Day 34 – Q 4.Critically assess the performance of India’s defence PSUs.

4. Critically assess the performance of India’s defence PSUs. 

भारत के रक्षा सार्वजनिक उपक्रमों के प्रदर्शन का समालोचनात्मक आकलन करें।

Introduction:

Indian defence sector aims to promote self-reliance, indigenisation, developing capabilities for export, transfer of technology and domestic R&D. GOI has thus established nine Defence Public Sector Undertakings (DPSUs) whose responsibility is to provide the Armed Forces state-of-the-art equipments and at the same time enhance country’s self-reliance in defence production.

Body:

Positive performance of the Defence PSUs (DPSUs):

• Self-reliance: DPSUs have successfully delivered equipments to several defence and national projects in the recent times.
• Hindustan Aeronautics Limited (HAL) delivered the Orbiter Craft Module Structure to ISRO Satellite Centre (ISAC) for the Mars Orbiter Mission (Mangalyaan).
• Bharat Dynamics Limited (BDL) has integrated LRSAM missile for Indian Navy and two LRSAM Missiles have been test fired successfully from Indian Warships.
• Mazagaon Dock Shipbuilders Limited (MDL) currently is constructing Missile Destroyers, Stealth Frigates (P-15 B destroyers and four P-17A stealth frigates) and Scorpene Submarines (INS Kalvari, INS Vela).
• Garden Reach Shipbuilders and Engineers Limited (GRSE) is working on 14 warships, including two Antisubmarine Warfare Corvettes (ASWC), eight Landing Craft Utility (LCU) ships and four Water Jet Fast Attack Crafts (WJFAC).

• Undertakes construction of allied items of defence equipments and Atomic Energy for the country:

• Bharat Electronics Limited (BEL) has core competencies in areas of Radars &Weapon Systems, SONARs, Communication, EWS, Electro-Optics and Tank Electronics.
• Goa Shipyard Limited (GSL) is well-known for designing indigenously and building sophisticated high technology ships for Indian Defence Forces and other varied clients including export markets.
• Hindustan Shipyard Limited (HSL) has plasma cutting machines, steel processing and welding facilities, material handling equipment, cranes, and logistics and storage facilities.
• Economic contribution: 41 Ordnance Factories and 9 DPSUs in our country contributing to more than Rs.58000 crores approx. in defence production every year. Defence Public Sector Undertakings have achieved the turnover of Rs.45776 crores in 2018-19.

However, recent reports including by the CAG in 2016, provide a disappointing picture in several aspects related to DPSUs:

• No considerable reduction in import: India ranks the highest in import of defence equipment, spending annually on an average about $3.6 billion. Only about 35% of defence equipment is manufactured in India, mainly by the PSUs. Moreover, even when defence products are manufactured domestically, there is a large import component of raw material at both the system and sub-system levels.
• Lack of notable contribution to self-reliance: Except for missilery, communication systems and some low technology items, DPSUs have not contributed notably to self-reliance in defence production. Its production profile reveals that most of them are over-dependent on external sources for the production needs, and have a very low labour productivity level.
• Delay in completion: CAG report showed that inordinate delay in supply of critical weapons and equipment had hampered the modernisation and capability enhancement plan of Indian Army, impacting the defence preparedness.
• Financial implications: The delay had financial implications towards loss of interest on payments made to DPSUs. Example: Delay in critical equipment like Akash missile system and a weaponised version of the Advanced Light Helicopter, suffered a loss of Rs 1,931 crores on account of accrued interest on advance paid to the DPSUs. 
• Low accountability: The absence of accountability and the presence of political interference are high. For example, BEML’s indigenised Bofors howitzers project went into cold storage due to political compulsions in the late 1980s. 
• Low Research and Development capacity and low exports.

What has been done to address these shortcomings?

• FDI Policy has been revised and under the revised policy, FDI is allowed under automatic route up to 49% and beyond 49% through Government route.
• The Defence Products List for the purpose of issuing Industrial Licenses (ILs) under IDR Act has been revised so as to reduce the entry barriers for more than 8000 MSMEs which are among the vendor base of OFB & Defence PSUs supplying various items to them.
• An innovation ecosystem for Defence titled Innovations for Defence Excellence (iDEX) aimed at creation of an ecosystem to foster innovation and technology development in Defence and Aerospace to carry out R&D.
• NITI Aayog and the NSAB recommended a restructuring of all defence PSUs under a single body that can be governed by a different ministry, like the Ministry of heavy industries and public enterprises. 
• Several projects have now been kept on a competitive basis, in which both PSUs and private industry are participating. 

Way forward:

• Facilitation: A directory of credible defence manufacturers should be made available to all the defence procurement agencies and foreign producers to locate potential Indian partners for collaboration.
• As suggested by Kelkar committee, government should identify certain firms based on their technical, managerial and financial strength as “champions” (“Raksha Udyog Ratna”) irrespective of being private players.
• Focus more on indigenous defence technology development rather than on development only by PSUs, by appropriate funding of researches and hiring skilled manpower by DRDO and other state and private owned entities in defence.
• Private sector: Treat them as equal partners and offer them big projects to boost their capabilities ensuring adequate transparency.

Conclusion:

Defence industry is highly technology driven and it is the private sector that adapts itself better to rapidly changing technology. ‘Make in India’ for defence can be encouraged with equal help and advanced technical know-how of the private players along with the combination of public enterprises to reap out the best of both sides.