AM