Evolving India’s Defence Industry Through Private Sector Prime Contractor

India has been importing advanced military hardware ever since independence. Indigenous  defence industrial capability has progressively evolved, but very significant gaps remain. In the current global scenario, marked by geopolitical uncertainties and increasing strategic competition, we are witnessing growing reluctance of countries to share military technology, and even outright technology denial.

Importing major weapon systems is no longer a viable option. As an emerging power, India has no alternative but to develop an indigenous defence industrial base capable of indigenously producing high-tech weapons and platforms capable of matching or eclipsing the challenge of likely adversaries across all domains of warfare.

Against this backdrop, the author argues that the emergence of large prime contractors in the private sector is of vital importance and an urgent necessity. Simply sourcing subsystems and components from MSMEs and startups for public sector integrators will not lead to the required major transformation of the defence industrial base.

Unless the inherent advantages and capabilities of large private corporations are harnessed through realistic policies and incentives, India will remain dependent on public sector prime contractors and lead integrators.  Though the DPSUs are an important and even indispensable part of the defence sector, they are handicapped by inherent constraints of efficiency and productivity, which slow decision-making and diffuse accountability. Consequently, they are typically unable to supply systems in timeframes contracted. This leaves the armed forces - and thus the nation - vulnerable, due to operational ‘gaps’.

Large private corporations are constantly exposed to competition and market forces. Taxpayer funded bailouts of failure are unavailable to them. The resulting competitive and performance-based culture is driven by quick decision-making, active risk management and accountability. They can also raise capital and establish joint ventures relatively quickly.

The author recommends that large private companies must be encouraged and incentivised through policies which realise convergence between the objectives of the government and of private enterprise. He suggests that the Strategic Partnership Model needs acceleration, and the practice of flexible contracting, assured demand and risk-sharing needs to be introduced, amongst other policies.

The author concludes by underscoring that given India’s growing threat perception and the increasing difficulties in timely procurement of contemporary and futuristic weapons from abroad, it is incumbent upon India’s policymakers to facilitate the emergence of private sector prime contractors in India’s defence industrial base as a matter of high priority.

To read this DPG Policy Brief Volume XI, Issue 21, please click “Evolving India’s Defence Industry Through Private Sector Prime Contractors”.