On May 31, the Department of Military Affairs (DMA) released a list of 108 items whose import is to be progressively banned by December 2025. Christened ‘Second Positive Indigenisation List’, it supplements the first ‘Import Embargo List of Defence Weapons/Platforms’ issued last year on August 9.
There has been no impact analysis of the first list which imposed progressive ban on the import of 101 items, out of which prohibition on import of 69 items was to come into effect in December 2020 and another 11 by the end of this year. The second list adds another 49 items, whose import is to be banned by this year end.
Thus, as many as 129 items would not be permitted to be imported after December 2021. While the Indian industry has hailed it as a positive step, there is nothing new about publication of such lists. The fact of the matter is that this seemingly radical, even drastic, step does not help any more than the analogous steps taken in the past.
The professed objective of these lists is to sensitise the Indian industry about the future needs of the services so that it could meet the demand for the embargoed items when the services decide to procure them.
Sounds great, but was this also not the objective of the Technology Perspective and Capability Roadmap (TPCR) notified by the Ministry of Defence (MoD) in 2013, and its revised version in 2018, listing out future requirements of the armed forces?
There has been no assessment of the outcome of the TPCRs but evidently these did not help much as is evident from the fact that India continues to be a top-ranking importer of arms.
The main problem with the 2013 TPCR was that it contained nothing more than a cryptic description of the capabilities and technologies required by the services. The information disclosed by the MoD was simply inadequate for the industry to make out a business case for investment in acquiring design, development and production capabilities.
This problem was addressed to a considerable extent in TPCR 2018 which comprised a list of specific projects containing broad specifications of the equipment, anticipated quantities, and some other particulars, apart from the particulars of the nodal officers for each project who could be contacted for any clarification.
The TPCR 2018 was supplemented by a list of ‘Make II’ projects, containing similar details, for development of prototypes and upgrades of various components, equipment, and platforms by the Indian industry using their own funds. This was also an effort to encourage innovative solutions for indigenisation.
The clock has turned a full circle as the current lists are as ambiguous as the TPCR 2013 as they contain no information except for the enigmatic nomenclature of the items, such as ‘Next Generation Corvette’ or ‘Sarvatra Kavach’.
Absence of specifics may not matter much in relation to some of the listed items that are already being developed or manufactured in India, or happen to be under trial, but for other items, it is important for the industry to have more clarity, especially regarding the broad specifications of the equipment.
The DMA seems to assume that the Indian industry would be ready with the products meeting the yet-unknown specifications which the services may include in the Request for Proposal (RfP) as and when issued. This could be tricky as the services are known to formulate highly ambitious, often unachievable, specifications.
This uncertainty is exacerbated by the fact that mere notification of the lists does not mean that MoD will start buying the embargoed items from the Indian industry after the ban kicks in. Therefore, there may be no real motivation for the industry to invest in R&D, infrastructure, and plant and machinery to start manufacturing the items as and when needed by the services.
Defence is a monopsony with several vendors vying for a share in the same small pie. However, there is no business case for the sellers to invest in acquiring the requisite manufacturing capabilities unless there is an assurance of firm orders from the buyer, or at the least an indication of the timeframe in which the RfP would be issued and the tender finalised. As the solitary buyer, MoD’s track record in this regard is not inspiring.
The Make-in-India trope, of which these lists are a part, also makes the picture hazy for the foreign vendors who are the potential technology providers or collaborators for the Indian industry. While only a few major platforms like helicopters and corvettes, and a few weapon systems, are included in the two lists notified so far, there is no saying what the next list, which the DMA is reportedly already working on, may contain.
With the publication of the two lists, for which there was no pressing need, DMA may have boxed itself into a corner because the services will have no option but to seek waiver of the embargo if a locally made item meeting the requisite specifications is not available when it is required after the ban kicks in. That would be highly embarrassing.
Even if all these concerns are discounted, the services will have to reckon with the financial constraints. For the current year (2021-22), approximately Rs 72,000 crore has been earmarked for domestic purchases. However, it is not known how much of this would go towards meeting the committed contractual liabilities and purchases from the Defence Public Sector Undertakings and Ordnance Factory Board.
What is likely to be left for new procurements from the Indian industry after accounting for these payments may not be much. To put it in perspective, the current year’s allocation for capital expenditure is approximately Rs 77,000 crore less than what the services had demanded. This is in addition to the shortfall of approximately Rs 48,000 crore for revenue expenditure.
There is much expectation from the fifteenth Finance Commission’s recommendation of creating a non-lapsable pool of funds for defence modernisation. However, the bulk of its corpus would come from transfers from the Consolidated Fund of India (CFI).
Successive governments have found it difficult to allocate adequate funds for defence out of the CFI as a part of the annual budgetary exercise. Transferring it to the non-lapsable fund from the same kitty could be an equally onerous exercise, especially in the face of the economic slowdown caused by the ravaging Covid-19 pandemic.
– The author is Ex-Financial Advisor (Acquisition), Ministry of Defence. The views expressed are personal and do not necessarily reflect the views of Raksha Anirveda.