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Keynote Address at the National Seminar on Defence Industry

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  • Hon'ble Defence Minister, Shri A. K. Antony
    January 23, 2009

    “At the very outset, I must admit that today’s Seminar could not have come in more relevant circumstances. As the security scenario is undergoing unprecedented changes, the defence industry has come to occupy the centrestage like never before – not only in our country, but the world over.

    Our nation has a vast defence industrial base. It consists of 39 Ordnance Factories, eight Defence Public Sector Undertakings, and a small, yet emerging private sector. In addition, there are about 50 research laboratories under the Defence Research and Development Organisation at the heart of India’s defence technological advancements.

    During the post-independence period, defence industrialisation started under the aegis of the Ministry of Defence. To begin with, the government reserved defence manufacturing only for public sector enterprises. The initiation of Defence production therefore, under the Reserve Category was a conscious decision, mainly due to the then prevailing circumstances. Moreover, at that time, the private sector was almost negligible. With government’s support, our defence industry started growing both, in terms of size and quality. The primary aim was to provide state-of-the-art weapons and systems for our Armed Forces. At the same time, the defence industry was also entrusted to ensure indigenisation and self-reliance in critical defence technologies.

    It is heartening to note that the defence public sector enterprises have together increased their value of production constantly, signifying their contribution to the Defence Forces. To cite an example, in last five fiscal years, the total value of production has increased by nearly 60 per cent - to around Rs. 27, 500 crore in 2006-07. In addition to the enhanced level of value of production, the level of indigenisation has also been increased.

    In the public sector, Ordnance Factories Organisation is the largest and oldest departmentally run defence production organisation in the country. Its history dates back to the pre-colonial period, when the first Ordnance Factory was established in 1801 at Cossipore, near Kolkata. With a rich experience spanning over 200 years, the Ordnance Factories are a fine blend of old and state-of-the-art factories. Divided into five operating divisions, they produce a vast array of defence hardware for our Armed Forces. These include small arms and ammunition, armoured and transport vehicles, troop comfort items, opto electronics and special aluminium alloys among others. The criticality of the Ordnance Factories is firmly rooted in our quest for modernisation, indigenisation and self-reliance in defence production. At present, there are 39 Ordnance Factories in operation at various locations. Two more are being set up at Nalanda in Bihar and Korwa in Uttar Pradesh, to ensure self-reliance in manufacture of defence hardware.

    The basic strategic requirements of the Defence Forces are met by the eight Defence Public Sector Undertakings. These requirements include - fighter aircrafts, helicopters, warships, submarines, heavy vehicles and earth movers, missiles, electronic devices and components, alloys and special purpose steel. In terms of value of production, DPSUs account for more than 65 per cent of the total industrial output of all defence public sector entities in India. During 2007-08, the value of production by DPSUs totalled nearly Rs. 19, 200 crore - an increase of over 20 per cent compared to the previous year.

    Among the eight DPSUs, Hindustan Aeronautics Limited is the largest, accounting for nearly half of the production by DPSUs in 2006-07. Since its beginning in 1964, HAL has over the years, evolved into a large aeronautics complex. The company’s primary mandate is to design, manufacture, maintain and overhaul fighters, trainers, helicopters, transport aircraft, engines, avionics and system equipments.

    We have three defence shipyards – namely Mazagoan Dock Limted, Goa Shipyard Limited and Garden Reach Shipbuilders and Engineers Limited. Together, they have produced 469 ships till date, in addition to 39 more ships, including submarines, frigates, destroyers, among others. Our shipbuilding industry is gradually evolving and maturing, but we still have a long way to go.

    Other DPSUs have their own specialised field of activities. Bharat Electronics Limited specialises in communication and electronics, BEML’s expertise lies in the area of heavy engineering, Bharat Dynamics specialisation lies in the area of missiles and Misra Dhatu Nigam Limited manufactures special metal and super alloys to meet all these requirements.

    Though we have a vast industrial infrastructure, we are still a long way from establishing ourselves as a major defence equipment manufacturing nation. At present, we are sourcing most of our defence requirements from external sources, so much so that our dependence on external sources is to the tune of 70 per cent! This dependence is in terms of import of new weapons, systems, as well as upgradation and overhaul of existing systems. Considering our status as an global economic power, this is a highly undesirable situation. Moreover, our export base is also woefully meagre. The Government realises fully well the adverse impact of over-reliance on external sources in meeting our critical defence needs. I wish to strongly emphasise that self-reliance in critical technologies is our primary objective and I urge all of you to strive to help us achieve this objective.

    On its part, the Government has taken some concrete policy decisions to reverse the present trend. Since May 2001, our Government has allowed, 100 per cent participation of private sector in the defence production, with an additional provision of 26 per cent through Foreign Direct Investment. As a result of this, Defence production has moved from the ‘Reserve Category’ to the ‘License Category’, where the private sector can produce any defence item after obtaining a license for its production. The private sector has thus, got an opportunity to transform into system producers and integrators, from their earlier role of suppliers of raw material and components.

    Due to economic reforms and liberalisation, India’s private sector has shown dynamism and taken rapid strides. Our private sector has emerged as a competent force, evident from its rapid progress within a short span. Today, industrial giants are acquiring industrial icons abroad. I have full confidence that our private sector, along with the public sector enterprises will help us translate the vision of self-reliance into a reality. I call upon all interested private players to explore various options, including the route of public-private-partnership to further boost our defence industrial capability. On its part, the Government will render all possible support in this regard. The private sector and the public sector need not necessarily view each other as ‘potential rivals’, but rather as ‘prospective partners’ in defence industry.

    In addition to the liberalisation of defence production, we have periodically revised our Defence Procurement Procedure to promote indigenous development of weapons and systems under the “Make” category. Under this category, we have proposed that the Government would share 80 per cent of the developmental cost with the developmental agencies, including those in the private sector.

    We have also promulgated a defence-specific Offset policy to enhance indigenous defence industrial capability, as also to usher in transparency and responsibility. The Offset policy is expected to benefit the Indian industry through technology inflows, foreign investment, partnership with foreign companies and investment in Indian companies.

    I would like to say that in addition to the policy initiatives taken by us so far, we would welcome any pragmatic suggestion that would help our cause. There is much to learn from other entities, both Indian and foreign, who over the years, have mastered the matrix of defence technologies and production. Today’s Seminar is an ideal platform to discuss the vast gamut of issues surrounding defence industry.

    I congratulate the IDSA and CII for coming together to organise this seminar for its relevance. I wish all of you the very best for your deliberations. I shall look forward to the outcome of these deliberations.”