The need to significantly increase private sector participation here arises from the fact that nearly 14% of all government expenditure is on defence. During 2005-06, defence expenditure has been estimated at Rs 83,000 crore, out of which Rs 34,000 crore is to be utilised for procurement of capital equipment and modernisation of forces. It is also important that along with the freedom to defence PSUs for setting up joint ventures and consortiums, the government should have the offset clause incorporated in all defence imports.
There is no reason why defence contracts cannot be awarded to the Indian private sector, if they are able to produce goods at competitive prices. However, as the Indian private sector cannot build quality defence equipment production capacities overnight, it is imperative that the defence ministry draws up long-term procurement plans and enters into partnership of the type emphasised by the Kelkar panel. Only a long-term association will prompt the private sector to invest the requisite sums in research and development and other production facilities.
Indian companies need to be encouraged to produce everything, including arms and ammunition, not only for defence forces, but also for para-military and police forces. There is little justification for India buying defence equipment from multinational companies abroad, while holding back its own companies from manufacturing the same.