Weaponise Indigenisation Smartly

Context: India shall recalibrate domestic defence production policies to develop sustainable Indian defence supply chain ecosystem.

Policy initiatives towards domestic defence production

• Defence Procurement Procedure (DPP) 2020: Raises FDI limit from 49% to 74% through automatic route in defence production,
• Budget prioritisation: Reserved 63% of the defence budget’s capital expenditure outlay for domestic procurement.
• Ministry of Defence’s announced the ‘Positive Indigenisation List’ and approved Project 75(I) submarine tender under Strategic Partnership (SP) model.

Key issues in the defence manufacturing ecosystem

• Plagued by entry barriers: Ministry of Defence (MoD) often has no option but to rely on few firms for procurement, resulting in uncertain outcomes due to lack of competition and innovation.
• Added risks and costs: India lacks the expertise and capability to produce several core subsystems on the indigenisation list.
  • This escalates uncertainties, and MoD will need to establish mechanisms to assess and de-risk acquisition programmes.
• Time delays: Major weapons systems take longer to develop in India, cost more, and deliver fewer quantities and capabilities than originally planned.
• Policy uncertainties: Due to frequent adoption of government-to-government route bypassing indigenisation requirements -- due to inability to conclude open competitive procurement processes.

Way forward:

• Reposition India-US relationship:
  • To provide defence technology-sharing, capacity-building and skill development.
  • Leverage existing mechanisms: Like Defence Technology and Trade Initiative (DTTI) and joint working groups to advance co-development of critical technologies.
• Identifying key defence and strategic capabilities and incentivising joint ventures: To enable domestic participants to develop core competencies with high-priority systems.
  • More consistent procurement built on firm long-term order commitments will attract more FDI.
  • Deepening defence partnerships with regional partners: Generate export possibilities and cost savings from economies of scale.