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30 March 2016 Editorial


30 MARCH 2016

Towards military self-reliance

The Defence Procurement Policy 2016 made public this week is a step forward in increasing the participation of India's private sector in military manufacturing. It replaces the last DPP unveiled in 2013, and has several recommendations for improving indigenous procurement. The DPP, the governing manual for all defence procurement, was part of a set of military reforms undertaken to address the many deficiencies noticed during the 1999 Kargil war. Since the first one in 2002, the DPP has been revised periodically. The new policy places the highest preference to a newly incorporated procurement class called ‘Buy Indian-IDDM', with IDDM denoting Indigenous Designed Developed and Manufactured. This category refers to procurement from an Indian vendor, products that are indigenously designed, developed and manufactured with a minimum of 40 per cent local content, or products having 60 per cent indigenous content if not designed and developed within the country. The policy has also liberalised the threshold for offset liabilities for foreign vendors - now the obligation to invest at least 30 per cent of the contract value in India will kick in at Rs.2,000 crore, a significant increase from the previous Rs.300-crore mark. The policy lays stress on micro, small and medium enterprises (MSMEs), and on "Make in India". A 10 per cent weightage has been introduced for superior technology, instead of selecting the lowest bidder only in financial terms.

DPP 2016, however, falls far short of the expectations raised by the Narendra Modi government's ambitious "Make in India" push that aims to transform the country into a global manufacturing hub. India is the world's largest importer of defence equipment, and indigenising production is key to such a plan. The DPP is noticeable for the absence of Chapter VII, titled ‘Strategic Partners and Partnerships', which the Defence Minister said would be notified separately. Under Strategic Partnerships, select Indian private companies were to be given preferential status in major defence projects. The inability of the Centre to finalise a credible policy to radically increase indigenous military manufacturing is a sure sign that India will remain heavily dependent on defence imports. Given the country's robust financial growth, one of its greatest leveraging points is the annual spend on procurement. India has all the necessary prerequisites for a robust military-industrial complex: a diverse private sector, a large base of engineering institutes, and a growing defence budget. The fact that India faces a combination of security threats from both state and non-state actors is an obvious reason why it needs to be self-reliant in military equipment. There is another important reason why India needs an indigenous military-industrial complex: it will significantly reduce the potential for corruption in military procurement. However, the new procurement policy does not inspire hope that domestic defence production will grow sufficiently. It may not be just an irony that the policy has been released as India hosts yet another Defexpo event, in Goa, where global vendors are hawking their war machines to a technologically famished Indian military.

India's case on its solar policy

The Centre is without doubt justified in saying it will contest the ruling in the World Trade Organisation against India's policy of local sourcing of components as part of the Jawaharlal Nehru National Solar Mission. The U.S. had taken to the WTO its case against India's policy of favouring domestic inputs in solar cells and solar modules, arguing that it amounted to a discriminatory trade practice and distorted the game. The verdict, which came last month, is a setback for India's Solar Mission, seen as the bedrock of efforts aimed at ensuring energy security and meeting the country's commitment to the collective global plan to limit global warming. In fact, over the last year India has scaled up its solar power ambitions, with the Narendra Modi government increasing fivefold the target set in 2009 to 100,000 MW. The WTO ruling obviously threatens the financial viability of the plan. India did offer to modify its stand on the issue, and agreed to apply the domestic content requirement only for buying solar panels used for government sector consumption. It even assured Washington that power generated from such subsidised panels would not be sold for commercial use. The U.S., however, did not agree. The challenge before the government is to sort out trade practice concerns in a manner that keeps the Solar Mission firmly on track. How it resolves the issue - and it would be well-advised to avoid standing on ego - will have repercussions not only on the country's green energy aspirations, but also on its capacity to negotiate sectoral roadblocks to its global-level "Make in India" lobbying.

The trade rift and the WTO ruling on the solar issue have yet again brought to the fore the absurdity of seeking a level playing field in an imperfect, highly unequal world. Nations often raise protection walls in some form or the other to suit their convenience or to further their political interests. The U.S. is no exception. At least nine States in that country have programmes that provide protection to domestic manufacturers. In this inter-connected environment, the challenge really lies in balancing global trade obligations with domestic social compulsions. If the U.S. cannot have other countries engaged in practices that disadvantage American workers and American businesses, as President Barack Obama said, India too cannot wish away the job concerns of its people. By providing a ‘green angle' to its solar power programme, India has added a new dimension to the ongoing dispute. As countries across the world race to take steps to limit climate change, concerns like these will test international organisations and rule-making to work out solutions that do not obstruct, or even delay, these efforts. The world indeed requires a spirit of accommodative co-existence for the larger global good.


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