India’s defense budget for 2022-23 saw a modest 10 per cent hike from Rs 4.78 lakh crore to Rs 5.25 lakh crore. Last year’s defense budget grew only by 1.4 per cent. India has the world’s third-largest military budget after the US and China, but because its military is manpower-intensive, it spends more on salaries and pensions than on modern equipment. Over 60 per cent of the military hardware in Indian inventory is imported. Continued defense imports lead not only to dependence on external sources, but also an outflow of foreign exchange and the creation of high-technology jobs in foreign countries.
This year’s defense budget saw an increase in defense capital expenditure—from Rs 1.35 lakh crore to Rs 1.52 lakh crore—a trend seen over the past three budgets. The government is hiking outlays to buy defense hardware like warships, fighter jets and howitzers, but is also steadily increasing the hardware it buys from within India. Last year, it bought 58 per cent of its requirements, worth over Rs 70,000 crore, from Indian industry. This year, it plans to increase it to 68 per cent, or Rs 1 lakh crore. “India’s MSME sector will be greatly benefitted by the reservation of 68 per cent of the defense capital budget for the domestic industry,” Prime Minister Narendra Modi told partymen on February 2. Buying locally has a great force multiplier effect on the local industry—it creates jobs in the high-tech sector, sustains an ecosystem of MSMEs and builds knowhow to develop more sophisticated hardware within the country. “Capital outlays for domestic industries will sustain investments and attract fresh capacity creation,” says SP Shukla, president, Society of Indian Defense Manufacturers. The indigenisation thrust thus fits in with the government’s larger budgetary goal to boost capital spending and creating jobs within the country.
The government’s Aatmanirbhar policy, though, still suffers from a lack of a clear roadmap for indigenous production over the next decade. “There should be rigorous monitoring of indigenisation goals by an agency like the Defense Acquisition Council,” says a senior ministry of defense (MoD) official. Presently, such a body does not exist.
The ‘buy indigenous’ move is part of the rebooted Aatmanirbhar in defense drive, launched in May 2020. A PMO-supervised effort is currently underway to fuel the two engines of an indigenous defense industry—defence public sector undertakings and private industry. While orders for big-ticket items like self-propelled artillery and missiles can be met by Tier 1 industries, the government needs to hand-hold start-ups in niche areas like drones and unmanned systems. This is where the budget has made a bold move—it has set aside 25 per cent of the Defense Research and Development Organization’s (DRDO) Rs 11,981 crore budget for private industry, start-ups and academia. “The R&D base of the country can be expanded with a synergistic approach by all stakeholders—academia, R&D organizations and industry. This is vital to develop advanced systems within the country and for exports,” says G. Satheesh Reddy, chairman, DRDO. Welcoming the move, Baba Kalyani, managing director, Bharat Forge, says this will “pave the way for investments in frontier technologies and capability development”.
The government also announced its intent to establish a nodal body to set up testing and certification of defense systems and platforms, to enable private developers to test their defense innovations quickly. It has allocated Rs 1,365 crore for developing military hardware prototypes under the ‘Make’ category of MoD acquisitions.
The idea for a start-up fund for defense is not a new one. Three years ago, the DRDO set up a ‘technology development fund’ to promote self-reliance in defence. The DRDO has so far sanctioned funds worth Rs 164 crore to 2,611 companies, which has resulted in 150 technologies being indigenised—marine desalinators for use onboard life rafts stored on warships, high-performance propulsion systems for small satellites and drones carrying stores in high -altitude areas. Other initiatives, like the Innovations for Defense Excellence (iDEX) launched in 2018, have not been as successful. The iDEX was meant to hand-hold MSME start-ups, R&D institutes and academia. Four years later, it has yet to successfully deploy any cutting-edge technologies and none of its products have entered field trials.
“The R&D base of the country can be expanded with a synergistic approach by all stakeholders— academia, R&D organizations and industry. This is vital to develop advanced systems within the country and for exports”
– G. Satheesh Reddy Chairman, DRDO
This explains why a DRDO-steered model appears to have found favor with the government. Top defense officials say the government favors a model based on the US defense department’s Defense Advanced Research Projects Agency (DARPA). This model, if it works out, will see the DRDO focus on cutting-edge weaponry like aircraft engines and hypersonic weapons while leaving niche technologies to Indian industry. The DRDO has been pushing a Development cum Production Partner (DcPP), which will allow the private sector to co-develop missile systems and have manufacturing rights as well. The agency will transfer technology and patents to the private sector free of cost to boost indigenous defense manufacturing.
“We can’t do everything,” admits a senior DRDO official. “What the industry can do, the DRDO won’t.” The fifth-generation Advanced Medium Combat Aircraft, being designed by the DRDO, will be a special purpose vehicle and involve the DRDO, HAL and two private companies that will receive up to 75 per cent of funding from the government.
Things may be changing within the monolithic defense ministry, but it remains to be seen how quickly it happens to be effective.
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