View: In defence production, give private sector a chance


The government’s recent decision to ‘corporatise’ the 250-year-old Ordnance Factories Board (OFB) and re-group its 41 units into seven product-oriented defence public sector undertakings (DPSU), has come not a day too soon. While this may be a step in the right direction, its success would be measured by the enhancement in efficiency, productivity and work-ethic this new paradigm can infuse in workers and management of the newly-minted entities. It may be apt to focus on the ‘public versus private’ debate in defence production.

It is a sad irony that focus on the public sector has led us to overlook the crucial role played by pioneering private entrepreneurs, epitomised by individuals such as Seth Walchand Hirachand and two Danish engineers, Holck-Larsen and Kristian Toubro, in laying a sound industrial foundation for India. While the former established

in 1908, Hindustan Aircraft in 1939 and the Scindia Shipyard in 1941, the Danish duo set up L&T in 1938. Despite nationalisation and other headwinds, private entrepreneurs such as these have made crucial, early contributions to India’s DIB.

India’s post-independence quest for self-reliance has seen many successes, but when it comes to the DPSUs and the OFB, their record is lacklustre. Exclusion of private enterprise from defence-production, may have served to protect the DPSUs from competition, but it has also served to curb ingenuity, innovation and initiative in our DIB.

Within the defence sector, military-aviation is seen as a ‘low-hanging fruit,’ mainly because the government-owned (HAL), is, now a monopoly supplier to the military. In over seven decades, HAL has, apart from indigenously designing and building aircraft, also licence-produced an estimated 3,000 aircraft, spanning three generations of technology. It has built a few thousand aero-engines of British, French and Russian origin, to power these aircraft. However, captive customers and absence of competition have engendered complacency in this public-sector giant, leading to indifferent quality-control, low productivity, and listless customer-support.

While India’s public sector warship-building industry has done much better, in terms of indigenous design, innovation and product-improvement, here again, exclusion of the private sector has ill-served the industry – or the country. Despite successive governments promising to provide a ‘level playing field’ for the private-sector shipyards, a determined MoD bureaucracy has succeeded in starving private players of orders; despite the DPSUs having their hands full.

It was with the aim of instituting “a functional mechanism to encourage broader participation of the private sector ….in the manufacture of defence platforms and equipment” that the government introduced, in 2016, a policy on ‘Strategic Partnerships in Defence’. The concept envisaged institution of healthy competition between DPSUs/OFB, and selected private sector companies, to be designated ‘strategic partners’ (SP). But within two years, the MoD seemed to have abandoned the critical objective of this scheme, and permitted DPSUs and the OFB to compete for SP status, placing private industry at a clear disadvantage.

This became evident when Expressions of Interest (EoI) were first invited for a requirement for 111 naval utility helicopters (NUH) in May 2019. EoIs were received from five private companies, and although the MoD had sought bids only from private firms, HAL too has jumped into the fray, with two bids.

Similar has been the case of Project 75-I, which envisages construction of six diesel submarines for the Indian Navy. Apart from two private sector responses, there were also two from PSU shipyards and a fifth one from a public-private joint venture (JV). Each candidate will be required to tie up with a foreign submarine manufacturer, and then bid for the contract, but the dice will, obviously, be loaded in favour of DPSUs.

The Federation of Indian Chambers of Commerce & Industry has protested to the MoD about “dilution of the SP model,” adding that while the private sector has had to struggle for orders, state-owned entities, have enjoyed undue advantage due to their access to government-funded infrastructure and the ability to cross-subsidise bids through other orders, received by nomination.

The needs of the armed forces have ensured that DPSUs generally have full order-books. To take the example of HAL, apart from a recent IAF order of 83 Tejas fighters, worth `45,000 cr, HAL can look forward to an endless demand for new-build trainers, fighters, and helicopters, as well as many upgrade programmes for in-service aircraft/helicopters. On the other hand, the Project 75-I and the NUH represent a rare window for the private sector to make a break-through and establish the private-public synergy whose absence has contributed to India’s dependence on foreign sources for defence hardware.

It is against this background that one must view PM Narendra Modi’s renewed focus on self-reliance. Visualising defence-manufacturing as a critical area, the aatma-nirbharta campaign brings focus on it. The private sector must be considered, as much of a national asset and stakeholder in attainment of aatma-nirbharta, as the public sector; its contribution, in no way diminishes the latter.

The writer was a former Indian Navy Chief. The opinions expressed in this piece are that of the writer and do not reflect the views of www.economictimes.com



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