Why Industry Says Nirmala Sitharaman Can Expedite Defence Orders
Private companies eyeing military equipment orders said Defence Minister Nirmala Sitharaman’s experience in the commerce ministry will help her expedite projects as India looks to boost local manufacturing.
In her previous role, Sitharaman collaborated with Niti Aayog to promote Prime Minister Narendra Modi’s Make In India programme. “Since she comes from that perspective, she should be able to push market access for Indian companies in the defence sector,” said JD Patil, whole-time director and senior executive vice president (defence business) for Larsen and Toubro Ltd.
India’s defence spend is expected to double over the next 10 years, which will create a $200-billion opportunity, said foreign brokerage Bernstein in its July report. The world’s largest arms importer plans to rope in private companies to turn India into a defence manufacturing hub. Yet, the country didn’t have a full-time defence minister for nearly five months.
Patil said the government has not taken any big decisions on military orders for domestic players after Manohar Parrikar stepped down in March. “Though varieties of foreign contracts did happen.”
The government was to finalise three major orders for Tactical Communication Systems, Battlefield Management Systems and the Future Infantry Combat Vehicles at the beginning of the year. Parrikar’s move to Goa stalled the orders. The equipment were to be delivered in five to seven years.
With 18 months to go for the next Lok Sabha elections, the industry expects Sitharaman, country’s first full-time woman defence minister, to work on a 100-day agenda to streamline procurement, open commercial contracts and close ongoing negotiations.
Over the next three years, there is a potential to finalise orders worth $60 billion, a bulk of which is likely for the private sector, said the Bernstein report.
“The challenges for the new minister is to get the tierisation and Make In India happen through defence without getting into the pulls of Defence Forces-DRDO-DPSU channelised import lobby,” Rahul Chaudhry, chairman of Defence Industry and Innovators Association, an industry body comprising industrialists, innovators, scholars and former bureaucrats. Chaudhry is the chief executive officer of Tata Power SED.
Patil said the new minister should strive to reduce the turnaround time for deals closed under the government’s strategic partnership programme, which was cleared in June 2017. The initiate involves selection of local private companies, in partnership with foreign defence equipment makers, to manufacture and assemble single-engine fighter jets, submarines, armoured vehicles and tanks in India. Expressions of interest are yet to be invited, he said.
The programme provides an opportunity of nearly $35 billion for the private sector. “Sitharaman should genuinely try to push the the programme in the next 100 days. At least one of the orders under the SP programme should be closed.”
While the Ministry of Defence is expected to invite the expressions of interest in September, evaluation takes a long time. “A lots of this can be accelerated. If they are going to take eight months just for selection, then obviously no contract can be placed. Even if these are placed, they cannot be performed.”
The biggest challenge for the new minister would be to take decisions that will pave the way for the private sector to access the domestic defence industry along with the preferred public sector undertakings.
India’s defence spend has been growing at an average rate of 8 percent, about $4-5 billion every year, over the past decade. Yet, it’s low given the scale of replenishment and delay in giving out orders to replace existing military fleet, said Patil.
Several initiatives like proposals for naval ships are still pending, said Patil. “Our own indigenous weapon system Akash is delayed. It is under discussion for the past two years. A few hundred companies could get a piece of Akash if an order is awarded.”
For ‘Make In India’ to take off in the defence sector, Sitharaman must implement General Financial Rules, said Chaudhry. The rules require each government department, from central to state, local bodies and public sector undertakings, to follow a set of guidelines on procurement. “The implementation of GFR as part of the defence procurement manual will ensure implementation of Make In India for defence,” said Chaudhry.