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Gunning for home-grown production

LiveMint logoLiveMint 09-07-2017 Narayan Ramachandran

Seventy-four years ago, this month, the largest tank battle in history took place outside the small village of Prokhorovka, 700km south of Moscow, on today’s border with Ukraine. About 900 Russian tanks took on an equal number of German tanks in this battle, fought at close range.

The larger offensive to take on the Kursk sentinel (a bulge formation in war), called Operation Citadel on the German side, pitted nearly 5,000 Panther and Tiger tanks from Germany against nearly 8,000 tanks from the Red Army. The Luftwaffe supported the German offensive with tank-buster cannons on their aircraft. The Red Army introduced new Yak 9s and La-5 fighter jets, giving them near parity with the Luftwaffe. Supported by British intelligence, the Russians scored a decisive victory over the Germans in the Battle of Kursk. From there on, the Red Army retained the strategic advantage over the Germans for the remainder of the war.

A mere two years before Kursk, the Wehrmacht had surprised the Russians with a crushing victory in western Russia in Operation Barbarossa. Less than two years after Kursk, the Germans fully surrendered to the allies on both the western and eastern fronts.

India has fought five conventional wars since independence: four with Pakistan (1947-48, 1965, 1971, 1999) and one with China (1962). During the 1971 war, for instance, the Indian Navy used Soviet-built Osa missile boats and Styx anti-ship missiles to successfully defeat the Pakistan navy on the western front. On the eastern front, the Indian Air Force used British-designed Canberras and Russian An-12s against Pakistani B-57s (paradoxically American-built Canberras) and C-130s.

Even today a significant part of the equipment the Indian defence services use is foreign-made. The Indian Navy, for instance, uses vessels of different types either inspired or made abroad by countries like Russia, the US, Germany, Israel, South Korea and Poland. Both nuclear- and conventionally-powered attack submarines are from Russia. Notably, an Indian-made Arihant class nuclear ballistic missile submarine was launched after trials last year as part of India’s nuclear triad—surface, water and air capacity to deliver ballistic missiles. India has been developing a triad capability under its credible minimum deterrence policy, and along with the US, Russia and China, is one of only four disclosed triad powers.

The Indian Air Force is almost entirely powered by foreign (all nuclear-capable) aircraft such as the Mirage 2000s, Rafales, Sukhois, MiGs and Jaguars. After three decades of development, India’s light combat aircraft Tejas (SP-6), manufactured by Hindustan Aeronautics Ltd, will imminently go into full production. Almost all the small arms for the Indian Army are made elsewhere: Uzis from Israel, Heckler and Koch MP5 sub-machine guns from Germany, Glock pistols for the special forces from Austria and M16s from the US, for instance. However, vehicles for the army are made by Indian companies, except for the heavy-duty Tatra, which is made under licence from its Czech parent by BEML Ltd. Tata Motors Ltd, in collaboration with the Defence Research and Development Organization (DRDO), produces an armoured fighting vehicle called the Kestrel.

Until 16 years ago, defence production, under the Industrial Policy Resolution of 1956, was entirely a government function. In 2001, the government proposed 100% non-government ownership with up to 26% foreign direct investment (FDI). However, both domestic private sector and FDI participation has been disappointing. There were a few exceptions like the successful BrahMos missiles, manufactured under a 50/50 joint venture partnership between the DRDO and Russia. A year ago, the government gave the final go-ahead for 100% FDI under the government approval route, to coexist with the 49% FDI in the automatic route. This was a landmark move and upended the consistent resistance that had been put up by the public sector defence units and some of India’s private sector firms over the previous decades.

On the one-year anniversary of that decision, there has been little recorded FDI in defence. What should be done?

The defence equipment pie up for grabs is likely to run into several hundred billion dollars in coming years. Since there is only one buyer (the government), the best way to encourage domestic production is to encourage collaboration between foreign and Indian firms. With majority ownership now permitted, the market has begun making this choice. The Tatas, Hero Group, Reliance Defence and Engineering Ltd, Ashok Leyland Ltd, Mahindra and Mahindra Ltd and Bharat Forge Ltd are among the companies establishing various types of technology licensing and joint venture projects.

Another way is to allow the export of certain types of equipment made in India. In the national interest, the most advanced systems should remain protected from export, but small arms, certain types of armoured vehicles, and some types of naval vessels should be allowed. A diversity of buyers may encourage others to make in India. Given the capital intensity for larger equipment, smaller firms and start-ups should be encouraged to enter the electronics side of the business. The government will have to take the first step to see which technologies developed in the vibrant Indian start-up ecosystem can be adapted for use.

####SUBBOX####

P.S.: “To be prepared for war is one of the most effective means of preserving peace,” said George Washington.

Narayan Ramachandran is co-founder and fellow at the Takshashila Institution. Read Narayan’s Mint columns at www.livemint.com/avisiblehand

Comments are welcome at narayan@livemint.com

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