The domestic defence production ecosystem has always been dominated by the public sector in India. For a long time, there was an undercurrent of mistrust when the private sector was concerned and the safe default option was invariably the public sector. However, the last few years have seen the barriers coming down and there has been a concerted push by government to involve the private sector in defence production. Yet policy changes take time to percolate, especially, in a long gestation sector like defence. Data on Department of Defence Production website shows that in 2016-17 out of a total annual sales turnover of Rs. 74,054 crores the share of private sector was Rs. 14,104 crores(19%) and of Public sector including Ordnance factories was Rs. 55.252 crores (74.6%).Over a period of five years there has not been a spectacular reversal and in 2021-22 out of a turnover of Rs.84,644 crores the share of the private sector was Rs. 17,269 crores (20.4%) and Public sector including Ordnance factories was Rs. 61,346 crores (72.5 %).
In the last few budgets, a part of the allocation from capital acquisition was set aside for the domestic sector. In the latest budget 2022-23 out of an allocation of Rs. 1.25 lakh crores, 68 %, amounting to Rs. 84,597.89 Crore was allocated specifically for Domestic defence industry. No further breakup between public and private sector was made available. But recently, Ministry of Defence on 8 April 2022 announced additional incentives to foster the growth of domestic private industry, MSMEs and start-ups. Accordingly, it was announced that the Ministry of Defence has now decided that 25% of Domestic Capital Procurement/ Acquisition Budget, amounting to Rs. 21,149.47 Crore, will be earmarked for Domestic Private Industry in the Financial Year 2022-23. Since, the sector contribution was already Rs 17,629 crores in 2021-22 the incremental increase in 2022-23 is only Rs 3880 crores for the private sector which is about 2% of the total capital budget.
Further, to foster innovation and encourage technology development in Defence, it has also been decided that an amount of Rs. 1500 Crore will be earmarked for procurement from start-ups, including iDEX start-ups, from within the allocations for Domestic Capital Procurement. The announcement, as a statement of intent, should be a positive signal to the domestic private sector but the percentage itself does not amount to a substantial hike. Further, the amount of Rs. 1500 crores for start-ups seems too meagre to have any significant impact. It is also not clear whether the same is included in the Rs 21,149.47 Crore earmarked for the private sector. If that were so, the net increase in allocation is only about 1% of the total capital budget, which is not much to cheer about.
The budget data normally reflects information relating to contracts placed on the prime vendor. Public Sector contracts have a large work share component of sub vendors in the private sector. This is does not have visibility of that amount in the budget. Recently, an unstarred question in the Lok Sabha, on ‘Production of Defence Equipment had also sought information on ‘whether defence PSUs have tied-up with private players for production of a wide range of defence equipment within the country and if so, the details thereof’. MoS (Defence) in his reply has listed the details of the Defence PSUs. It has been highlighted that in in ‘all major programs of Hindustan Aeronautics Limited (HAL) Indian Private Companies are part of HAL supply chain. HAL has been outsourcing nearly 30% of workload to boost defence manufacturing in the country. HAL had outsourced several critical work packages such as Fuselage, Wing, Air Intakes, control surfaces, other structural assemblies, gears, critical machine components etc. of major platforms like LCA, SU-30 etc. for manufacturing to Indian private sector including MSMEs and has various ongoing agreements for supply of the same. Over 80% of registered vendors are of Indian origin. HAL also successfully engages private organisations (including MSMEs) in Design and Development of Defence products and technologies. Some of the major products successfully developed through such partnership with Indian Private Companies include Smart Cockpit Display System Hardware for LUH; Control and Display Unit; Data Interface Unit; Multi-Function Display Hardware for LCH; Data Transfer System for Jaguar DARIN III, and Solid State Flight Data Recorder and Integrated Standby Instrument System for Su-30 MKI.
In land-based systems, Bharat Earth Movers Limited (BEML) has engaged with a number of private vendors to increase the ‘Make in India’ content for equipment /systems like Arjun Armoured Recovery & Repair Vehicle (Arjun ARRV); Medium Bullet Proof Vehicle (MBPV); Vehicles for Mounted Gun System (MGS); AI based Medical Health Care Diagnostics System (MHDS); Mobile Stand by command post vehicle (MSCPV); Sarvatra Bridge System; and Mine Field Marking Equipment (MFME)
Similarly for maritime systems the public sector shipyards have synergized their expertise with private domestic shipyards to speed up construction of vessels and indigenization of systems used on the ships/ vessels. Among the systems listed were those tied up by Hindustan Shipyard Limited with the private sector, like WT/GT Fire class door; Incinerator; Flight Data recorder; HVAC System; PN 300 Bar High pressure valves for HP Air system; CAP 437 Heli Deck; RF Film for mitigation of EMI/EMC effect.
The public and private sector in defence have to continue to work as a team for the domestic defence industry to attain global levels of expertise and quality. The two sectors should not view each other as being on opposite sides, but have to build upon the strengths which each possesses. There is need for level playing field for both with no special dispensation to either sector.
Finally, it is the end customer that is the Indian Armed Forces must get the best value for money with weapons and equipment which meet the requisite quality standards and delivered on schedule at the contracted price. For the MoD, real price discovery is important and that can only come about through fair competition and single source procurement, even from public sector on nomination basis, needs to be avoided to the maximum extent feasible to provide equal opportunity for the private players and the armed forces maximise the utilisation of their limited budget to best extent feasible.