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Following is the full text of the Defence Minister Shri Pranab Mukherjee’s inaugural address at the seminar on "Indian Defence Industry: Forging A Public - Private Partnership" being organised by Federation of Indian Chambers of Commerce and Industry (FICCI) here today.
“I am happy to be here with you this morning to inaugurate the National Seminar on Indian Defence Industry being organised by the Federation of Indian Chambers of Commerce & Industry. I understand that representatives from Defence Public Sector Units, leading companies from the private sector engaged in Defence Production and senior representatives from the Armed Forces and DRDO are participating in the Conference.
Production of modern weapons and ammunition in India dates back to over 200 years when the first Ordnance Factory was set up in 1801 at Cossipore for manufacture of guns and ammunition. Prior to 1950, there were only 19 Ordnance Factories in the country. Post-1950, the development of Defence Industry was within the parameters set by the first Industrial Policy of independent India. Going by the ethos of that era, the Government had placed production of Defence items in the Reserve List making it mandatory for production to be taken up only by the public sector. There has been a very significant expansion of public sector in Defence Production since the 1960s. In the expansion of facilities for Defence Production under the public sector, ample opportunities have also been provided to the private sector in supply of various raw materials, components, and sub-assemblies as input material for production in the Ordnance Factories and Defence PSUs. Behind this effort of expanding Defence Production was the need to attain high degree of self-reliance in defence preparedness.
Today, India is going through an epochal transformation and is emerging as a formidable economic and political power. We are confident in facing the global challenges in the new economic milieu and are moving forward to scale greater heights. While India's progress on the economic front is a welcome sign, it needs to equally address its strategic and security concerns.
India needs to become self-reliant in Defence Production to effectively meet the fast changing ground realities of defence operations. India also needs to keep pace with the changes taking place by induction of new equipment, up-gradation of existing military hardware and changing over to new strategies and tactics. I commend FICCI for organising this Seminar focussing on this important aspect of Forging Public - Private Partnerships in the area of Defence Production.
The Defence Production Industry in India has traversed a long path from being reserved entirely for the public sector to moving towards greater participation from the private sector. The sector was opened up for private sector participation and Foreign Direct Investment (FDI) was made permissible up to 26% in May 2001. A number of major private sector industries have already obtained Letters of Intent / Industrial Licence for manufacture of a wide range of Defence items.
Over Rs. l,200 crores worth of materials, sub-assemblies and components are obtained by Defence PSUs from the Private Sector engaging small, medium and large scale industries. Similarly, the Ordnance Factory Board outsource to the extent of approximately Rs. l,900 crores to the Private Industry in their production. These figures are indicative of the significant contribution being made by the Private Sector in Defence Production.
Defence Production is a highly sophisticated process involving unique challenges of safety, reliability, consistency in quality and capability of operation in various climes and terrains. Defence Industry in India has matured and can be considered comparable to established Defence Industries in the developed countries. India's premiere aircraft and aerospace major Hindustan Aeronautics Limited has recently exceeded a turn over of US $ 1 billion. It has successfully developed the versatile Advanced Light Helicopter (ALH), christened "Dhruv", the multi role single engine supersonic Light Combat Aircraft (LCA) named "Tejas". HAL has already successfully leased and sold the "Dhruv" to Israel and Nepal respectively. Seeing this trend, foreign firms are now looking at India as an attractive destination to forge alliances for more cost-effective production of Defence items. Global players like Airbus Industries, Lockheed Martin, Snecma, Boeing are outsourcing work orders to Indian companies given the latter's high degree of skill and cost competitiveness.
However, the equipment for which technology for production is not available in India have necessarily to be imported to meet the operational requirements of the Services. In the Defence Budget for the current year 2005-06, there is a provision of Rs. 83,000 crores out of which the provision under Capital Head is pegged at Rs. 34,375 crores. Out of this, a very significant portion will be spent on imports. This trend needs to be reversed, with Industry needing to assume a much greater role in indigenisation of the imported products. Even a 10 - 20% reduction in our imports will not only help us in saving precious foreign exchange but also have a spiraling effect on the economy. This will increase growth rate in the manufacturing sector and create job opportunities not only in large industries but also in small scale ancillary industries that are supporting the manufacturing sector.
The sustenance of the domestic Defence Production industry should also be encouraged by reaping the benefits arising out of exporting our products. There is a need to devise an effective strategy for exports and target niche markets where India would have a competitive advantage. A vibrant export industry will have positive spillovers of a reserve production capacity, which would be diverted to domestic use in cases of an emergency. Here again, the private sector can 'be encouraged to complement the efforts of the public sector aid thereby give further impetus to the economic process.
The Government has accepted in-principle to have an Offset Policy to leverage our position as a large buyer. The Department of Defence Production is in the process of finalising modalities for introduction of a specific clause on "Offsets" in the RFP. However, it will be necessary to first understand and work out methods of evaluation of offsets, which I am told, is also being undertaken.
The Government is committed to development of a vibrant and proactive Defence Industry in India. It should be ensured that the available capability, infrastructure and resources including intellectual capital are harnessed to the fullest extent as our national assets and optimally utilised in achieving this objective. A strong and healthy partnership between the public and private sector will be critical in delivering the Defence capability and in sustaining a powerful domestic industrial base for the future. It was in this context that the Government had set-up a Committee headed by Dr. Vijay L. Kelkar to examine and recommend modalities for integration of User, Defence Ministry and Indian Industry. The Committee has already submitted first Part of the Report and its recommendations are under consideration of the Government. The recommendations made by the Committee revolve around major policy issues and initiatives, which are very critical for future growth and development of a strong Defence industrial base in the country.
I again felicitate FICCI for organising this important Seminar and I wish the Seminar a Grand Success.”
DM / HS
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