In a major push to defence manufacturing in India the Defence Acquisition Council (DAC), under the Minister of Defence Arun Jaitley, has given a clearance to make high-tech defence products in India which includes systems and platforms from light utility helicopters (LUH) to Arjun Tanks and even leaving the door open for the Americans to jointly develop and manufacture more advanced versions of their anti-tank missile Javeline in India in collaboration with Indian private or public sector firms. Overall, the clearances given by DAC will generate business worth Rs. 40,000 crore for the Indian defence sector.

Prime Minister Narendra Modi, from the ramparts of the Red Fort had expressed his resolve to encourage domestic private manufacturing in defence sector and had said that he will encourage ‘Make in India’ policy which will lay a new foundation for the manufacturing sector of India that is vital for Indian economy. While launching the indigenous destroyer INS Kolkata on August 16 Prime Minister Modi had said, “My government has taken important steps in improving indigenous defence technology. We dream about making India strong enough to export defence equipment to the world.”

Since India imports defence equipments worth over $8 billion annually, it is desirable that the government adopts policy which is compatible with encouraging the foreign equipment suppliers to manufacture their systems in India itself in collaboration with Indian partners. Only a month ago the Defence Ministry had announced the revised foreign direct investment (FDI) policy which raised the limit from 26 to 49 per cent. Though the foreign manufacturers are not entirely happy over this policy, they see it as a step in right direction and expect enhancement of the limit by next annual budget. Perhaps within the confines of 49 per cent FDI limit the Indian defence sector is enthused as it will give them controlling stakes in the defence companies.

Said Sujith Haridas of CII, “Key decisions on major defence procurements have finally started rolling out. The vision statement of the Prime Minister in his Independence Day speech ‘Make in India,’ is being implemented in an expeditious manner. In the second meeting of DAC, the Ministry of Defence (MoD) has cleared projects worth Rs. 17,500 crore. In the first DAC meeting, Avro project was cleared. CII welcomes the Government of India approach of ‘Make in India’ which will definitely give a boost to the manufacturing sector, revive economy and create millions of jobs in India.”

It is indeed a significant decision as it opens vast door for Indian private defence industry and pose a challenge to Indian public sector defence industry to gear up to face the competition, considering the fact that a country which plans to import weapon systems worth over $100 billion in the next decade, should have a congenial investment regime so as to encourage the foreign companies to set up their shops in India and make the country as the international manufacturing and export hub.

However, before moving on to this level, the DAC, headed by Defence Minister Jaitley, took a landmark decision, which will have a significant bearing on the nature of future acquisition decisions.

Had this decision been put in place decades ago, India would have been today a major producer of weapon systems. However, this belated decision has opened new opportunities, as a platform like light utility helicopter of not great technological value needed a government push. A country manufacturing advanced light helicopter, light combat aircraft, etc could easily make such rotary platform. The Hindustan Aeronautics Limited (HAL) should have been encouraged to produce such platforms in India, considering its technological and human resources strength.

However, the latest decision to manufacture 400 helicopters in India would leave the field wide open for not only HAL but other emerging private sector companies to set up joint ventures in India. The order for 197 LUH would also have entailed off-the-shelf purchase of a few dozen and licence manufacture of the rest, but that would have closed the chapter. Not only Indian armed forces, but civilian agencies also need such rotary platforms, which would need several competing companies to supply for decades to come. So the order for 197 LUH worth Rs. 6,000 crore would not remain limited to this figure.

Similarly, the order for indigenous main battle tank Arjun Mk-II has also given another opportunity for the Indian public sector company to strengthen its base. Due to skepticism in the Army Headquarters over the capabilities of the Arjun Tank, the country had to import the Russian T-90 tanks. Now, in future Army will have to rely on the capabilities of the Arjun Tanks. The order worth Rs. 6,600 crore for 118 Arjun Tanks will embolden the Indian PSU and expand the Indian market.

Also the midlife upgrade of six submarines will be carried out in India, a programme worth Rs. 4,800 crore. This will include four of the Russian-made Kilo class submarines and two German-built HDW submarines. The MoD has also given job to Indian companies, from both public and private, for the acquisition of integrated anti-submarine defence suits for 11 frontline warships worth Rs. 1,170 crore.

For the Army, the DAC has cleared the supply of border communication system for the deployment along Sino-Indian border at a cost of Rs. 900 crore, to be sourced domestically. The clearance of attack helicopter Apache and heavy-lift helicopter Chinook for the Indian armed forces has also offset element which will benefit Indian defence industries. The Rs. 15,000-crore deal will have more than one-third domestic sourcing requirements. Besides, the decision is also a signal to the US Administration that India will continue to deepen defence relations with US, which has emerged on the top slot as foreign defence supplier to India. The MoD has also cleared the Indian Navy proposal to acquire 16 multi-role helicopters at a cost of Rs. 1,800 crore.

Besides Apache and Chinook helicopters the anti-tank Javeline deal will also offer good business to Indian defence industries, which will also add to the kitty of commitments delivered to the US Administration. The Javeline missiles will be manufactured in India after the initial off-the-shelf acquisitions.

The DAC decision on major acquisitions clearly indicates that the MoD has embarked on a definite roadmap of the indigenisation of defence industry in the country.