India?s military industrial complex (MIC) is poised for change. If recent decisions are any indication, private players will have new opportunities in defence production. The trade unions, on the other hand, have been sounding the alarm. Apparently, they are unhappy with the Kelkar Committee recommendations for opening defence production to the private sector and encouraging public-private partnership in this area. While the workers' interests are of paramount concern, the larger national interests need to be discussed and debated.

India has an under-developed MIC. At present, it consists of 39 ordnance factories and 8 PSUs. Around 50 labs of the DRDO provide support. Together, they furnish defence goods worth Rs. 18,000 crore, mostly belonging to segment four of international defence market (replenishment goods). With a few exceptions, India does not produce strategic weapons belonging to segment one and two, a prerogative of First World military powers. The bulk production is in areas of low-to-medium technologies like small arms, anti-tank and anti-aircraft guns, mortars etc. The churning out of tanks and fighter jets through reverse engineering and licensed production has also not been a learning experience.

Until recently, defence was also treated as a holy cow, and no private investment was allowed, except for a peripheral role in the form of supplies of raw materials, components, and subsystems. The share of private sector in defence production is only Rs. 3,000 crore. While the top arms producing companies in the world are in the private sector, India does not have a single private firm worth mentioning. In the United States, private companies account for 80 percent of Pentagon's purchases. Lockheed Martin Corporation, BAE Systems, the Boeing, the Northrop Grumman Corporation, and Alliance Techsystems are some of the well-known names that dominate, not only the American market, but also the global market. Even countries like Brazil and South Africa have private defence firms doing brisk business.

The lack of an indigenous MIC is a chink in India's evolution as a great power. 70 percent of defence equipment, mostly of high value and high technology, come through imports. It is a leading arms importer and competes with China. Between 2000-2004, India spent $ 8.5 billion on arms imports, next only to China ($ 11.5 billion). India's purchases have driven global arms sales, revitalizing the Russian and Israeli defence industries. However, not only is valuable foreign exchange being lost, but also jobs in the domestic market sphere. Technological vulnerability is an additional risk. For example, 70 percent of India's arms imports are of Russian origin. They demand large amounts for spare part supplies. We have also been ignoring the Sino-Russian military relations. Russia supplies only 23 percent of its arms exports to India but almost double (45 percent) to China! its loyalties are, consequently, more strongly towards China that may translate into critical vulnerabilities for India.

Allowing private sector participation could be one of the ways to enhance India's quest for self-reliance in defence production. India has a strong civilian manufacturing base and a mature private sector. There is enormous scope for aligning the manufacturing capabilities of the public and private sectors to boost defence production and reverse the one-way traffic in defence trade. It would also be a step towards consolidation and enlargement of the domestic MIC. Technology spillover, capital investment, joint ventures, and creation of jobs are additional benefits. In the long term, private sector has the capacity to ensure competitive prices for ammunitions and put lateral pressure on ordnance factories and defence PSUs to pull up their socks.

So, if the government is encouraging private investment in defence production, it is a welcome sign. While decisions on allowing 26 percent foreign investments, joint ventures, publication of defence procurement manuals for capital and revenue stores, and establishment of a production board, procurement board and acquisition council in the Defence Ministry are encouraging, more needs to be done. In particular, the private sector needs equality of opportunity for competing with state-led units.

Those who criticize private investments in defence should take note of private sector domination abroad- India?s imports from these firms- and under-performance of the state-led MIC in India. Witness, for example, the delay in LCA and Arjun projects that has added to Services' fears. The huge set up of ordnance factories, while being ISO certified, has an export market of just Rs. 60 crores. The Nair Committee had earlier recommended corporatization and privatization of ordnance factories. Now that the Kelkar Committee has also recommended their corporatization and giving equal opportunities to the private sector, it needs to be seriously considered if we want a vibrant and proactive defence industry in India.

Views Expressed are Author's Own