In the absence of reforms in several areas, DPP-2011 may not be able to achieve its stated objectives of expeditious procurement and greater involvement of domestic industry in defence production.
India’s increasing reliance on FMS route is indicative of its desperation to bridge the gaps in its defence preparedness and shows the weakness of the Defence Procurement Procedure.
Although India’s defence planning mechanism has evolved over the years, it is still inadequate with respect to prioritisation of precious resources, optimum force suture and creation of a strong domestic defence industrial base. Given India’s complex security environment and massive expenditure on national defence, the planning mechanism needs to be strengthened by articulation of national security objectives and creation of Chief of Defence Staff (CDS).
India's raised its defence budget for 2010-11 by 3.98 per cent to Rs. 1,47,377 crore. This allocation represents 2.12 per cent of gross domestic product (GDP), which is below the global average of 2.5 per cent. Considering the void in defence preparedness and the rising military expenditure and capability in neighbourhood, India needs to increase its defence spending to around 2.5-3.0 per cent of GDP. However, the increase in allocation has to go with reforms in capital acquisition system, which in present form is unable to spend the allocated resources.
If the Finance Ministry’s emphasis on fiscal prudence and inclusive growth has resulted in a smaller increase in the latest defence budget, the Report of the Thirteenth Finance Commission does not paint a very optimistic scenario for India’s future defence spending.
While Mahindra’s foray into defence production and the acquisition of foreign companies demonstrates the private sector’s initiative, the government needs to introduce further reforms to promote the role of private companies in Indian defence industry.
Even as the new amendments incentivise domestic companies to enter defence production, the government has made it clear that it wants a competitive environment in defence industry.
India has established eight Defence Public Sector Undertakings (DPSUs) whose responsibility is to provide the Armed Forces state-of-the-art equipments and at the same time enhance country's self-reliance in defence production. However the performance of these Undertakings is not up to the mark, resulting in import of arms worth billions of dollars every year. A deeper insight into DPSUs' production profile reveals that most of them are over-dependent on external sources for the production needs, and have a very low labour productivity level, negligible export, and a low R&D base.
The present global economic crisis has slowed down the growth of the Indian economy, affecting among others, the fiscal situation and the revenue mobilisation potential of the central government. Defence being one of the largest recipients of central government expenditure, the present crisis casts a doubt on the adequacy of future resources. This commentary discusses some major options that India’s Ministry of Defence needs to consider in order to withstand the likely resource constraints in the coming years.
