No country has ever grown into a credible military power without a robust defence industrial base of its own. India, unfortunately, still relies to a large extent on imported wares for its armed forces, a dependence that has persisted in spite of various efforts. On Monday, Defence Minister Rajnath Singh unveiled a new defence acquisition procedure to replace norms issued in 2016.
As expected, our new rules seem inspired by the country’s goal of self-reliance. To this end, several categories of arms would now be reserved exclusively for “Indian vendors”, defined as firms that are owned by resident citizens with foreign equity participation no greater than 49%.
Since sophisticated weaponry would still need to be sourced from overseas, the revised policy introduces a new purchase category under which an acquisition from a foreign supplier must entail technology transfer and local manufacturing, with the indigenization of inputs worth at least half the contract’s value. Domestic-input stipulations have been upped across other categories, too. But the move that should give our defence officers a big reason to cheer is the dropping of a once-mandatory “offset clause” in government-to-government deals and those struck with single foreign vendors. It had complicated our defence purchases and acted as a drag on technology upgradation.
The stated intent of our offset policy, in place since 2005, was for us to capture a sizeable chunk of every foreign contract awarded by the country. So, it required foreign suppliers to plough 30% of the value of every deal above ?2,000 crore back into India, a condition expected to be met by their creation of local supply networks. This was expected to create a production base and generate jobs. Today, it is amply clear that the idea did not achieve much. As a recent report by India’s Comptroller and Auditor General (CAG) pointed out, of the offsets worth ?19,223 crore expected till December 2018, only ?11,396 crore had shown up. Another suspected problem has been the inflation of costs by vendors to cover their offset commitments, thus pushing up our acquisition bills. By far the biggest drawback of the 30% stipulation, however, was that it made all major arms deals vulnerable to allegations of this reverse-flow channel being a conduit for kickbacks disguised as sub-contracts for favoured firms, as seen in the Rafale controversy some years ago. New Delhi’s 2016 deal with the French government for 36 of these fighter aircraft made by Dassault Aviation cast this company’s choice of a local sub-contractor under a cloud. According to the CAG report, Dassault’s obligations remain largely unmet.
A clean purchase process with no offset strings attached would lower the risk of big-ticket deals getting trapped in scandals at the cost of national defence. Our armed forces deserve the equipment they demand without any delays caused by a complex acquisition rigmarole. In this context, another welcome move is the flexibility they have been granted to lease military equipment such as light transport aircraft and unmanned aerial vehicles. As geopolitics in Asia gets fraught with tension, the threats faced by our country lend urgency to the cause of defence preparedness. While we have always advocated dialogue as a means to resolve international disputes, we may need to rapidly deploy high-end hardware in case of an emergency. India is a nuclear power alright, but it takes a variety of weapons to stave off various forms of external aggression.