Richard Heald – “Let the Strategic Partnership policy weaponise Make in India”

By Simon Jones |

UK India Business Council Chair, Richard Heald, explores the implications of the new UK-India Strategic Partnership policy

With the announcement of the Strategic Partnership policy, the Indian Ministry of Defence (MoD) has rolled out a significant initiative aimed at revitalising the ‘Defence Industrial Ecosystem’. This announcement could be ground-breaking. Cementing partnerships with Indian companies is already recognised as an important opportunity for big foreign defence manufacturing companies, providing an impetus to ‘Make in India’.

The British defence sector, with its unique expertise and already established long-term commitment, is looking at these developments with attention. The devil will be in the details.

But to date, the plans are radical and make the elusive target of 70 per cent indigenous manufacturing, which MoD is committed to, realisable.

It’s been over a decade since India’s private sector was directly involved in defence manufacturing. Citing security concerns, India’s defence procurement has largely been driven by various defence public sector undertakings (DPSUs) and the Ordnance Factory Board. While defence manufacturing was ‘liberalised’ in 2001and opened up to not just Indian private players but also to foreign entities (49 per cent FDI), a defence production base outside of the DPSUs and the OFB has not yet been prevalent.

The radical element is the pivotal role the private sector is envisaged to play bringing together all stakeholders, including foreign original equipment manufacturers, for developing indigenous defence manufacturing.

Active involvement of the private sector will have a transformational impact. It will enhance competition, raise efficiencies, facilitate faster and more significant technology absorption, create a tiered industrial ecosystem, ensure development of a wider skill base, trigger innovation and promote participation in global value chains and exports.

From a strategic perspective, it will help reduce current dependence on imports. Gradually, it will ensure greater self-reliance and dependability of supplies essential to meet national security objectives.

The ring-fencing of six strategic platforms is different from other models elsewhere, where market forces drive development and competition. It raises questions. Many of the six named domestic champions have already invested in defence verticals that may be different from those they are selected to focus on. Then, questions are being raised as to whether mechanisms will be put in place to achieve ‘value for money’ once the sector has been awarded to a strategic partner on an exclusive basis.

Also, what would happen if MoD decides not to buy the system the strategic platform had developed? Or, indeed, delayed a programme? These are not deal-breakers. But they do underscore the need for careful consultation with both domestic and foreign companies prior to the rollout of the initiative.

Industry is keen to contribute to the details of a well-defined model based on strategic needs, quality criticality, cost competitiveness and safeguards designed to prevent an abuse of monopoly. At the same time, there is an opportunity to put in place processes that avoid previous competing priorities where defence deals are bogged down in complex negotiations over offset clauses, technology transfer pacts, etc.

The new Strategic Partnership policy won’t solve these issues overnight. But Britain believes the policy will considerably free up the defence industrial space in India, making room for new private sector players and greater infusion of FDI and technology.

As the British defence industry is widely recognised as one of the most innovative in the world, one can be confident that it will engage to assist in making this initiative a success. Through this model, there will be a marked rise in technology transfer, a definite requirement for stepping up Indian indigenous defence manufacturing between India and Britain.

This article was originally published by The Economic Times. See it here.


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