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ASSOCHAM: Defence import to reach Rs.118,379.91 crore ($30bn) by 2012

Posted: 24 Dec 2007     Print Version  Bookmark and Share

Keywords:defence  military hardware and software  non PSU industry 

India's imports of military hardware and software are expected to reach a whooping ceiling of Rs.118,379.91 crore ($30 billion) by 2012 as its armed forces comprising army, airforce and defence are expected to ink defence deals for multi role fighter jets, 1.55mm howitzers, a variety of copters and long range maritime spy aircraft.

The aforesaid projections have been made in a Paper on 'Avenues for Private Sector Participation in Defence' by The Associated Chambers of Commerce and Industry of India (ASSOCHAM), emphasising that in the past 3 years, India spent as much as Rs.41,432.97 crore ($10.5 billion) of military hardware and software, making it the largest arms importers in the developing world.

The Paper highlights that with ever increasing demand for higher allocation to defence budgets and limited capacity of the government to meet this demand, the defence sector requires a re-look to procure its goods and services from existing allocations in a more efficient manner.

Referring to Defence budget, Venugopal N. Dhoot, ASSOCHAM President, says that Indian military budget was about Rs.78,919.94 crore ($20 billion) in last fiscal and is expected to grow 7 per cent annually over next five years. The country's military spend amounts to roughly 2 per cent of GDP which is without accounting for expenditure on defence pensions, para military forces and defence ministry itself as part of budgeted defence expenditure.

The Paper seeks larger private sector participation in all defence related deals and imports, reminding the government that despite Defence Ministry's targets of achieving 70 per cent self reliance in defence production 10 years ago, it has fallen short of the target by 40 per cent as till now only 30 per cent defence production has become self reliance. This is despite the limited involvement of private sector was granted in national defence sector. The year 2001 witnessed the first step in this regard as the entry of foreign private players was permitted with 26 per cent FDI being allowed in the sector.

By mid of 2007, there were about 5200 companies supplying around 20-25 per cent of components and sub assemblies to state owned contractors in the defence sector, said Dhoot commenting on findings of Paper.

Some of key non PSU industry participants supplying defence equipment and services include Mahindra & Mahindra, Tata Group, Kirloskar Bros., Larsen & Toubro, Ashok Leyland, Jindal, Max Aerospace & Aviation and Ramoss India.

India's defence imports, the projections for which have been made for Rs.118,379.91 crore ($30 billion) by 2012 could be made cost effective by introducing competitive bidding process for supplies of defence needs for its forces.

The current process seeks private companies to develop only prototypes of equipment as a result defence public sector undertakings obtain orders on nomination basis which effectively closes the doors on private companies. The Paper, therefore, suggests that if private capabilities have to be leveraged, then competitive bidding should become the norm.

Leading corporate houses like Tatas, Satyam Computers, Mahindras, Kirloskar Bros, L&T and many other companies can make defence equipment to suit and meet domestic defence requirement, provided supplies are sought from them by involving their participation through competitive bidding process.

The Study has also recommended outsourcing for many defence activities to domestic private sector, pointing out that Ministry of Defence in recent years made some attempts towards outsourcing and private procurement to bring in greater efficiency and optimal utilisation of available budgets.

As per the recommendations of Vijay Kelkar Committee on policy issues and initiatives and integration of users, the Defence Ministry and Indian industry have been urged for greater involvement of private players in the manufacture of equipment in an attempt for greater indigenisation of defence manufacture. The committee report has recommended the government to identify entry points for private players in defence sector with special care to promote small and medium sized companies. The same is being endorsed by ASSOCHAM Paper.

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