Although India has established a formal mechanism for implementation of the defence offset policy, the structure and procedures lack the thrust to fulfil the objective of energizing the Indian defence industry. Besides, the policy is not supported by the existing Foreign Direct Investment (FDI) and licensing policies. While evidence suggests that domestic industry can absorb offsets, what India needs is an effective body to handle offsets, liberal FDI and licensing policies, and a better banking provision.
In its interim budget for 2009-10 the Union Government has allocated Rs. 1,41,703 crores for the country’ Defence Services that include three Armed Forces (i.e., the Army, the Navy and the Air Force), and other Departments, primarily Defence Research and Development Organisation (DRDO) and Defence Ordnance Factories. This is apart from Rs. 24,960 crores which have been earmarked to defray civil expenditures of Ministry of Defence (MoD) and its affiliated organisations, including, the Coast Guard, and for defence pension (Rs. 21,790 crores).
The Ministry of Defence (MoD) recently issued a new set of rules for the procurement of arms, ammunition and other defence related products and services. The rule book, known as Defence Procurement Procedure 2008 (DPP 2008), has revised, among others, the offset policy that was first promulgated in 2005 and subsequently revised in 2006. The revised offset policy which retains the earlier minimum 30 per cent offset requirements in defence imports of Rs. 300 crore or more has added a provision of offset banking, besides enlisting a number of categories of defence products.
In early May 2008 Tata Group of India and Israel Aerospace Industries Ltd (IAI) signed an agreement to establish a joint venture (JV) in India to develop, produce and support defence products such as missiles, unmanned aerial vehicles (UAVs), radars, electronic warfare (EW) systems and homeland security (HLS) systems. The agreement is in sync with Tata’s broader objective of becoming a “lead system integrator” in the Indian private sector, by consolidating its own resources, diversifying into various fields of production and forging partnerships with major global defence companies.
Defence expenditure is an important component of national security and every country allocates a significant portion of its resources for this purpose. However, given the scarcity of resources and the competing demands from other sectors, a nation’s ability to meet all its Defence requirements is not unlimited. Even the United States, the only military superpower, is unable to afford many of its major programmes, forcing it to scale down the number of items to be procured.
Union Budget 2008-09 has allocated Rs. 105,600 crores for India’s Defence. Crossing the one lakh barrier for the first time, and accounting for nearly 14.1 per cent of total central government expenditure, the Defence Budget looks quite impressive (see Box). But when seen in the context of India’s expanding interests, this allocation remains as moderate as ever. Moreover, an in-depth analysis reveals problems in defence and budgetary management, none of which show signs of abating.
India opened up its defence industry to the private sector in May 2001, in a move to enhance the country’s ‘defence preparedness’. To give further impetus to this policy, the Ministry of Defence (MoD) came out with new policy measure related to the concepts of private Industry Leaders [or Raksha Udyog Ratnas (RURs)] “Make” procedure, and defence offsets, in its 2006 Defence Procurement Procedure (DPP). With these policy initiatives, the government’s focus seems to have shifted towards the private sector as far as achieving its long-cherished goal of ‘self-reliance’ is concerned.
The Global War on Terror (GWOT), now into its sixth year, has become one of the most expensive wars in American history. GWOT covers three military operations: Operation Enduring Freedom (OEF), which broadly covers Afghanistan but ranges from the Philippines to Djibouti; Operation Noble Eagle (ONE), which is meant to provide better security for US military bases and enhanced homeland security; and Operation Iraqi Freedom (OIF) which began with the build-up of troops for the 2003 invasion of Iraq. The cost of these operations has phenomenally increased over the years.
