Harish Rao
India needs private investment in defense sector
This article originally appeared in CRI content has now been subsumed in The views expressed here are personal and do not necessarily reflect those of the editors of

Defense is a tightly guarded sector in India. Indian defense forces; Army, Navy and Air force have participated in numerous battles and have held their own. Considering the continuous threats that the country faces from its neighbours, Indian defence forces must be the most agile both in terms of innovation and adaptation. Though, the dedication of the armed forces per se cannot be questioned in times of crisis, the support system is still quite far behind. With support system, I mean the research group who must ensure that the forces enter the field of war with more ammunition than just their valour.

Times of crisis are supposed to drive innovation in a firm. WWI and WWII saw the rapid innovation in defence. Recently, if we look at the example of Israel, we see that the country’s defence research teams have progressed by leaps and bounds in the face of the consistent threat from Palestine. Even though India is in a similar precarious position because of threats from Pakistan and China, the lack of innovation has been appalling. The military spending by Israel in 2012 has been a mere 16 billion dollars as compared to India’s military spending which was close to 50 billion dollars!! But there is absolutely no doubt that technologically, the Israeli military is far superior to India’s.

One of the reasons for this is because India procures most of its equipment from countries like Russia, Israel, etc. This is a huge security risk for India during wars. A sustained domestic production of defence equipment is essential for the country to be able to upscale its defence output when faced with war. Recently we came across the news that till 2015, the submarine forces would be severely compromised because of the delay in the delivery of the units. 13 submarines is too low a number to defend such a larger coastline. So, reliance on imports drastically increases the defence spending as well as increases the dependence on other nations to maintain timelines.

The solution for this predicament seems to be pretty simple; to encourage indigenization of the defence research. But the monopoly of the public units (DRDO and the Defence Ordnance Factories) has existed for more than 50 years! And the rate of innovation has been appalling. Projects are delayed beyond imagination. Results are abysmal. Month after month, we read about the delay in induction of a tank, submarine, propulsion unit, fighter jet, etc. (Example: Link 1, Link 2, Link 3). Each such delay directly affects the capabilities of the defence forces because the shelf life of the existing defence equipment is limited.

Adding another public wing for defence research isn’t going to help matters. The entire funding for such units only goes into setting up rigid bureaucracies with poor innovation capability. All public units end up as being mere employment providers with little desired output. If we look at any public utility, we find that it is overstaffed. And this overstaffing is skewed in the sense that there are more people around to push files rather than on the field to carry out the ground work (traffic police, police, power utilities, etc.). An innovation-driven unit would need to be agile, free from bureaucracies and flexible in terms of budget considerations. For example, testing and experiments should not be delayed for want of critical parts. Plus, freedom should be given to the newer generation (new engineers) to be able to design and get projects approved faster. Fresh minds are more capable of thinking out of the box and are a little more up-to-date on latest technologies. It is difficult to envisage a public utility that would be able to adapt to this kind of a working environment. Hence, it makes a case for private investment in defence capability development. With private investment, the available funds for defence research immediately increases. This enables the country as a whole to take up multiple projects which converts to more successes even if we consider the failure rate as a constant (which should reduce because the private sector would woo quality manpower through the remuneration packages).

Given the demand of advanced military equipment by the Indian defence forces, this may open up a whole new innovation driven business opportunities. This would also help new techies to aim at knowledge intensive; technology based productive employment opportunity other than the existing IT industries. Given the competitive nature of the businesses, this will also increase the value of the top engineers in India.

There would be regulation issues that would need to be tackled for this endeavour. The USA has managed private investment very well in this sector. Continuous interaction between the armed forces and the private sector would be important for this to succeed. Of course, the shadow of shady deals and corruption would always lurk with the opening up of the sector. But these are operational issues that can be addressed given the will power of the political establishment.