Defence lacks money for self-sufficiency

Context: The recent self-reliance package related to opening up of defence sector has missed the core issue i.e availability of money

Problems hindering self-reliant defence sector

• Ill- targeted package: missed the core issue of issuing guidelines for identifying the sources of  financial injection in calamitous monetary distress triggered by the coronavirus pandemic. 

• Subcontracting: to the 15th Finance Commission as a panacea to manage India’s defence and internal security commitments is misleading.

• Perennial resource crunch: The gap between the funds demanded and annual outlays have kept on widening.

• Disparity between capital and revenue outlays: 

• Allocation of Rs 1,13,000 crore towards capital expenditure for all three services, against Rs 1,75,000 trillion demanded. 

• The annual budget apportioned twice that amount to the military’s revenue expenditure. 

• Low revenue-to-capital outlay ratio (Army): 83:17 as against recommended 60:40 by parliamentary defence committees.

• Delayed Payments: causes embarrassment and casts doubts on India’s credibility in the global arms market. 

• Issues with exports:

• Dependent on Original equipment manufacturers(OEMs): Indigenous manufacturers integrate with OEMs to boost Indian material export.

• Sub-par quality: A contract for seven Dhruv Advanced Light Helicopters (ALHs) by the Ecuador Air Force (EAF) was terminated in 2015.

• Narrow exports: Comprises mostly spares and sub-assemblies exports to the US, Israel and European Union, which will decline due to reduced production activities.

Conclusion: The decision to hike the limit on foreign direct investment in defence from 49% to 74% too is unlikely to see foreign OEMs lining up to invest in India. A way of sourcing fund is needed.