Defence ministry’s PMA policy is protectionism. Indian-made arms need export market

By: LT GENERAL PRAKASH MENON

The increase in momentum of ‘self-reliance’ projects by the defence ministry is palpable. But it cannot be successful as a standalone initiative.

Prime Minister Narendra Modi gave a clarion call for Atmanirbhar Bharat on 12 May 2020. He said that self-reliance was the only path to fulfil the dream of building a 21st century India in the post-Covid world. Modi made a distinction between self-reliance and being self-centred in a globalised world, observing how “local manufacturing, market and supply chains” had helped India mitigate its Covid-19 crisis. He emphasised that we had to be more “vocal about local products and help them become global.”

In perspective, the present enthusiasm for ‘atmanirbharta’ or self-reliance is an appropriation and continuation of India’s historical ambition for strategic autonomy – the ability to make independent decisions. Before Independence, it was manifested in the Swadeshi Movement that was driven by a quest for political self-reliance. Post Independence, self-reliance as a phrase or concept has been used by the Planning Commission in all its Five Year Plans until 2014 when Niti Aayog replaced it.

Interpretation of Atmanirbhar Bharat

In November 2018, the Niti Aayog released the ‘Strategy for New India @ 75’. It was described as an attempt to “bring innovation, technology, enterprise and efficient management together at the core of policy formulation and implementation.” It identified 41 different areas that require either a “sharper focus on implementing the flagship schemes already in place or a new design and initiative to achieve India’s true potential.” Self-reliance as a strategy hardly made its appearance in the document. It prescribed that import tariffs that seek to promote indigenous industry should come with measures to raise productivity which will provide the ability to compete globally.

In perspective, the present enthusiasm for ‘atmanirbharta’ or self-reliance is an appropriation and continuation of India’s historical ambition for strategic autonomy – the ability to make independent decisions. Before Independence, it was manifested in the Swadeshi Movement that was driven by a quest for political self-reliance. Post Independence, self-reliance as a phrase or concept has been used by the Planning Commission in all its Five Year Plans until 2014 when Niti Aayog replaced it.

Interpretation of Atmanirbhar Bharat

In November 2018, the Niti Aayog released the ‘Strategy for New India @ 75’. It was described as an attempt to “bring innovation, technology, enterprise and efficient management together at the core of policy formulation and implementation.” It identified 41 different areas that require either a “sharper focus on implementing the flagship schemes already in place or a new design and initiative to achieve India’s true potential.” Self-reliance as a strategy hardly made its appearance in the document. It prescribed that import tariffs that seek to promote indigenous industry should come with measures to raise productivity which will provide the ability to compete globally.

In response to PM Modi’s calls for building an Atmanirbhar Bharat and being ‘vocal for local’, the Ministry of Defence (MoD) in August 2020 identified 101 items that were put under an import embargo to ‘boost local defence industries’. This was followed by another list of 108 items, in May 2021. Artillery guns, assault rifles, corvettes, sonar systems, transport aircraft, light combat helicopters (LCHs) and radars were among the items mentioned in the lists.

Defence Minister Rajnath Singh in mid-December 2021, hinted that though only 209 items have been embargoed so far, it could go up to a thousand. However, a provision to waive the restrictions to cater for exigencies and operational requirements was soon instituted.

The August 2020 list was also accompanied by a bifurcation of the Capital Procurement Budget 2020-2021 for domestic and foreign procurements. Some experts described this as a problematic move that could cause delays if funds have to be reallocated and judgement is distorted on outcomes measured in terms of accretion in military effectiveness.

A gamble

Forced localisation, under the ambit of Preferential Market Access (PMA) policies, is a form of protectionism. It is not uncommon for countries to adopt such policies. In the case of the MoD embargo, it has tinkered with the demand side of the issue. But unless most of those items find an export market, it will be difficult to sustain the initial demand once India’s requirements are met. To be competitive internationally, these products require economies of scale apart from a quality advantage. Considering the existing structure of the arms market, success is possible in components of the global supply chain, but it would be more than a gamble for several platforms listed.

The success of the gamble lies in getting foreign Original Equipment Manufacturers (OEM) to establish manufacturing facilities in India. So far, India’s attempts to get OEMs to manufacture in India has not been that successful. The prevailing ‘off set’ provisions that were expected to provide for some indigenisation have mostly been a failure. This might be changing. The defence minister recently went on record to state that the United States, Russia and France have been told that they should produce military platforms, weapons and ammunition in India. He cited the example of France agreeing to produce ‘an engine’ in India, as a joint venture under the strategic partnership model. If the project is realised, and it’s a big ‘if’, it will mark a milestone in India’s ability to leverage its defence imports to achieve indigenisation.

Disappointingly, self-reliance has remained a bridge too far for India’s defence sector. There can be no argument that all our efforts must be made to minimise our reliance on the import of arms. The story so far has been that India’s military modernisation has been handicapped by inadequacies in its research, industrial base, acquisition systems and production capacities.

New defence production policy

On 10 January media reports indicated that Rajnath Singh asserted that “make in India” would be the focus for military equipment in the future, and that the MoD is formulating a “defence production and export promotion policy” allowing import of only specific items that cannot be produced in India. Armed drones, long-range planes and aircraft engines are some of the items that are said to be in the clear. It is also suggested that India will export some of these products only to countries that are ‘friendly’.

Before finalisation of its new policy, the MoD is reviewing the items that are currently allowed to be imported under the “buy global category” of its acquisition procedure so that it can determine more products to be made in India.

On 14 January, media reports indicated the cancellation of deals for the purchase of short-range surface-to-air missiles and a tender for the purchase of 14 choppers for the Indian Coast Guard. Presumably, the speed of these cancellations indicates that it is guided by the existing policy framework enunciated in the Defence Acquisition Procedure 2020. More cancellations can be expected going forward. Procurement delays will be accentuated and raise issues of future military preparedness during a period of expanding national security concerns.

Also Read: For the defence sector, Make in India ended before it began

Momentum of self-reliance initiatives

The increase in momentum of self-reliance initiatives by the MoD is palpable, although so far all on paper. The preferred path seems to be the opening up of the private sector through attempts at providing them a level playing field with Public Sector Undertakings while protecting both sectors from foreign competition through ‘bans’ and cancellation of imports for selected military equipment. While the former is long pending and appropriate, the latter is problematic. It is difficult to judge the capability of indigenous sources to deliver equipment of requisite quality on time and within the prescribed percentage of indigenous content. Then there is the existing issue of the productivity of indigenous industries and their ability to compete globally. Self-reliance in defence production has to be part of a policy mix and cannot yield successful results as a standalone initiative.

Presently, progress in becoming ‘atmanirbhar’ in defence has a great reservoir of political patronage. It is a necessary condition but not a sufficient one unless shaped by forces that address the ecosystem of India’s defence industrial base. This is a complex and challenging task that must be undertaken. But time is not on the side of India’s defence preparedness. It is prudent to be wary of its impact on military effectiveness in an era when the darkening clouds of geopolitical tensions and budget restrictions leave little room for experimentation. Policies adopted now will have a major impact on military effectiveness in the next 5-15 years.

‘Atmanirbharta’ in Defence is a laudable policy path. Navigating the path will always be easier said than done. Unleashing India’s potential has to be its approach. The promise lies in minimising the government’s role in the market economy. That is the reason why ‘bans’ and restrictions can act as impediments towards the realisation of Atmanirbhar Bharat.

Lt Gen (Dr) Prakash Menon (retd.) is Director, Strategic Studies Programme, Takshashila Institution; former Military Adviser, National Security Council Secretariat. He tweets @prakashmenon51. Views are personal.

(Edited by Srinjoy Dey)