Modi inaugurates Defexpo, lists ambitious production targets, but previous targets remain unmet - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Thursday 6 February 2020

Modi inaugurates Defexpo, lists ambitious production targets, but previous targets remain unmet

 By Ajai Shukla
Business Standard, 6th Feb 20

Inaugurating the 11th Defence Exposition (Defexpo 2020) in Lucknow on Wednesday, Prime Minister Narendra Modi called on international defence manufacturers to “Make in India, for India and for the World.”

In his 35-minute inaugural speech, Modi listed out a string of defence production sector reforms his government had put in place since 2014, which he said had set the stage for making India a major international “defence manufacturing hub.”

“How long can the world’s second-largest population, second-largest military and largest democracy remain reliant on importing all its weaponry?” he wondered aloud.

“Terming the opportunity to participate in the Indian defence manufacturing eco-system “An unparalleled opportunity for the world”, Modi stated: “When the world talks about the 21st century, attention naturally turns to India.”

The prime minister claimed the defence economy had already picked up due to measures taken by his government. “In 2014, defence exports were Rs 2,000 crore. Now we have exported Rs 17,000 crore worth of defence equipment. In the next five years, we must ensure that defence exports cross Rs 5 billion, or 35,000 crore,” said Modi.

Pointing out that his government had liberalised foreign direct investment (FDI) into defence, Modi stated: “In the last five years, Rs 1,700 crore in FDI has flowed into defence manufacture.” He pointed to the investment in Korwa, near Amethi, where Kalashnikov had set up a joint venture with the Ordnance Factory Board, India-Russia Rifles Ltd, to manufacture AK-203 rifles in India.

However, most foreign defence firms regard a 49 per cent FDI cap unattractive for investment, since that does not provide control over the technologies they bring into India. On Tuesday, US envoy to India, Kenneth Juster stated in Lucknow: “If you’re trying to attract investment into your country… I think having [FDI] caps limits that degree of flexibility.

Modi also claimed the procedure for issuing defence production licences to private firms had been eased greatly, stating that the overall number of licences issued had doubled in the last five years to 405.

The PM said: “Appointing a chief of defence staff (CDS) and setting up a Department of Military Affairs (DMA) has eased the purchase and manufacturing processes. Defence industry will certainly benefit from this and the sector will attract investment.”

Modi also dwelt on one of his pet themes: innovation. Citing advanced technologies such as Internet of Things, big data analysis and 3D printing, the PM pointed to the Innovations for Defence Excellence (iDEX) scheme, floated by his government.

“To flesh out and scale up the iDEX scheme, we have set an aim of creating 200 new defence start-ups. It is our endeavour that this would lead to the creation of 50 new technologies and products,” he said.

Setting a new target that all this innovation would fuel, Modi said: “We aim to have 15,000 micro, small and medium enterprises (MSMEs) in the defence sector within the next five years.”

Modi suggested that industry bodies like CII and Ficci, which currently have their own defence sub-committees, should work in coordination. “I would suggest that all the industry bodies establish a common platform for defence manufacturing, which will help in the development of technologies and manufacture of platforms,” he said.

Modi’s ambitious target setting at Defexpo 2020 mirrored his speech at Aero India 2015 in Bengaluru in February 2015.

There he had noted that a 20-25 per cent reduction in defence imports could create an additional 100,000-120,000 highly skilled jobs in India. He noted that raising domestic procurement over the next five years from 40 per cent to 70 per cent of overall procurement would double India’s defence industry output. However, that target has not come close to being realised.

In 2015, Modi had also enunciated a clear aim for offsets: “To acquire state-of-the art technology and skills in core areas of priority”. That did not happen and offsets are flagging today.

In 2015, the PM had also raised hopes by calling for a special financing system for the defence industry, where “capital investments are large and the risks are high.” However, high finance costs continue to hobble private defence industry.

UP Chief Minister Yogi Adityanath, who also attended the inauguration, spelt out a target of Rs 50,000 crore investment into UP, which he said would create some 300,000 jobs.

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