What is the issue?
- India’s defence sector needs around $150 billion for modernisation and restructuring in order to become self-reliant.
- The Government has allocated over $40 billion for the development of the sector in this fiscal year.
- Despite having the skill sets and capabilities, importing most of our defence equipment and continuing with a sub-developed manufacturing base is a cause of concern.
What are the problems in this regard?
- The capital intensive defence industry is caught up in stringent and ambiguous financial and regulatory policies.
- Availability of basic resources at highly competitive prices is a barrier to the development of the sector.
- Private manufacturers lack the incentive to make investments into the sector considering risk on returns.
- On the one hand, despite all the facilities, growth of PSUs is stagnating, while private sectors are not keeping pace with other countries.
- Government is taking steps to bridge the gap with the Indian industries but considering the potential of the sector, the Government should assume more responsibility.
What is to be done?
- Currently foreign investment up to 49% is permitted under the automatic route and those beyond 49% and up to 100% is permitted through Government approval route in defence.
- A more liberalised FDI regime along with right checks and balances can promote investments into the defence sector.
- FDI should be complemented with an equal platform for Indian subsidiaries of foreign companies vis-a-vis Indian public and private undertakings.
- Collaborating foreign investors with top scientific and technical institutes in India can bring in advanced technical knowhow and manufacturing capabilities.
- Different policies in regard with defence sector could be harmonised and synchronised to work towards a single window clearance mechanism.
- This could rule out multiplicity of approvals and bureaucratic delays, thereby promoting foreign investment and ease of doing business.
- Cutting down duties on import of capital equipment and manufacturing defence products would help in strengthening the manufacturing base.
- Giving the defence sector an infrastructure status would allow manufacturers to enjoy 100 per cent of profits for a stipulated number of years and work as an incentive.
- PSUs should outsource more to SMEs (Small and Medium Enterprises) thereby increasing investments and absorbing the distinct characteristics of innovative capabilities in the industry.
- Government has recently notified the strategic partnership policy for all major defence procurements by the Government.
- The policy focuses on selecting an Indian strategic partner in key segments like helicopters, submarines, etc. This can work towards indigenisation and capability development in defence production.
- India needs a proactive management of the current and potential resources to capitalise on the promising defence manufacturing industry.
Source: BusinessLine
