The business of defence

RSS and Left respond predictably and quixotically

The “swadeshi” and public sector enthusiasts of the Bharatiya Mazdoor Sangh (BMS) and of the Communist parties have once again demonstrated their proclivity for kneejerk opposition to liberalisation. Neither has thought through its loudly stated opposition to the government’s proposal to open up the defence production sector to private investment, domestic and foreign. They have predictably, and in their characteristically quixotic manner, rejected the idea as “anti-national” and as a threat to national security. Far from it. Privatisation of defence production can in fact help increase the degree of self-reliance in defence production and help the defence sector access modern technologies which are not otherwise available across the counter. More to the point, the growth of a domestic private sector, with joint ventures with major foreign defence manufacturers, can help reduce the import bill, increase domestic investment and employment and help domestic companies make money from the sizeable defence procurement budget. Currently India imports a substantial part of its defence requirements. Indigenisation of such imports will help the domestic economy.

While some of this production may still remain within the public sector, some of it will have to be increasingly in the private corporate sector. The small-scale private sector has been engaged in defence production for a long time as a sub-contractor of large-scale units. The problem with many such small-scale units is that they have not been able to standardise product quality and bring down unit costs. The new policy will permit large-scale units to get into defence production. Clearly, by reducing import requirements and allowing a domestic supplier to meet the needs of the armed forces, this policy can only help generate more employment locally and increase investment. Allowing foreign companies to enter into joint ventures with local companies, either in the public or the private sector, can also help bust the sanctions imposed by some western governments against export of defence-related products to India. Several US companies which cannot export certain categories of defence products to India are willing to manufacture them locally if they are permitted to invest here. How can substituting imports with domestically manufactured products, even if by foreign companies, hurt India? It can only help create jobs here and add to government revenues. The critics of the government’s policy have clearly not thought through their criticism, as on so many other issues.