Towards Privatisation In Defence

In May 2001, the hitherto public sector-only defence industry sector was opened up to 100% private sector participation in India. A total of 584 industrial licences for the production of various defence items have been granted to 358 enterprises since the defence sector was opened up. Additionally, the Industries (Development & Regulation) Act Industrial License's initial validity has been expanded from three to fifteen years. Increased industrial licence validity has given businesses enough time and room to launch operations and manufacture without obstruction.

Additionally, the government has implemented reforms and taken a number of policy actions in the last few years to encourage indigenous design, development, and manufacture of defence equipment in the nation. This has increased the production of indigenous defence equipment and strengthened our armed forces. These objectives include, among others;-

 

1.    Giving domestic capital item purchases precedence under the 2020 Defense Acquisition Procedure (DAP).

 

2.     Announcement in March 2022 of 18 significant defence platforms for industry-led design and development.

 

3.     Notification of three "Positive Indigenization Lists" (totaling 310 services items) and two "Positive Indigenization Lists" (totaling 2958 DPSUs products) that would have an embargo on imports after the deadlines indicated against them.

 

4.     Process simplification for industrial licences with a longer term of validity; FDI policy is being liberalised, allowing 74% of FDI to come in automatically; The launch of the Innovations for Defence Excellence (iDEX) programme, which includes start-ups and Micro, Small, and Medium-Sized Enterprises (MSMEs), and the simplification of the ‘Make Procedure’ the 2017 Public Procurement (Preference to Make in India) Order being put into effect.

 

5.    Launch of SRIJAN, an indigenization portal, to assist Indian industry, notably MSMEs, in indigenization.

 

6.     Reforms to the offset policy with a focus on luring capital and transferring technology for the defence industry by putting greater multipliers in place, as well as the creation of two defence industrial corridors, one in each of Tamil Nadu and Uttar Pradesh.

 

7.     Opening up of defence research and development (R&D) to business, startups, and academia, with 25% of the budget set aside to support national defence technology development.

 

8.     Military modernization spending in the defence budget has been steadily increasing for domestic procurement, etc.

 

Privatisation In Defence PSU

The Government intends to reduce its ownership stake in Bharat Earth Movers Limited (BEML Ltd), Garden Reach Shipbuilders & Engineers Limited (GRSE), and Mishra Dhatu Nigam Limited (MDNL), three Defense Public Sector Undertakings. Market circumstances determine whether a deal will be completed. As a result, a timescale cannot be predicted.

 

Details of PSUs producing defense-related equipment in which the Government has already reduced its shareholding and money raised by decrease in shareholding through each PSU over the last five years are as follows:-

 

Money raised (in Rs. Crore) by reducing shareholding through a variety of channels (ETF/IPO/OFS/Buyback-BB) and combination thereof over the previous five years;-

1.India's Bharat Electronics Limited (BEL)- 8073.29 CR.

 

2.Bharat Dynamics Limited (BDL)-2371.19 CR.

 

3.Hindustan Aeronautics Limited (HAL)-14184.70 CR.

 

4.Mishra Dhatu Nigam Limited (MIDHANI)-434.14 CR.

 

5.Garden Reach Shipbuilders & Engineers Ltd (GRSE)-420.52 CR.

 

6.Mazagon Dock Shipbuilders Limited (MDL)-974.15 CR

 

To unlock value, promote public ownership, meet the minimum public shareholding requirements of SEBI, and ensure greater accountability, the priority sectors, including defence, are being followed as a policy of disinvesting minorities stake without transferring management control.

 

Defense Manufacturing Requires Privatization;-

According to a 2021 research by the Stockholm International Peace Research Institute (SIPRI), India was one of the top 5 military spenders in the world. Following the 1956 Industrial Policy Resolution, the defence PSU was given exclusive control over the manufacturing sector. However, in 2001, the government set a restriction on FDI at 26% and permitted private sector participation in the defence industry of up to 100%. The country's defence sector was initially made available to 49% FDI by the NDA administration in 2014, followed by 74% in 2020 and 100% via the "approved route" in 2021. This was viewed as a significant step toward privatising the industry. 

 

More access to cutting-edge foreign technologies was expected to follow the sector's liberalisation. The competence of India's defence sector, however, reveals a different truth. Some scholars blame the failure of public sector production in defence for this dreadful state of self-reliance. 

 

The HAL Tejas project, an idea and proposal that was initiated in the 1980s to replace the MiG-21s, is the best illustration here. It took 33 years for it to be admitted into the Indian Air Force in 2016.

 

Corruption worries continue as a result of the Bofors scam, Jeep scandal, or Rafale deal staining the history of the defence industry. Although the exclusion of private entrepreneurship from the defence industry may have shielded PSUs from competition, the lack of competition has also stifled innovation. Deliveries from public sector manufacturing facilities have experienced numerous delays, faulty ammunition, and substandard rifles. 

 

For instance, issues with INSAS rifle often invites criticism like magazine cracks, poor loading, and shells getting stuck in chambers.

 

369 defence industrial licences have been granted since 2001, and 5000 defence MSMEs have arisen in the sector (as of FY 2018-19). Between 2017 and 2021, India continued to be the world's largest importer of weapons. A shift toward private investment in the defence industry is expected to bring a number of advantages;-

 

Decrease In Defence Spending

India included 5.25 lakh crore in its proposed union budget for 2022–2023 for military spending. 13.3% of all government spending is allocated to the defence budget. If doors to the private sector are opened, this share can be decreased. How can the private sector cut expenses? 

 

Through competition. If we use the United States as an example, a number of businesses, including Boeing, Lockheed Martin, General Dynamics, and McDonnell Douglas, make the same machinery. As a result, they have created price and quality competition, further enhancing the United States' reputation as a nation with dependable defence manufacturing. 

 

Innovation And Research

For private market businesses to survive, research and development are essential. To remain relevant in a market with shifting demands, they must continuously innovate. To compete, private businesses must uphold high standards of quality. India's ordnance units are alleged to produce defective and subpar ammunitions.

 

Increase Export Possibilities

Through the joint efforts of the public and private sectors, surplus production will provide access to the international market. It would make it possible for Indian businesses to form joint ventures with global firms and obtain access to cutting-edge foreign technologies. Private companies will be motivated to entice defence deals from various nations, which will aid in boosting exports. Increased exports would also make India a significant military power comparable to the United States and France, with whom all nations would be prepared to maintain close defence connections. 

 

In order to achieve this goal, India has set a target of 35000 crore in exports by 2024, which is equivalent to 8,434 crore in 2020–21.

 

Despite these benefits, there are some apprehensions about privatisation. These include worries about security. When confidential information is given to a private corporation, it might be difficult to protect it. There are some instances where private defence firms compromised private data in exchange for money. Privatization, according to its detractors, can lessen control since businesses may sell weapons to clients who are not interested in India's national interest. Regulations that are thorough and forceful can address these issues. 

 

To achieve Aatmanirbhar Bharat, the private sector must be regarded as a stakeholder. To increase India's military industry capabilities, self-reliance level, design capability in essential systems, and quality, time, and cost-effectiveness, the defence sector needs to be privatised. India may promote this by giving the private sector access to resources like manufacturing handle gliders, parachutes, optics, parts and ancillaries, and products designed for troop comfort. 

 

The same is stated in India's new import policy, which bans the import of 101 commodities related to defence in order to support domestic businesses and the private sector as a partner in India's effort to increase self-reliance.

 

The privatization of defence sector does not necessarily mean the removal of State-owned corporations. With the most sensitive technologies, like missile technology, private players can still not be trusted.