Opening up of Indian defence sector: role and direction of government policy and strategic for private sector firms

Abstract

Abstract One of the significant policy changes brought about by the economic sanctions post Pokhran Is the decision to open production of weapons and ammunition to private sector. This shock was enough to jolt an import oriented Defence Force which was already reeling under the impact of shortage of spares due to disintegration of USSR. The private sector on its part has responded cautiously with only those who have prior experience of dealing with the Defence Forces some changes to the policies are warranted. • More transparency : Economic competitiveness and pressure for greater transparency and openness of government which comes from greater public awareness are the major issues with the government today. • Export : for any project to be economically viable it needs to export them. In order to export the product has to be competitive which can only be done subsidizing at more than one level in the form of R&D subsidy export credit guarantee etc. • Indigenization : Even the most advanced countries like US do not manufacture 100%of their Defense needs. Neither should we try to achieve it . • Protectionism : Price and purchase preference should be give to OFs and DPSUs only on certain items and free and fair competition should govern rest of the defense purchases Similar initiatives are need at national level to look at the long term security needs of the country.

• Long term partnership with selected countries in term of MOUs and TOT agreements. • Reduction of social wastage by reducing competition amongst the domestic companies. A comparison of the aspects related to Defense production of different countries suggests that we can learn to be more transparent from the Britishers while the process of involving private companies can to be learnt from the South Africans, The Israelis give good lessons in entrepreneurship and development of weapon system on imported platforms . Though there are some successful cross country JVs Europe but the typical Indian conditions demand long term MOUs and lesser dependence on imports. It also warrants that we have collaboration with larger number of countries than keep all eggs in the same basket. The private player on the other hand has to be more pragmatic in dealing with plethora of regulations and has to keep in mind both national interest and economic considerations . • First recommendation is for managers to invest time and money in getting familiar with the regulatory norms in this heavily regulated sector. • Use the opportunities provided to them in form of FDI participation import of prototypes • Have a narrow product focus and start with dual use products. • Be unconventional in their approach to this sector in terms of speeding up the product development and marketing of their products. The economic analysis of the Defense sector of various countries reveals that Defense production in most of the countries is uneconomical due to large number of firms which leads to duplication of costly R&D programmers and subsidizing at more than one level in the form of R&D subsidy export credit guarantee etc. Despite the negative economics of this sector the national interests warrant higher levels of indigenization.