Mostly dogmas

More of the same gives you more of the same

One of the positive outcomes of the controversies sparked by General V K Singh is that it has, even if it is ephemerally, triggered a public debate on defence policy. Carrying it forward is important. In today’s Business Standard, Ajai Shukla responds to my arguments for reform in defence procurement.

Mr Shukla raises two broad points. First, that we ought not to throw away indigenisation while reforming the defence public sector; and second, that economic liberalisation that gave us a modern, competitive automotive industry cannot give us a modern, competitive defence industry. Let’s consider them in turn.

The argument, as I explicitly state in my article, “is not say indigenisation is an unworthy goal. Rather, it is to suggest that the longstanding approach to indigenisation has not only met with limited success but also that the same goal can be achieved using different means.” Mr Shukla shows how reliance on foreign technology causes problems of denial, interoperability and sabotage. The answer, however, is not a “sharper focus on indigenisation” which can easily become wrapping paper for the reform-resistant status quo. No amount of tinkering with the structure and management of India’s defence PSUs can make them competitive enough to provide for our defence requirements.

In fact, the Mr Shukla’s own points support my argument that PSUs have captured our defence procurement policy. “DPSUs,” he writes “notably BEL and BEML, have undermined indigenisation by serving as fronts for the back-door induction of foreign technology through partnerships with foreign vendors.” The political economy of the Indian public sector enterprises will not make them do any better if they are given a sharper focus or placed under a different ministry.

Next, the argument that the defence industry as a whole is different from the automotive (or any other industry) is untenable. Beyond the point that the defence industry has fewer customers than other industries, they are all made of the same people, have the same economic incentives, draw capital from the same economy, react to competition in similar ways and so on. It is unfathomable why Mr Shukla should consider this naïve. Of course, you can’t expect a private sector defence industry to emerge if the government creates disincentives for it, or if it refuses to purchase from it, as happens today. I recall similar charges of naiveté being thrown about when telecommunications, banking and insurance sectors were liberalised. People deeply involved in an industry feel that their industry is different. Well, it’s not. The laws of economics apply to defence as much as they do to the vada pav industry.

Similarly, it is not at all strange to see arguments that free trade or entry of foreign players will weaken the domestic private sector. That is an argument that has been made since Nehruvian times, much to the detriment of the nation. Sadly, it continues to be made despite being proven wrong. Did allowing foreign automobile manufacturers, telecom companies or insurance providers hurt our car makers, telcos or insurance companies? The reality is quite to the contrary. You can have a debate on whether or not Indian consumers should be allowed to purchase from multi-brand retail chains owned by foreigners. But how can you have a debate on whether the Indian armed forces should be prevented from having the best possible equipment to protect us?

The danger with the kind of attempted middle-ground approaches suggested by Mr Shukla is that they end up as a cover for inaction. The onus is on those who prefer mild variations of the status quo to explain why persisting with policies that have failed us for decades will suddenly begin delivering promised results now.

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2 Responses to Mostly dogmas

  1. Team South Asian Idea 3rd April 2012 at 09:08 #

    As we argued last year the military modernisation process requires political courage, military astuteness, non parochial approach & singularity of purpose.

    The debate about PSUs is futile unless they are completely overhauled. We believe that a strong commitment to support private industry with no FDI restriction is the only way forward. Indeginisation can happen outside the govt sponsored public enterprises if there are purchase incentives. Tweaking the PSUs without accountability will not help.

    We urgently need a bipartisan military commisssion comprising experts and not 2 year tenure based men in and out of uniform to carve out the modernisation plans and then not share it with Industry. This commission might be round the corner but its mandate needs to be clearly articulated to develop long term vision and implementation strategies.

  2. Akash 10th April 2012 at 01:32 #

    “People deeply involved in an industry feel that their industry is different. Well, it’s not. The laws of economics apply to defence as much as they do to the vada pav industry.”

    Pai, may I ask as to what your antecedents are in running any sort of defense industry process or company or function to state the above with such certainty? Because what you did is ensure exactly why Ajai Shukla is taken far more seriously than you are because he understands the domain and you do not. Simply put, there is a wide gulf between the civil and military industries given the fact that one relates to making items that can actually take lives and are designed to do so, or enable the same (e.g. force multipliers) as versus commercial products which have to be misused or mishandled to do the same! One wins wars with defence products and hence the smallest vulnerability cannot be countenanced and hence an indigenous defence industry with foreign involvement strictly monitored and controlled (as versus 100% FDI) is a must. Do google for Iraq’s QARI or what happened to its monkey model T-72s. At the end of the day, the dynamics of this sector are very different. If somebody possesses the source codes or knows the weaknesses of a Merc S class’s vetronics system, they cant rule India. However, if the same were to be leak for a frontline, mass deployed piece of kit, India could end up on the back foot. This incidentally, is also why we seek diversity in acquisitions even as we gradually climb the path to making things locally. If the Su-30 MKIs have R77s, the Rafales have Micas – the Chinese reverse engineering ECM for the former based on their imports of R77s can still be balanced out, and for the long term India is looking at Astra.

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