Baba Kalyani: NDA has had both success and failure with defence industry - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Tuesday 29 January 2019

Baba Kalyani: NDA has had both success and failure with defence industry

By Ajai Shukla
Business Standard, 30th Jan 19

Baba Kalyani, Chairman, Kalyani Group and Chairman CII Defence Committee tells Ajai Shukla that, while some government initiatives like the Defence Procurement Procedure of 2016 and the defence licensing policy have helped the sector, problems remain.

Q.        As the National Democratic Alliance (NDA) government approaches the end of its five-year term, what are its successes and failures in defence?

The NDA government has had hits as well as misses in defence. It has instituted a Defence Planning Committee, under the National Security Advisor to coordinate macro-level planning. It has announced a Defence Production Policy in 2018 (DPrP 2018), revised offset guidelines and incorporated a “Make-2” procedure that has simplified participation of the private sector in developing indigenous defence equipment. The first proposals under Make-2 are being processed.

Next, the Department of Industrial Policy and Promotion (DIPP) has revised the Public Procurement Policy, giving preference to Indian companies for revenue procurement. In global procurements, it will now be mandatory for Defence Public Sector Undertakings (DPSUs) to offer an Indian company half the order at the L-1 price, as long as its bid is within 20 per cent of the winning bid. This is policy in many countries, including the US, but was so far missing in India.

The Defence Procurement Procedure of 2016 (DPP-2016) has simplified procurement and given preference to “Make in India”. The defence licensing policy has been simplified and made less restrictive. The Technology Development Fund has been operationalized. It does not have a lot of money, but even we have one project running under it.

Finally, the government has recently set up two defence industrial corridors in Uttar Pradesh and Tamil Nadu.

Q.        And what are the misses?

The procurement cycle still consumes too much time; little has changed there. There is still no level playing field for the private sector, with orders continuing to flow on “nomination” basis to DPSUs. In the last four years, the private sector has received no major orders except for the K-9 self-propelled gun won by L&T.

The few policy changes instituted to level the playing field are inadequate. In my view, “adequate” means a completely level playing field for private and public sectors.

Separately, the government needs to expedite the 55 mission-mode development projects the Defence R&D Organisation (DRDO) is pursuing. How do you bring them to fruition? Industrialising successful products remains a problem, with the private sector required to undergo multiple trials – first development trials, then user-assisted trials, then user trials, then production agency trials. Why can’t we have one consolidated trial, which all these agencies oversee? It will save time.

Q.        Is industry optimistic about the Strategic Partner (SP) policy, in which private firms are selected to build major defence platforms like aircraft, guns and armoured vehicles?

There is little clarity on the SP policy. Despite many government statements, not one contract has been awarded, nor a single firm chosen as SP. I don’t even know what the policy is. Industry would appreciate a focus on implementing this policy.

Q.        DPSUs are proposing that they also be allowed into the SP policy…

That is a ridiculous demand. The SP Policy is intended to build private sector capability in defence production.

Q.        Is there a case for reverting to the Raksha Udyog Ratna model that the Kelkar Committee proposed in 2006?

Why beat a dead horse? It would be better to focus on implementing the Defence Production Policy of 2018 in letter and spirit.

Q.        Have offsets brought work to the private defence industry?

The problem is that many of our purchases are government-to-government deals that come without offset obligations, so domestic industry does not benefit.

Q.        Should India introduce mandatory “Make in India” for defence kit, like France and the US?

It is already there in various forms. DPP-2016 mandates that, for procuring any equipment, if an IDDM (Indian designed, developed and manufactured) option is available, it has to be taken. 

Separately, the Defence Production Policy has specified that, in seven years, all major platforms like aircraft, helicopters, warships and tanks must be built in India. After 2025, we can’t import these platforms.

Q.        Is that at all realistic?

Of course, seven years is more than enough. Over the last five years, most private defence firms have created capability by forming joint ventures with foreign partners. Now the government needs to signal seriousness by placing orders.

Q.        How can industry bodies create an enabling environment?

My focus as chairman of the CII defence committee this year will be: How do we get “Make in India” to work? How do we make the Defence Production Policy operate in the way it is conceived? And how do we make the positive elements of DPP-2016 happen, which deal with the Make-2 procedure – in which private firms, especially micro, small and medium enterprises can take suo motoproposals to the MoD to develop products and platforms for the military. That will be a key boost to indigenous defence manufacture.


  1. If we had continued with fiat and ambassador then the eco system that has been built around the MARUTI in the auto components industry would not have been possible.

    Today quality assurance is not an issue as the same sub suppliers are providing for BMW AUDI MERC ETC


  2. Impressed with how you make NDA not-so-daunting. Keep it up! also read our Blog Post - gapss


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