April 2018 PDF

Galore - in abundance.
Predicated - found or base something on.

Stymie - prevent or hinder the progress of.
Tax Inversion - Tax inversion, or corporate inversion, is the practice of relocating a corporation's legal
domicile to a lower-tax country, while retaining its material operations (including management,
functional headquarters and majority shareholders) in its higher-tax country of origin
Promises Galore in the Draft Defence

Production Policy 2018
Amit Cowshish April 02, 2018
Following up on the announcement made by the finance minister in his budget speech on
February 1, the Ministry of Defence (MoD) has recently released the draft of a new defence
production policy 2018. It seeks to replace the policy announced in 2011. The ministry has
asked for comments on the draft from the stakeholders by March 31, 2018.
It is good to review a policy from time to time, especially if it is not yielding the desired result.
But the timing of the current policy review is unusual, especially because it is largely predicated
on promises. Already standing at the threshold of the last year of its five-year tenure, the
government may not have sufficient time to implement the numerous promises made in what
looks like a draft manifesto on defence production before the next general elections.
Take, for example, the promise that the tax regime will be rationalised to make domestic
manufacturing attractive by ensuring that there is no tax inversion. The draft also promises to
rationalise taxes on the import of capital goods and services, inputs and components used in
defence production.
In the normal course, the next budget to be presented to Parliament will be the interim budget
for 2019-20. Any change in the tax structure must, therefore, wait until the next regular budget
is presented. While it is true that some promises may not require parliamentary approval,
experience suggests that it will not be easy to implement them.
The proposed increase in the cap on foreign direct investment (FDI) in defence, originally fixed
at 26 per cent in 2001, is a case in point. In 2010, the Department of Industrial Policy and
Promotion (DIPP) had suggested the removal of the cap altogether. Subsequently, in 2013, the
then Commerce Minister had also recommended raising the FDI cap to 74 per cent. But it was
only in 2014 that the cap was raised, that too to 49 per cent, by the present government. It is no
secret that there are sharply divided views on raising the cap beyond 49 per cent. This could
stymie the proposed move to raise the cap further.
The promises contained in the recently released draft are so intertwined that a comprehensive
action plan would be required to implement all of them almost simultaneously for achieving the
policy objective. For example, the efficacy of the Defence Investor Cell established in the first
week of February 2018 depends on competency mapping of the private defence industry, which
has been promised in the draft but for the completion of which no timeframe has been
prescribed.
Experience shows that policy decisions often get derailed by delays in working out the modality
of implementing them or because many loose ends are left untied while notifying the scheme.
For instance, the Defence Acquisition Council (DAC) had decided to tweak the ‘Make II’
procedure in January 2018 to permit the MoD to entertain suo moto proposals from the industry.
The draft policy refers to this decision, but the formal amendment to the Defence Procurement
Procedure (DPP) does not appear to have been notified so far.
Disjointed efforts and promises cannot form the basis of a robust policy. The draft talks of the
new impetus given to defence production under the ‘Make in India’ programme through
initiatives such as the introduction of ‘Make I’ and ‘Make II’ sub-categories in DPP 2016, the
introduction of the Strategic Partnership Model in 2017, the increase in FDI to 49 per cent in
2014, and the easing of the industrial licensing process during the last couple of years. These
initiatives do not seem to provide a firm ground on, or around, which a new defence production
policy could be built.
It is premature to pass judgement on these recent initiatives. But the fact remains that all have
been facing strong headwinds. While a couple of ‘Make II’ proposals, to be self-funded by the
industry, are believed to have been approved in principle, three ‘Make’ projects in the pipeline
for the past several years continue to stagnate. The latter includes the Futuristic Infantry
Combat Vehicles and Tactical Communication System projects, which could give a big boost to
‘Make in India’ in defence.
The process to identify the Indian entities under the Strategic Partnership Model is yet to begin,
just about Rs 1 crore has been received by way of FDI in defence in the last four years, and
industrial licenses were held up for a long time because of the row between the DIPP and the
Ministry of Home Affairs on the question of jurisdiction to issue the license under the Industrial
(Regulation and Development) Act, 1951 and the Arms Act, 1959. There is clearly a need for a
reality check. Easing the process of industrial licensing, for example, is important but this is, at
best, just a minor reason for stagnation in defence production.
The draft talks about the goal of achieving self-reliance in development and manufacture in
thirteen major areas of production, a turnover of Rs 1,70,000 crore, involving an investment of
nearly Rs 70,000 crore and the creation of two to three million jobs, and exports of Rs 35,000
crore by 2025. The objective is to make India a global leader in Cyberspace and Artificial
Intelligence technologies.
Monopsony - a market situation in which there is only one buyer.
All this may be achievable but only if MoD is able to back it up with adequate budget outlays. If
Indian companies must become self-reliant in making fighter aircraft, warships, combat vehicles,
and the like, there has to be a market for their products. Defence being a monopsony, MoD will
need to sustain domestic production by buying their products in large numbers without which
there will be no business case for the industry to undertake manufacturing in India as a prelude
to exporting products.
The achievability of the stated objectives and goals in the draft policy does not seem to be in
sync with the current trajectory of defence budget outlays. The credibility of the new defence
production policy is inextricably interlinked with the financial viability of the roadmap envisaged
therein as well as the ability of the MoD to take hard decisions to remove programme-specific
roadblocks. The track record on this count is not very encouraging.
The preamble of the draft starts with the embarrassing statement that self-reliance has been the
goal of India’s defence production strategy since the 1960s. The fact that more than five
decades later India has emerged as the largest importer of arms is a serious indictment of
whatever strategy has been adopted since then.
The problem all along has been that policies, strategies and procedures have seldom been
based on a dispassionate diagnosis of the malady afflicting defence production: disjointed
efforts, never factoring financial viability, and tardy implementation – all largely because of
structural issues within the MoD.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the
Government of India.
Keywords: Defence Industry, Defence Production

Draft Defence Production Policy 2018: Challenges Galore
April 04, 2018
In pursuance of Finance Minister Arun Jaitley’s 2018-19 budget announcement

related to an “industry friendly Defence Production Policy 2018”, the Department
of Defence Production (DDP) of the Ministry of Defence (MoD) released a 14-page
draft policy on March 21, 2018. The draft Defence Production Policy (DPrP) 2018,
which was open for public comments for six working days till March 30, is intended
to replace the earlier policy promulgated in 2011. The broad mission of the draft
policy is to promote the Make in India initiative in the defence sector and create a
world-class arms manufacturing base, fulfilling not only the larger goal of self-
reliance but also the requirements of friendly foreign countries. The laudable
mission notwithstanding, the draft policy suffers from a number of shortcomings,
which, if left unaddressed, may limit its usefulness.
Draft Defence Production Policy 2018: Salient Features

The draft DPrP 2018 is ambitious and forward looking. Unlike the 2011 policy, the
draft of the 2018 policy sets a clear vision, a set of objectives and strategies. Its
vision is to put India “among the top five countries of the world in aerospace and
defence industries,” though the timeframe within which this is to be achieved has
not been articulated. The key objectives of the policy include development of a
strong defence industry leading to higher self-reliance. Setting its sight on the need
to reduce the current high import dependency, the draft policy identifies 13 sets of
weapon systems/platforms (including fighters, helicopters, warships, missile
systems, ammunition and explosives, land systems, and electronics) whose
development and manufacture would commence latest by 2025. Other objectives
include an increase in domestic arms sales to Rs 170,000 crore ($26 billion) by
2025, with around one-fifths of it –Rs 35,000 crore ($5.0 billion) – coming through
exports. The policy also intends to make India a “global leader in cyberspace and
AI [artificial intelligence] technologies.”
From the industry’s point of view, the DPrP’s attractiveness lies in the host of
provisions and incentives it offers. The draft policy talks of further ease of doing
business for the industry including the Micro, Small and Medium Enterprises
(MSMEs); pruning the existing list of items subject to industrial licence; increasing
the FDI cap under automatic route from the current 49 to 74 per cent for certain
niche technologies; streamlining the offset policy to attract investment and
facilitate the speedy and transparent execution of offsets; rationalising the taxation
system to support domestic manufacturing; providing financial assistance of up to
Rs 3,000 crore each to Special Purpose Vehicles created for the development of
two defence industry corridors that were recently announced, and up to Rs 100
crore each towards common testing facilities created by the industry; setting up of
a corpus of Rs 1,000 crore to fund start-ups to meet specific defence R&D
requirements; creating the ‘necessary mechanism’ to harness the potential of AI
and Robotics for defence use; and creating an Intellectual Property Cell in DDP to
facilitate the registration of intellectual property rights. Besides, the draft policy
also talks of setting up an Aeronautical University on a 50:50 cost sharing basis
between Hindustan Aeronautics Ltd (HAL) and the government; and the possibility
of setting up an “autonomous National Aeronautical Commission, in line with
Nuclear and Space commissions.”
How Realistic are the Draft DPrP’s Vision and Objectives?

Though the draft policy is quite supportive towards domestic arms manufacturing,
it is nonetheless quite ambitious in its vision and objectives. To put the country
among the top-five aerospace and defence manufacturing countries, as the draft
policy’s vision states, would mean India joining the ranks of such countries as US,
Russia, France, UK and China, which are presently the global leaders in arms
production. To join such a coveted club would also mean some of the established
Indian defence manufactures breaking into the club of top global arms producers.
Can this happen in a realistic timeframe of say the next 10 years?
Suffice it to say that at present not a single Indian defence company figures in the
list of top-10 global companies, though India is counted among the top-five military
spenders in the world. As per the US-based Defense News’s list of top-100
defence companies in 2017, HAL, India’s biggest defence company, is placed at
35 and Bharat Electronics Ltd (BEL), the second biggest Defence Public Sector
Undertaking (DPSU), at 59. For them to climb from their present rankings to the
top 10 or 15 would be anything but easy, considering the huge turnover gap
between Indian and major global companies as well as the pervasive technological
backwardness of Indian entities.
Like the vision, the objectives of arms turnover and exports are also quite
ambitious. At present, India’s arms production, as accounted for by the DPSUs
and Ordnance Factories (OFs) – the two main players in the Indian defence
production sector— is about Rs 56,000 crore (or $8.4 billion). In the past five years,
the annual growth in defence production has been around seven per cent. To
reach a turnover of Rs 170,000 crore ($26 billion) – a three-fold increase – by 2025
would require domestic production to grow by nearly 75 to 80 per cent per year,
which is overly ambitious. The same is also true of arms exports, which recorded
the highest turnover of Rs 2059 crore ($317 million) in 2015-16. To rise from that
level to reach Rs 35,000 crore (a 17-fold increase) by 2025 is too much to ask for
from an industry that has so far relied on technology imports for much of its
production.
DPSU - Defence PSU. There are 8 Defence PSU's in total, working under DDP, MoD
Draft DPrP 2018: The Challenges
Though the draft DPrP is a marked improvement over the 2011 policy, especially
in terms of provisions and incentives for the industry, it still faces a number of
challenges, which, if left unaddressed, may limit its usefulness. Though, unlike the
previous policy, the draft 2018 policy has identified 13 different sets of items for
indigenous production, these are mostly generic names and includes items which
are under production or cleared for production in the near future. In other words,
the policy does not identify any specific new projects by name that would have
given the industry an indication of the likely business prospects. Without such an
indication, the draft policy suffers from the same uncertainty that the previous
policy faced. A simple step to mitigate this policy gap would have been to deduce
a comprehensive production list from the approved Long Term Integrated
Perspective Plan (LTIPP), which projects the services’ equipment requirements
over a 15-year time horizon. The deduced list could have further been divided into
two broad categories: items to be produced based on domestic R&D, and items to
be produced under licence. The policy would then have focused more on the
former for building domestic capacity.
The second challenge that the draft policy suffers from is the structural distance of
the DDP, the implementing agency of the policy, from the Defence Research and
Development Organisation (DRDO) and the Acquisition Wing of the MoD (one may
also add the users to the list) as far as domestic arms production is concerned.
Since these stakeholders are more or less independent (though each agency’s
action impinges on others and vitally on defence production and self-reliance),
reconciling their varied interests has been a major challenge in the past. From the
self-reliance point of view, the Defence Procurement Procedure (DPP) has so far
attempted to reconcile the divergent interests of these stakeholders, mainly
through the prioritised procurement categories that give preference to domestic
industry over direct import. However, since the DPP has not dramatically improved
India’s defence production capability, nor changed the culture of licence
production, more needs to be done. The draft DPrP does not, however, provide a
concrete solution beyond some cursory remarks that other stakeholders will play
their due role.
Third, the draft policy, like its predecessor, does not fully address the private
sector’s trust deficit with the government, even though the former is expected to
play a major role under the Make in India initiative. Notwithstanding the various
promises, including that of providing open competition in contracts, the private
sector has a genuine reason to mistrust the policy in the making. The mistrust is
largely due to the representation of senior MoD officials in the governing boards
of the defence public sector companies, which often leads to the nomination of
larger contracts in their favour. It is high time that the MoD appointed a dedicated
additional secretary level official to allay such mistrust, and look after the private
sector’s genuine interests.
Fourth, the DPrP does not address the issues of inefficiency and lack of
accountability on the part of the DRDO, DPSUs and OFs, which, being the
mainstay of Indian defence industry for the last several decades, are responsible
for much of the indignity of the country’s poor track record in attaining self-reliance.
Instead of suggesting some bold steps to reform these entities, the draft policy
merely talks of the professionalization of OFs and “disinvestment of minority
stakes in DPSUs.” Here, it is not clear what the draft policy means by
disinvestment of minority stakes when the government has more than majority
stakes in all the DPSUs. Even these cursory remarks are silent on DRDO,
indicating further the DDP’s structural gap in commenting on organisations outside
its administrative domain. Without improving the efficiency and governance of
these entities, it is well-nigh impossible to achieve even a fraction of the targets
set by the policy. It is high time that the government took a hard look and
completely privatises the DPSUs and OFs besides laying down clear accountability
norms for the DRDO.
Last but not the least, the draft DPrP faces stiff budgetary constraints that may not
allow the policy’s promised investments to fructify in a time bound manner. In all,
the draft policy talks of investments worth over Rs 77,000 crore by 2025—–which
includes nearly Rs 70,000 crore as additional investment to increase domestic
production. In all likelihood, these investments will come largely from the defence
budget, either directly or indirectly. To accommodate such a large investment, the
defence budget has to provide an extra Rs 11,000 crore or so per year for next six
to seven years. However, this may not be feasible, given the huge resource crunch
that the defence ministry is presently going through and which is likely to continue
for the next several years. The present fund crunch is such that the MoD is finding
it difficult even to service its own financial commitments. The DPrP has to therefore
think of some innovative means, such as corporate bonds, disinvestment
proceeds, and monetisation of some defence assets, if it wants to keep its
investment promises.
Indignity - treatment or circumstances that cause one to feel shame or to lose one's dignity.
Nigh - near, almost
Published on Institute for Defence Studies and Analyses (https://idsa.in)
Will North Korea Denuclearise?

Ashok Sajjanhar April 09, 2018
The short and simple answer to the question ‘’Will North Korea Denuclearise?’’ is ‘’Unlikely.’’
This, notwithstanding the assertions that the North Korean leader Kim Jong Un appears to
have made in recent weeks about his readiness to do so. The statements attributed to him in
this regard are most likely the proverbial carrot that he is dangling in front of his adversaries,
particularly the United States, to engage with him seriously and thus enable him to realise his
core objectives.
Kim Jong-Un’s statements indicating readiness to denuclearise have capped the frenetic
activity that the world has witnessed over the last more than three months. The fast-paced
drama, laced with deft and sophisticated diplomatic moves, has been directed and
choreographed by none other than Kim Jong Un himself.
It all started with Kim Jong Un’s New Year speech wherein, on the one hand, he declared
that he had the whole of the United States covered by his nuclear missiles, and, on the other,
expressed his willingness to engage in a dialogue with South Korea and for that purpose
send a team to participate in the Winter Olympic Games in Pyeongchang, South Korea,
starting 8 February. The olive branch was seized with alacrity by the South Korean President
even as the US President blustered that he had a bigger and better nuclear button on his
table.
At the opening of the Winter Olympics in Pyeongchang, the North Korean contingent
marched together with its South Korean counterpart. The occasion also witnessed the
historic hand-shake between South Korean President Moon Jae In with the nominal head of
State of North Korea Kim Yong Nam and the younger sister of the North Korean supremo
Kim Yo Jong. If contacts between the two Koreas had been limited only to North’s
participation in the games, it would not have amounted to much because the two Korean
teams have marched together nine times in recent years during opening ceremonies.
North Korea’s participation in the Winter Olympics was quickly followed by the visit of a
South Korean delegation led by National Security Adviser Chung Eui-yong and intelligence
chief Suh Hoon to Pyongyang on 5 March to explore the possibility of talks. They met Kim
who apparently indicated his readiness to denuclearise if the safety and security of his
regime were guaranteed. Kim also expressed readiness to hold direct, candid talks with USA
and South Korea, and indicated that no fresh missile or nuclear tests will take place until
talks are in progress. According to the South Korean team, “the North Korean side clearly
showed willingness on denuclearisation in the Korean peninsula if military threats to North
Korea decrease and regime safety is guaranteed.” This was not explicitly confirmed by North
Korea, which only said that satisfactory progress had been registered in the talks. An April
summit between the two Korean leaders was announced, and is now scheduled for April 27
at the Peace House in Panmunjom.
Thereafter, the two South Korean officials travelled to Washington DC to brief President
Trump on their discussions. And the latter readily agreed to a direct meeting with the North
Korean leader, which is likely to take place in May 2018.
This denouement was quickly followed by an unanticipated four-day visit by the North Korean
leader to Beijing towards the end of March. This was Kim’s first visit outside the country
since assuming office in 2011 and also his first meeting with President Xi Jinping. Although it
was billed as an unofficial visit, it had all the frills and accompaniments of a State visit with a
banquet hosted by President Xi and a guard of honour thrown in for good measure. Reports
carried by the Chinese News Agency Xinhua and the Korean Central News Agency on the
outcome of the visit are somewhat at variance with each other. For instance, Xinhua reported
that, according to Kim, “the issue of denuclearisation can be resolved if the US and South
Korea respond to our efforts with goodwill and create an atmosphere of peace and stability
while taking progressive and synchronous measures for the realisation of peace.” The KCNA
report did not contain any reference to “denuclearisation” and said: “The supreme leaders of
the two countries exchanged in-depth opinions on significant agendas, including the
development of amicable relations between DPRK and China and the issue of managing the
Korean peninsula.” KCNA added that Kim’s visit “became a crucial opportunity to expand and
develop the friendly relationship between DPRK and China to a new and higher level.”
Current Position
Developments over the last three months have helped to raise the prestige and profile of the
North Korean leader immeasurably. He has led developments on this issue from the front and
with sure and deft moves brought them to a position where he appears to be holding all the
major cards in his hands. This is a far cry from the situation that prevailed in December 2017
when he had appeared to be completely isolated in the world.
It is reported that the visit to Beijing was made at Kim’s initiative. He appears to have
travelled with the confidence that he had achieved most of his objectives by conducting four
nuclear tests since coming to power in 2011 (as against the two tests conducted in 2006 and
2009), and by carrying out more than 80 missile tests including the one of Hwasong 15 in
November 2017 with a range of around 13,000 kms (as against 16 missile tests in total
conducted in previous years). He has thus established North Korea’s credentials as a de
facto nuclear weapons power with an arsenal that can hit all parts of USA.
During the last six years, relations between North Korea and China had become increasingly
stressed and strained. Kim would thus have considered it an ideal opportunity to mend
fences with China and use its considerable support to drive an advantageous bargain for
him. Rapprochement between China and North Korea suits China also very well as it helps it
to re-establish its pre-eminent position in dealing with the Korean nuclear crisis. China had to
face considerable embarrassment when North Korea had conducted its missile tests during
the Belt Road Forum in Beijing in May 2017 as well as just before the BRICS Summit in
Xiamen on 4 September 2017. A successful visit by Kim has enabled China to emerge as the
key and most influential player in dealing with this vexed issue. The visit has enabled Kim to
emerge as a more confident and stronger player than he was earlier.
South Korean President Moon has been most uncomfortable with the menacing and
intimidating war of words between Kim and Trump over the last one year. South Korea would
not like a conflict on the Peninsula under any circumstances. In this, Moon differs widely from
President Trump’s approach to the issue. Kim has successfully exploited this difference in
approach between Moon and Trump to reach out to Moon and drive a wedge between him
and Trump. Kim however also realizes that the safety and security of his regime can be
guaranteed only by USA. It is hence necessary for him to engage with Trump. USA would
also not like North and South Korea to cut a deal between themselves on the side as it
considers itself vulnerable to the nuclear and missile capabilities of North Korea.
Japan finds itself left out from all the hectic parleys. It also faces an existential threat from
North Korea and hence would like to have a say in whatever discussions are held to resolve
the issue. Japan has been on the same page as the US and taken a hard, tough stand
against North Korea. It is wary of adopting a soft approach as South Korea is doing. Abe will
hence be travelling to Washington later this month to coordinate his position with the stand
that Trump is likely to take in his meeting with Kim next month.
The exact date and venue of the meeting between Kim and Trump is not clear. It is
considered that hectic back-channel parleys to decide on these issues are going on between
USA and North Korea. Kim has suggested Pyongyang. That is unlikely to be accepted.
Beijing has also been mentioned. Americans are unlikely to agree to that venue as well in
view of the tense relations between the two countries at the moment. It is unlikely that Kim
will agree to travel to any Western capital for the meeting. Some likely venues are Mongolia
or a Central Asian country, possibly Uzbekistan. The coming weeks are likely to bring clarity
to the issue of venue and dates.
Conclusion
It is highly unlikely and even impossible for North Korea to agree to a complete
denuclearisation. In fact, in its talks with South Korea and USA, it is likely to put up front its
demands for lifting of sanctions, removal of the 28,000 US troops on South Korean soil,
complete cessation of war exercises and games, and removal of THAAD missiles from South
Korean territory. In making these demands, North Korea would have the tacit approval and
support of China as well as Russia. It would be quite inconceivable for USA/South Korea to
agree to any of these demands. It is hence highly unlikely that discussions between Trump
and Kim will be able to register any significant headway. The presence of the hawkish John
Bolton, the new US National Security Advisor, and the equally hawkish Mike Pompeo, the
new Secretary of State, on the Trump team will further reduce the possibility of a significant
breakthrough.
Having seen the treatment meted out to Libyan leader Muammar Gaddafi after he
surrendered his nuclear arms, it is unthinkable that Kim Jong Un will ever seriously
contemplate giving up his nuclear weapons. He will try to drive the hardest bargain possible
and be willing to make only small concessions like maintaining some type of a freeze on
future tests of missiles and nuclear weapons. In return, he will demand the removal of
sanctions as well as fool proof guarantees for his regime’s security and recognition of his
country by USA and other western powers.
DefExpo 2018: Making India a Defence

Manufacturing Hub and an Exporter of Arms
As DefExpo 2018 gets underway at Thiruvidanthai near Chennai from April 11, all attention will be
turned towards the defence minister’s press briefing on the first day and the prime minister’s visit
on the second day of the exhibition. The exhibition is focussed on showcasing India as an
emerging defence manufacturing hub and exporter of defence products. To give a leg up to this
effort, all the 44-odd defence attaches posted in Indian missions abroad have been called back to
attend the exhibition and familiarise themselves with India’s defence manufacturing potential. It is
believed that this would better enable them to promote Indian defence exports once they get back
to their missions. But it will take a lot more convincing that India is already set on this trajectory.
Indian defence manufacturing, especially in the private sector, has not really picked up. Big
manufacturing projects such as the Futuristic Infantry Combat Vehicle have not materialised. In
terms of defence exports, India does not figure even among the top 10 or 15 exporters of arms.
This situation may not change by the mere setting up of two defence industrial production
corridors, one of which will be located in the geographical area where DefExpo 2018 is being
held.
According to the annual report of the Ministry of Defence (MoD), the total value of defence
exports by the nine public sector undertakings, 41 ordnance factories and the 12 to 14 private
sector companies was Rs 2,059.18 crore in 2015-16 and Rs 1,105.20 crore in the first nine
months of the financial year 2016-17. Clearly, it is likely to prove an uphill task to achieve the
export target of Rs 35,000 crore by 2025 envisaged in the draft Defence Production Policy 2018.
But there is no denying that it is a good initiative, if for no other reason than the fact that it reflects
an ambition which is good both for the armed forces and the economy. It may even be achievable
provided the underlying causes of the current morass are correctly diagnosed.
The desire to showcase India as a manufacturing hub and potential exporter of arms should not
lull policy makers into believing that manufacturing continues to stagnate and exports have been
low for want of a proper showcasing of India’s potential or indolent marketing.
It will be comparatively easier to energise defence manufacturing. All that is required is the award
of some big ticket manufacturing contracts, which have been in the pipeline for a long time,
setting others on an irreversible course. But this requires a firm policy and adequate budgetary
support. The DefExpo may be the right place to convince the world on this count.
It may be more difficult to establish India’s credentials as an emerging exporter of arms. The
challenge would be to demonstrate to potential importers that India, which is presently the largest
importer of arms in the world, has the capacity to manufacture and export the equipment required
by their armed forces. This is no mean challenge if one looks at the array of defence products
exported by India and the countries to which these have been exported.
According to the MoD annual report for 2016-17, the major items exported were personal
protective gear, turbo-chargers and batteries, electronic systems, and light engineering
mechanical parts, etc., and the major export destinations were Kenya, Bhutan, Ethiopia, Israel,
Taiwan, United Kingdom, Nepal, Belgium, Vietnam and Philippines. This is not meant to either
belittle the performance of Indian industry or the importance of the importing countries. Instead,
the aim is to point out that for raising the level of exports India will have to not only export more
sophisticated equipment, weapons systems and platforms but also to newer and bigger markets.
The MoD’s annual report says that several countries have shown interest in indigenously
developed products such as multi-function hand held thermal imager, light weight torpedoes, anti-
submarine warfare upgrade suit, and the Akash air defence system. These items will probably be
on display at the DefExpo. However, except for the Akash air defence system, none of these are
major products.
This begs the question as to which major defence equipment India is in a position to export at this
juncture. There is hardly any major equipment being manufactured by the private sector. The
bigger items are mostly being made by the public sector units and there are obvious problems in
exporting them since otherwise exports would not have been stagnating at the present level.
More importantly, most of the new major programmes are being managed by the public sector
and practically all of them seem to be works-in-progress, the prime examples being the Dhanush
artillery gun and Arjun tank of the ordnance factories and the Light Combat Aircraft programme of
Hindustan Aeronautics Limited. These programmes are not at a stage where India could start
exporting them especially considering persistent reports of India’s own services having
reservations about the efficacy of these platforms.
To be sure, there are exceptions. Some major platforms like helicopters have been exported by
HAL in the past. The private sector is also coming into its own as manufacturers of defence
products like the artillery gun. Most importantly, Indian shipyards have the capability to build naval
vessels of different types. Focussing on such products during the exhibition may be more fruitful.
It may, however, not be easy to showcase India’s export potential in all these areas. The
developments that led to the Ecuador government unilaterally terminating the contract in 2015 for
the HAL-built Dhruv Advanced Light Helicopters after four of them crashed may still be too fresh
in the minds of potential importers. Such perceptions need to be dispelled.
It is not easy to make inroads into the defence exports market which has been traditionally
dominated by a few countries. China has of course made a late entry into this select group,
thanks to Pakistan and Bangladesh which accounted for 35 and 19 per cent, respectively, of
China’s defence exports between 2013 and 2017. India is handicapped in that it has no client
state to which it could export and geopolitical as well as internal political factors often constrain its
ability to export to certain countries in the neighbourhood and beyond who may be willing to
import arms from India.
With the policy and procedures being in a state of flux for a long time, defence manufacturing –
and consequently exports – have not really picked up in a big way. The Strategic Partnership
Scheme, introduced in 2017, was seen as the ultimate stimulant for energising defence
production in the private sector. But the scheme has made little progress and, in fact, it is already
in the process of being refined.
Several major projects involving the manufacture of equipment and platforms in India, including
aircraft, submarines and armoured vehicles, have been hanging fire. Exports cannot pick up
unless these platforms start getting made in India. It is also well known that the present inertia is
not only on account of procedural complexities and tardy decision-making.
The standing committee on defence has been continuously pointing to gross inadequacy in
budget outlays, so much so that the allocation may not be enough even to discharge the
committed liabilities on account of the ongoing contracts during the current year. This is not
complimentary to the image of an emerging manufacturing hub and exporter of arms.
DefExpo 2018 provides a good opportunity for the prime minister and the defence minister to
clear the air on some of these issues. Doing so will inspire confidence among the exhibitors and
other business visitors as well as lessen the rigors of the enervating heat in Chennai at this time
of the year. Hopefully, the Defence Exhibition Organisation will keep this aspect in mind while
deciding on the timing of what seems to be turning into a peripatetic exhibition.
Peripatetic - nomadic, itinerant, vagabond, travelling from place to place, in particular working or
based in various places for relatively short periods.
Draft Defence Production Policy 2018- Invite for Comments
Govt of India has announced in the General Budget 2018-19 that the
Govt will bring out an industry friendly Defence Production Policy 2018
to promote domestic production by public sector, private sector and
MSMEs. In pursuance of the above, the Govt. has formulated a draft
Defence Production Policy 2018 which is placed below.
It is requested to provide your comments on the draft policy at dirpnc-

ddp@nic.in latest by 30.03.2018.
PSUs in Defence Sector :

Aero
HAL - Hindustan Aeronautics Limited, Bengaluru
Electronics
BEL - Bharat Electronics Limited, Bengaluru
Naval
MDL - Mazagon Dock Shipbuilders Limited, Mumbai
GRSE - Garden Reach Shipbuilders & Engineers Limited, Kolkata
GSL - Goa Shipyard Limited, Goa
HSL - Hindustan Shipyard Limited, Visakhapatnam. In 2010, HSL was transferred from
Ministry of Shipping to Ministry of Defence. The yard played a critical role in the
development of nuclear-powered, Arihant class submarine.
Land
BDL - Bharat Dynamics Limited, Hyderabad
BEML - Bharat Earth Movers Limited, Bengaluru
MIDHANI - Mishra Dhatu Nigam Limited, Hyderabad
Organization Structure of Ministry of Defence :

- Department of Defence
- Department of Ex-servicemen Welfare
- Department of Defence Production
- Department of Defence R & D
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DRAFT
DEFENCE PRODUCTION POLICY 2018
1. Preamble
1.1 Self-reliance in defence production has been the goal of India’s defence production
strategy since 1960s. Government has also announced a Defence production Policy 2011.
Significant progress in domestic defence production has been made. India defence
production has progressively increased from Rs. 43,746 crores in 2013-14 to Rs. 55,894
crores in 2016-17. Defence PSUs like HAL in aero, MDL, GRSE, GSL and HSL in naval,
BDL, BEML, MIDHANI and OFBs in land systems and BEL in electronics have emerged
as significant players in the defence production ecosystem in the country. Several
platforms like Air Defence Missile System ‘Akash’, Light Combat Aircraft ‘Tejas’, Main
Battle Tank ‘Arjun’, Ballistic Missiles like ‘Prithvi’, ‘Agni’, Multi Rocket Launcher
System ‘Pinaka’, Central Acquisition Radar have been designed and produced
indigenously and several others like Fighter Aircraft Sukhoi Su-30 MKI & T-90 Tank
have been produced based on transfer of technology. However, it is also true that despite
some salient achievements of our defence production ecosystem, a significant part of our
defence requirements continue to be dependent on imports. India has become one of the
largest importer of defence goods and services in the world. This needs to change.
1.2 A vibrant defence industry is a crucial component of effective defence capability, and to
achieve national sovereignty and military superiority. The attainment of the same shall
ensure:
1.2.1 Strategic independence
1.2.2 Sovereign capability in selected areas
1.2.3 Cost effective defence equipment
1.2.4 Collateral benefits ensuing from the endeavours of the defence industry
1.3 R&D and innovation are important determinants of defence production capabilities. The
technology change in the information arena, the biological arena and the nano-technology
arena is not only going to have a profound impact on military operations, but will also
require a much more responsive defence industry, especially in light of the decreasing
predictability of future needs. DRDO has 52 labs across all domains of defence for R&D
in defence related requirements and has played an important part in new technology
1
development in the country. However, we continue to manufacture several technological
platforms under licensed-production. World over defence has been a major reason and
determinant of technological growth and development. We need to develop cutting-edge
technologies to be able to achieve leadership in defence products.
1.4 India has emerged as a top destination for R&D Centres in the world, ahead of US China
in 2015 and the trend continues. The R&D strength of India needs to be channelized for
creating domestic IPR for defence needs. With the launch of Start-Up India program,
India has also become the hotspot of start-up activity in the world, having the 3rd largest
start-up ecosystem globally. These strengths need to be leveraged to catapult India as a
developer of next level of frontier defence technologies in the world.
1.5 New and emerging technologies like Artificial Intelligence and Robotics are arguably the
most important determinants of defensive and offensive capabilities for any defence force
in the future. Most leading countries are working frantically to achieve leadership in
these technologies. Cyber space has opened the fourth domain of warfare, beyond Army,
Navy and Air force. India, with its leadership in IT domain needs to use this technology
tilt to its advantage.
1.6 Government has as part of its ‘Make in India’ programme has given a new impetus to
development of defence production in the country both for its need and also for exporting
to friendly countries. Several initiatives have been taken in the last three years to
promote greater participation of industry. These include revision in Defence Procurement
Procedures to introduce ‘Make-I’ and ‘Make-II’ processes, introduction of Strategic
Partnership Model, increase in FDI through automatic route to 49%, restricting licensing
requirements for critical items, denotifying several items previously produced only by
OFBs for production by industry etc.
1.7 Defence Production Policy 2018 attempts to further build on these initiatives and
provides a focussed, structured and significant thrust to development of defence design
and production capabilities in the country.
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2. Vision
To make India among the top five countries of the world in Aerospace and Defence
industries, with active participation of public and private sector, fulfilling the objective of
self-reliance as well as demand of other friendly countries.
3. Goals and Objectives
The policy has the following goals and objectives:
3.1 Create an environment that encourages a dynamic, robust and competitive defence
industry as an important part of the ‘Make in India’ initiative.
3.2 To facilitate faster absorption of technology and create a tiered defence industrial
ecosystem in the country.
3.3 To reduce current dependence on imports and to achieve self-reliance in development

and manufacture of following weapon systems/platforms latest by 2025:-
3.3.1 Fighter Aircraft.
3.3.2 Medium Lift and Utility Helicopters.
3.3.3 Warships.
3.3.4 Land Combat Vehicles.
3.3.5 Autonomous Weapon Systems.
3.3.6 Missile Systems.
3.3.7 Gun systems.
3.3.8 Small Arms.
3.3.9 Ammunition and Explosives.
3.3.10 Surveillance Systems.
3.3.11 Electronic Warfare (EW) Systems.
3.3.12 Communication Systems.
3.3.13 Night Fighting Enablers.
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3.4 To achieve a turnover of Rs 1,70,000 Crores (USD 26 Bn approx) in defence goods
and services by 2025 involving additional investment of nearly Rs70,000 Crores
(USD 10 Bn approx) creating employment for nearly 2 to 3 Million people.
3.5 To achieve export of Rs 35,000 Crores (USD 05 Bn approx) in defence goods and
services by 2025.
3.6 To make India as a global leader in Cyberspace and AI technologies.
4. Strategies
The Policy is centered on following pillars:
4.1 Fostering a competitive, innovative and robust defence industry.
4.2 Encouraging collaborations to acquire latest technology, manufacturing processes,

skill-sets and R&D.
4.3 Providing a boost to MSMEs and Start-ups.
4.4 Strengthening infrastructure, including QA/QC/testing labs, both within public and
private sector.
4.5 Enabling ease of doing business.
4.6 Enhancing defence exports. IDDM - Indigenous Designed

Developed and Manufactured.
5. Ease of Doing Business in Defence Production
5.1 To make it easier to do business with defence, particularly for innovators, small and
medium-sized enterprises and non-traditional defence suppliers, the following is
proposed:
5.1.1 Necessary enabling provisions will be brought in to enable Startups and MSMEs to
participate in transparent and fair manner, without having restrictions of turnover,
prior experience as they meet technical and functional requirements.
5.1.2 The stipulation that the value-addition for IDDM should be done by one unit will be
done away with. The IDDM requirements of value-addition can be met if said
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value-addition is done within India by multiple units within India. This will enable
Startups and MSMEs working in part of the value-chain.
5.2 Undertake ‘Competency Mapping’ of private defence industry including MSMEs, to

establish their core competence/ability to absorb various technologies. Towards this, a
new Portal will be opened shortly on DDP website to improve engagement with industry
and to facilitate collection/updation of requisite inputs directly from the Indian
industry/suppliers. The Portal will also be used to flag new procurement opportunities, as
well as explaining new policies and processes.
5.3 Defence Investor Cell in Department of Defence Production will provide handholding to
MSMEs and other investor in defence production, as also to resolve issues with Central,
State and other authorities.
5.4 Technology Perspective Capability Roadmap (TPCR), which lists out the
platform/weapon systems being considered for procurement in the next 10 year
timeframe by our Services will also be hosted on Department of Defence Production
website to provide our private industry greater visibility into the likely opportunities in
the defence sector. Understanding future capital priorities will allow industry to position
themselves in an optimal manner to compete at the appropriate time.
5.5 The Simplified Make-II process of DPP 2016 will be streamlined to make it easier for
industry to enter in defence production sector.
5.6 Simplified Make-II process provides for proactive suggestions from industry for
consideration by services. Services would be encouraged to consider such proposals
received from industry.
5.7 Sample survey shall be carried out involving industry units in defence clusters to identify
bottlenecks in doing business in defence. Policies will be streamlined based on these
feedbacks.
6. Licensing Process
6.1 Licensing process for defence industries will be liberalised. The list of items requiring
licenses will be reviewed and pruned. Except a small negative list, other items will be
taken out of purview of licensing.
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6.2 All applications for licenses will be disposed off in 30 days. NOCs/Comments from all
agencies must necessarily be received within two weeks.
6.3 Favourable consideration will be given to the track record of companies for purpose of
renewal or additional license.
7. The practice of ex-ante capacity assessment of industrial units will be done away with, in
general. Suitable safeguards will be ensured in the RFP through EMDs and performance
Guarantees. Only in exceptional cases, involving big value of extremely critical projects, ex-
ante capacity assessment will be undertaken.
Ex-ante - based on forecasts rather than actual results.

8. Open Competition
8.1 Open competition, besides maximising returns on money, is the greatest driver for
innovation and productivity, and therefore will remain at the core of defence
procurement.
8.2 Revenue procurement and outsourcing of services will be progressively made

competitive through increased participation of industry.
8.3 Only niche/core products will be manufactured by OFB. Several non-core items have
already been de-notified from the OFB list and Ordnance Factories are competing with
industry for supply of these items. This list of items will be progressively reviewed.
9. FDI
9.1 FDI regime in defence will be further liberalised.
9.2 FDI up to 74% under automatic route will be allowed in niche technology areas.
10. Offsets
10.1 New investment linked avenues for discharge of offset obligations will be made
available which will also enable certainty and quick discharge of offsets.
10.2 The end-to-end offset process will be made digital to ensure speedy, transparent and
efficient management of offset obligations.
10.3 Offsets Ombudsman will be set up to resolve issues arising from claims of offset in a
fair, speedy and transparent manner.
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11. Tax
11.1 Tax regime will be rationalised to make domestic manufacturing attractive by ensuring
there is no tax inversion.
11.2 Taxes on import of capital goods and services, inputs and components used in defence
production will be rationalised in this regard.
12. Market Creation
12.1 Aggregation of demand over medium to long term will be the accepted broad policy for
attracting investment in major defence production areas. Aggregation of such demand
will help attract greater investment interest and reduce prices of identified goods and
services. Wherever feasible, aggregation of such demand will also be done across non-
defence sectors including the needs of internal security, civil aviation sector, shipping
sectors etc.
12.2 Wherever applicable, life time support for large platform will be included while inviting
bidders to set up production facility. This will enable setting up adequate facilities for
spare, repair and maintenance during the life-cycle of the platform.
13. Vendor Development and Outsourcing

13.1 OFB and DPSUs will focus on system integration, design and development, and will
actively engage domestic vendors in the private sector for other assembly work.
13.2 Similarly, private defence majors will also be encouraged to play the role of a System
Integrator and setup an extensive eco-system comprising development partners,
specialised vendors and suppliers, particularly from the MSME sector.
14. Infrastructure Development

Success of the policy is dependent upon a genuine partnership with industry, which
helps to build a robust defence eco-system and creates jobs across the country.
Towards this, following steps are envisaged:
14.1 Defence Industry Corridors: Two Defence industry Corridors will be set up in
collaboration with States to provide state-of-the-art infrastructure and facilities
for setting up defence production facilities.
14.1.1 These Defence Corridors will be built on existing defence production

facilities and will set up new industry clusters to create a synergistic
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supply chain of MSMEs and OEMs with necessary testing and
certification facilities, export facilitation centres, technology transfer
facilitation etc.
14.1.2 Govt of India will contribute 50% of assistance subject to a ceiling of Rs

3000 Crores to the SPV set up for development of each defence
corridor. The SPV will take up projects for creating necessary eco-
system for defence production in these corridors.
14.1.3 In each Defence Corridor, one major cluster of defence production units
around an anchor unit will be developed in one of the Nodes of the
Defence Corridor.
14.2 Testing Infrastructure
14.2.1 The existing with Defence organizations will be made available for
private industry use.
14.2.2 Government will also set up testing facilities for industry use, and/or
14.2.3 Create a scheme for providing 75% assistance to industry to set up

common testing facilities subject to a ceiling of Rs 100 crores per
facility. Detailed scheme will be notified later.
15. Boosting OFB and Public Sector
15.1 Government will support infusion of new technology/machineries in OFB/DPSUs to

enable them take up advanced manufacturing/development of futuristic weapons and
equipment.
15.2 OFB/DPSUs will be encouraged to increase productivity and timely execution of orders
by addressing issues of high inventory handling, greater vendor outsourcing, improving
skill levels, overall program management etc. Greater use of IT based systems including
systems for supply chain management customer relationship management, data
analytics, etc, will be adopted.
15.3 Ordnance Factories will be professionalized to make them competitive and improve their
productivity.
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15.4 Disinvestment of minority stake in DPSUs will be pursued.
15.5 DPSUs/OFB will explore acquisition of technology through mergers/acquisitions

globally.
15.6 Cyber security framework will be put in place for DPSUs and OFBs to prepare them for
leveraging capabilities of cyber space in their respective functions.
16. Standardization and Quality Assurance
16.1 The quality control process will be reviewed and aligned with the best global practices.
16.2 Simulation based testing will be encouraged and greater emphasis will be laid on
acceptance of certification from accredited laboratories.Towards this, DGQA will
promulgate a detailed list of environmental tests, which are supportable by
certification/simulation, for reference of industry.
16.3 Third-party and self-certification will be promoted across all platforms and throughout
value chain.
16.4 Pool of test beds/firing ranges/QA-QC labs will be mapped in the country and wherever
required new QA/QC and testing facilities/labs will be setup both in the Govt
departments as also the private sector.
17. Export Promotion
17.1 Defence Expo and Aero Expo will be positioned as major global events to showcase
India’s capabilities in defence manufacturing, as also to encourage exports.
17.2 Subject to strategic considerations, domestically manufactured defence products of both

public sector organisations and private industry will be promoted through Govt to Govt
agreements and Line of Credit/Funding.
17.3 Indian Offset Partners will be encouraged to take up export of parts and accessories
developed as part of offset process.
17.4 DPSUs/OFBs will set up export offices in countries having such potential with the
objective of promoting exports actively.
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17.5 Defence Export Organisation will be set up jointly with industry to promote export of
Indian defence products abroad.
17.6 The end-to-end export clearance process in the Department of Defence Production will
be made online and time-bound.
18. Innovation and R&D
18.1 While promoting the public sector based R&D ecosystem developed through DRDO
labs, efforts will be to create an active and healthy innovation and R&D ecosystem for
Defence technologies in partnership with the industry.
18.2 A High Level mechanism with involvement of Service organizations and HQIDS will be
set up for identifying capability voids and defining critical technologies required for
indigenous research/manufacturing in consultation with industry and academia. They
will provide advice regarding technology platforms, which should be developed in the
country in the medium and long term. Wherever required, Government will provide
support for development of such platforms.
18.3 R&D capability mapping will be done to identify defence related technologies. This
mapping will cover DRDO labs, other public sector laboratories, academic institutions
and industry.
18.4 Support will be given for speedily indigenising components/sub-assemblies from foreign
OEMs, which are used for manufacture of final products under licensed production in
the country.
18.5 Services/DPSUs/OFs have worked out formal arrangements for research with top end
technical institutions in the country. This initiative will be encouraged and will be
further spread to other academia/higher learning institutions to spur R & D in select
fields as well as to build indigenous capacities to undertake substantial technology
upgrades.
18.6 Centres of Excellence with industry participation and with Government support, will be
set up in niche areas to enable development of frontier technology areas with active
involvement of academia and R&D institutions.
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18.7 Competitive funded prototyping will be pursued during the design process to address the
multiple challenges of technical feasibility, affordability, producibility and
supportability.
19. Start-ups
19.1 Start-ups will be involved in the technology development in aerospace and defence
sectors.
19.2 Hackathons will be conducted on specific problem areas. Department of Defence

Production and DRDO will announce challenges for major defence R&D requirements
for institutions to participate with well-defined outcomes. An amount of Rs 1000 crores
will be allocated for this purpose for period 2018-2022.
19.3 A scheme entitled Innovation for Defence Excellence (iDeX) will be formulated which
will set up Defence Innovation Hubs throughout the country to provide necessary
incubation and infrastructure support to the start-ups in defence area. Wherever required,
private venture capital into the defence sector, especially for start-ups will be
encouraged.
19.4 Government will come up with appropriate policy for Start-ups in strategic areas to
monetise the newly developed technologies. The policy will, inter-alia, provide Right of
First Offer to Government to acquire the technology through appropriate market based
acquisition process.
19.5 An Intellectual Property Cell will be set up in Department of Defence Production for
promoting creation of Intellectual property in the sector. The Cell will, inter-alia,
provide legal and technical assistance for identifying and registering intellectual
property in aerospace and defence related sectors.
19.6 Priority will be given to registration of intellectual property involving national security
and defence and aerospace related technologies.
20. Aerospace
20.1 DDP will consult all stakeholders and explore possibility of a setting up an autonomous
National Aeronautical Commission, in line with Nuclear or Space Commissions tobring
focus onto following important areas:
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20.1.1 Leverage mutually beneficial links between military and civil aviation for
expansion and, importantly, indigenisation.
20.1.2 Bring together diverse agencies for synergies in technology development, basic
and fundamental research and production.
20.1.3 Create a scenario in which the benefits of a competitive environment are felt in
all areas of the economy as a whole and the defence economy in particular.
20.2 An Aeronautical University will be set up as an autonomous institution to promote

design, development and manufacturing industry in the country on a 50:50 cost-sharing
basis between Government and HAL.
20.3 Automotive component manufacturers and other similarly relevant industries will be
encouraged, through appropriate skill development and technology upgradation
initiatives, to transition to aerospace component design and manufacturing.
20.4 Financial and fiscal incentives will be provided for promoting MRO in aerospace sector.
20.5 Leveraging the design and manufacturing capabilities developed in the country for
developing various flying platforms, Government will develop civilian aircraft of 80 to
100 seats over the next 7 years.
20.6 Capacities to produce various platforms, including Light Combat Aircraft (LCA),
Advance Light Helicopter (ALH), Light Combat Helicopter (LCH), Light Utility
Helicopter (LUH), Dornier 228 will be augmented to meet the requirement of forces as
well as export. Appropriate models, including joint offshore manufacturing, will be
explored for global market.
20.7 Global majors will be encouraged to set up manufacturing capabilities of their platforms
in India, both to cater to domestic needs and export from India.
21. Electronics and Cyber Space
21.1 To leverage India’s strength in IT/software area and a program to incentivise

development of specific technologies relating to cyberspace will be formulated.
21.2 A Task Force involving experts from Industry, Academia, DRDO, and Government has
been set up to chalk out the strategic roadmap for Defence in the area of Artificial
Intelligence and Robotics has been set up recently. Necessary mechanism will be set up
to implement the recommendations.
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21.3 Support will be provided to strengthen cyber security infrastructure for defence related
systems in the country.
21.4 Secure communication devices, secure microprocessors and secure mobile phone
development will be supported.
21.5 Viability of chip-level fabrication (Silicon, GaN, etc) will be supported in collaboration
with similar efforts being taken up in Ministry of Electronics and IT.
22. Governance
22.1 Department of Defence Production (DDP), Ministry of Defence will be the nodal
department for implementation of the Defence Production Policy 2018.
22.2 Legal framework will be put in place to ensure that technology and other sensitive
information shared with industry is safeguarded and put in place. Trusted supply chains
will be encouraged in defence production ecosystems.
22.3 All AoNs involving domestic production will be reviewed by HQIDS in a time-bound
manner and their implementation expedited. Those AoNs where further progress is not
likely, will be appropriately closed and necessary steps to issue fresh AoNs initiated.
22.4 Awards and Recognition are currently available for DPSUs and OFBs. DDP will institute
similar awards and recognition for well-performing private industry and start-ups.
22.5 As far as possible, all requirements of forces will be manufactured domestically. Where
the capability to manufacture does not exist in Indian industry, transfer of technology or
enhanced FDI will be considered to enable domestic production. Imports will be
resorted only in exceptional situation.
22.6 The Government e-Marketplace (GeM) will be used for those items, which are repeatedly
required for needs of the forces and for which adequate supplier base exists.
22.7 State Governments will be encouraged to come up with State specific aerospace and
defence related policies to attract investment in this sector. Some states have already
taken the initiative in this regard.
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22.8 Department of Defence Production will hold regular interactions with all stakeholders,
including industry, to foster a partnership model for growth of aerospace and defence
sector in the country.
22.9 All stakeholders; DDP, Services, DRDO, DPSUs will conduct regular Outreach
Programmes in various parts of the country to interact with industry, especially
MSMEs, to spread awareness about the potential opportunities, as also understand the
challenges being faced by them. Setting-up of Zonal Liaison/Development Nodes will
also be considered.
22.10 Services will also be encouraged to hand-hold defence industry through continuous
interaction, sharing of information and arranging visits to repair establishments/field
depots for better understanding/appreciation of the requirements.
22.11 Public Procurement Order will be made applicable for procurement of those items in
Defence sector for which tenders are global and domestic production capability exists.
22.12 Institutional data collection mechanism regarding Aerospace and Defence industries in
the country, including production, export, import, will be put in place.
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Perspectives
Focus
India’s Defence Public Sector Undertakings: A

Performance Analysis Laxman Kumar Behera*
India has established eight Defence Public Sector Undertakings (DPSUs)

whose responsibility is to provide the Armed Forces state-of-the-art
equipments and at the same time enhance country's self-reliance in defence
production. However the performance of these Undertakings is not up to the
mark, resulting in import of arms worth billions of dollars every year. A
deeper insight into DPSUs' production profile reveals that most of them
are:
- over-dependent on external sources for the production needs, and
- have a very low labour productivity level,
- negligible export, and
- a low R&D base.
What the DPSUs need to do is to overcome these aspects and in turn
make India truly self-reliant in defence production.
Introduction
India has eight Defence Public Sector Undertakings (DPSUs) under the control
of Department of Defence Production, Ministry of Defence (MoD). These
Undertakings together with 39 Defence Ordnance Factories (OFs) form the
backbone of India's defence production, and are responsible for making India
self-sufficient in defence production. However, unlike the OFs which mostly
cater to the low-technology defence items, the DPSUs cater to the “strategic
requirements” of the Armed Forces. The items produced by DPSUS ranges from
“aircrafts to helicopters, warships, submarines, heavy vehicles and earth
movers, missiles, electronic devices and components, alloys and special
purpose steel.”1 In terms of value of production, DPSUs account for more than
65 per cent of the total industrial output of all defence public sector
enterprises, including Ordnance Factories. Over the years, the Undertakings
have grown both in size and as well as in their portfolio of items. However, the
growth of DPSUs in terms of range and depth of production has not
corroborated with the requirements of the Armed forces. This is evident from
huge arms import by India. This in turn raises the question on the capability
and efficiency of DPSUs in meeting the Armed Forces' requirements.
The paper makes an attempt to evaluate the performance of DPSUs over the
last decade or so. In particular, the papers examines the role of DPSUs in the
context of India's aim of self-reliance in defence production; DPSUs'
performance on account of value addition, indigenisation and exports.
* Laxman Kumar Behera is an Associate fellow at the Institute of Defence Studies and Analyses, New Delhi.
118 Journal of Defence Studies

Defence Public Sector Undertakings: An Overview
The eight DPSUs that India has established over the years are:
(1) Hindustan Aeronautics Limited (HAL), Bengaluru
(2) Bharat Electronics Limited (BEL), Bengaluru
(3) Bharat Earth Movers Limited (BEML), Bengaluru
(4) Bharat Dynamics limited (BDL), Hyderabad
(5) Mishra Dhatu Limited (MIDHANI), Hyderabad
(6) Goa Shipyard Limited (GSL), Goa
(7) Garden Reach Shipyards and Engineers Limited (GRSE), Kolkata and
(8) Mazagoan Dock limited (MDL), Mumbai.
Among these, HAL is the largest DPSU,
- Account for nearly half of DPSUs' production in 2006-07.
- Formed in 1964 by merger of Hindustan Aircraft Limited and Aeronautics
India Limited,
- Facilities spread across India including Nasik, Korwa, Kanpur, Koraput,
Lucknow, Bangalore and Hyderabad.
- HAL HF-24 Marut fighter-bomber was the first fighter aircraft made in India
- Design, manufacture, assembly and overhaul of fighters, aircraft, jet
engines, helicopters and their spare parts.
- By 2005-06, the company has produced around 3400 aircraft, 3600 aero
engines, and overhauled 8320 aircraft and 27,803 engines.
- At present it is involved in nine major projects related to design and
development and manufacturing. Design Projects include Intermediate Jet
Trainer, Light Combat Aircraft, ALH Weapon System Integration, Light
Combat Helicopter and Aircraft Upgrades (Jaguar, Sea Harrier); and
manufacturing Projects include SU-30 MKI aircraft, Jaguar single seater,
Advances Light Helicopter and Dornier 228.
- For the sustained performance, the Company was granted in June 2007 the
“Navratna Status” by the Government of India.
BEL, established at Bangalore in 1954 by the Ministry of Defence, is the
premier defence electronics company with nine production units
and 31 manufacturing divisions across seven states. From the initial
production,4 of Transceivers for Indian Army's radio communication
equipment, the organisation has evolved to have 350 products to its
credits,5 including high-tech products such as radars, sonars, communication
equipment, electronics warfare equipment, opto electronics, tank
electronics, and components, among others.
The Company won the SCOPE (Standing Conference of Public
Enterprises) for the products developed such as “Battlefield Surveillance
System, Artillery Combat Command & Control System, ATM-based Integrated
Ship-borne Data Network, Frequency Hopping Radios, Secured Hand-held
VHF/UHF Radios and Upgraded Electronic Voting Machine.”6 Recently, the
company handed over three-dimensional multifunction medium range
surveillance radar 'Rohini', to the Indian Air Force (IAF).7 While defence
forces remain the prime customers of BEL, others such as para-military
organisations (Border Security Force, Assam Rifles, and Central Industrial
Force) and civilian customers (BSNL, AAI, ECI) also use its product.
Between 1999-2000 and 2003-04, BEL's defence sales accounted for nearly
75 per cent.
Vol 3. No 4. October 2009 119

Laxman Kumar Behera
BEML, which came into being in 1964, commenced its operation nearly one
year later, with productions of rail coaches and assembly of space parts at its
Bangalore unit. The company with three product segments – Mining &
Construction Equipment, Defence Equipment & Aggregates and Railway
Rolling Stock, caters to the core needs of the industry (mining, irrigation, steel,
cement, power plants, infrastructure, etc), defence services (trucks, diesel
engines, and earth movers), and Railways. The defence sector, 9however,
contributes much less to total sales, compared to its civilian business. In 2005-
06, defence segment accounted for 32 per cent of total turnover.10
BDL was carved out of Defence Research and Development Organisation

11
(DRDO) and establishment as a separate DPSU in 1970. It builds strategic and
tactical missiles and allied equipments, either under the license or
technologies supplied by the DRDO. Its license-manufactured products include
Milan (France) and Konkurs (Russia) anti-tank guided missiles (ATGM). The
company got into prominence with the launch of India's Integrated Guided
Missile Programme (IGMP), in early 1980s.12 Under the programme, BDL was
the production agency. It has so far supplied to the Indian armed forces both the
land and naval versions of Prithvi missiles (150 km and 250 km); and Agni I & II
13
(700 Km and more than 2000 km). In addition to above, BDL is also involved in
a number of other DRDO projects, such as K-15 (submarine launched ballistic
missile, SLBM) and ASTRA beyond visual air-to-air missile.14
Among the three shipbuilders under MoD, MDL is the largest one, in terms of
product range, value of production, and number of employees.15 The company
was mainly a ship repair yard when it taken over by the government of India
from private owners in 1960.16 Since then it has expanded its activities to
shipbuilding, ship repair and construction of offshore platforms. Its present
capacity is to build warships upto 6,500 tonne displacement and merchant
ships upto 27,000 DWT. In defence sector it specialises in design, construction
and support of naval ships such as destroyers, frigates, missiles boats, offshore
patrol vessels and submarines. Till late 2008, MDL has made 196 ships and is
currently making a total of 14 ships,17including 3 frigates, three destroyers and
six submarines for the Indian Navy. It is the only shipyard in the country and
among few companies in the world to build a submarine.18 In civilian sector it
supplies cargo and passenger ships, supply vessels, and various types of small
crafts. In the export sector, the Company has bagged an order for design,
construction and supply of Multipurpose Support Vessels (MSVs) from a
Singapore based company.19 The company's order book includes, inter alia,
three P-17 class stealth frigates and three P15A destroyers for the Indian20Navy.
The combined projected cost for these projects is nearly Rs. 20, 000 crore.

India’s Defence Public Sector Undertakings: A Performance Analysis
GRSE was taken over by the government of India in 196021 to develop a

second line of shipbuilding facility. It is the only shipbuilder in India and
among few in the world, to have its own engineering and engine
manufacturing division. The company's products include frigates, ASW and
missile corvettes, Landing Ship Tanks, fast patrol vessels, survey vessels, etc
for the navy and coast guard.
GSL, established in 1957 under the name of “Estaleiros Navais De Goa”, is the
largest enterprise on the West Coast of India, employing about 1600 people.22
So far it has built and delivered 181 ships to navy,
The product range coast guard and private sector. The product range of
GSL include 105 meter (m) advance offshore patrol
of GSL include 105 vessels, 90m offshore patrol vessels, 50m fast patrol
meter (m) advance vessels, missile boats, etc. The company has not
offshore patrol performed consistently over the years, showing high
fluctuations in its turnovers. The company also
vessels, 90m performs poorly in exporting its products. Recent
offshore patrol data shows the company in last over a decade has
vessels, 50m fast been succeeded in bagged export orders for supply
of three Harbour Tugs to Royal Navy of Oman.23 The
patrol vessels, company also relies heavily on the private sector for
missile boats, etc. the construction of ships. In the defence sector, the
private industry is involved upto 90 per cent for
construction activities.24
MIDHANI was incorporated as a PSU in 1973 to achieve self-reliance in areas of

special steels, superalloys, titanium alloys which form the core needs not only
of the defence but of space and atomic energy programmes. In the defence
sector, MIDHANI is responsible for indigenisation of technologies and products
to support programmes such as T-72 and MBT Arjun, Kaveri engines (of LCA),
Advanced Technology Vessels, MiG, etc. In 2006-07, Defence and Space sector
accounted for 75 per cent of its total suppliers.25
Self-Reliance in Defence Production: The Role of DPSUs
The necessity of establishing DPSUs was to meet advanced weapons and

equipments required by the armed forces, and work towards the goal of self-
reliance in defence production.26 In fact, these aspects have repeatedly been
stated by the Ministry of Defence in its various annual reports. The Annual
Report of 1980-81 of the MoD has even gone to extent of stating complete self-
reliance in defence production and eliminations of technology imports within
next 10 to 15 years.27 In other words, India, by 1995, would have achieved total
self-reliance in defence production with no import of technology from
overseas. Though the above objective looks ambitious, the question is as to
what extent these have been fulfilled.

Laxman Kumar Behera
Self reliance was defined as the percentage share of indigenous content in the
total expenditure on procurement in a given year. By this definition, self-
reliance, which was 30 per cent in 1992-93, was planned to go upto 70 per cent
by 2005. However, at the end of 2005, the index barely moved upward from the
1992-93 level.28 This shows the failure of domestic efforts by both OFs and
DPSUs to provide required armaments to the Armed Forces, which in turn led
to increased imports from external sources.
The DPSUs are the major providers of advanced systems to defence forces and
are largely responsible for India's poor achievements in self-reliance. From the
budgetary perspective the poor contributions of DPSUs are also reflected in
their decreasing share in India's capital acquisition budget, which nearly
accounts for 80 per cent of India's capital expenditure. As the table below
shows the share of DPSUs has decreased from as high as 61 per cent in 1999-
2000 to low 29 per cent in 2004-05.
29
As regards eliminations of arms imports or technologies associated thereof,

India on the contrary is heavily dependent on foreign suppliers. According to
SIPRI (Stockholm International Peace Research Institute) Arms Transfer
Database, India's arms imports in real terms totalled nearly US $18 billion
between 1995 and 2007, with Russian contribution accounting for more than
70 per cent.30 Moreover, between 1999 and 2006, India, according to a 2007 US
Congressional Research Service (CRS) Report, topped the list of arms
importers among the developing countries, with agreements over US $22
billion31 (the 2008 Report puts the figure at US$ 31.9 billion for the period

2000-200732). On an annual basis, 33 India's defence The DPSUs are the

import is to the tune of $5-6 billion. The weapons major providers of
and systems that Indian has imported and or
negotiated, more importantly, fall in the domains of advanced systems
the DPSUs activities. A select list of arms imports to defence forces
along with supplier and the domain of DPSUs is and are largely
placed below. The above are the indication of
collective failure of DPSUs to provide required responsible for
systems to the Armed Forces. India's poor
achievements in
self-reliance.
Table-2
Select Arms Acquisition and Domain of DPSUs
Designation (Classification) Supplier Domain of DPSU
Su-30 (FGA)* Russia HAL
Scorpene (SSK)* France MDL
C-130J-30(Transport aircraft) US USHAL
INS Jalaswa (AALS) US MDL/GRSE/GSL
Derby (BVRAAM) ISRAEL IBDL
Ajit Hawk* UK HAL
*: These items are also licence-produced by respective DPSUs

Sources: Military Balance 2008, MoD Press Releases, and Media Reports
Performance of DPSUs
The DPSUs in India are under the control of MoD, and are largely the production
agencies to produce items mostly assigned to them, some times on a
nomination basis. In this context their performance evaluation is bit difficult.
Nonetheless, the attempt here is made to evaluate the performance on the basis
of three parameters: value addition, export performance and labour
productivity.
Little Value Addition & High Dependence on External Sources
The value addition (VA) of all DPSUs as a percentage of their total value of

Laxman Kumar Behera
production (VoP) has in last 10 years decreased from high of 51 per cent to low
of 38 per cent, notwithstanding the fact that the combined VoP of DPSUs has
witnessed a near continuous growth over the same period (Figure-1).
Though the eight DPSUs have increased their total value of production, their
dependence on external sources for production requirements, have also
increased significantly. The dependence on external sources could be the one
reason behind the progressively deceasing value
addition by the DPSUs. HAL, the biggest DPSU, is a
Though the eight case in point. Its value addition in the past decade has
DPSUs have increased by more than two-and-a-half times from
Rs. 341166.13 crore in 1997-98 to 3221.48 in 2006-
increased their 07. However, its VA as percentage of VoP has
total value of decreased from 68 per cent in 1999-2000 to 35 per
production, their cent in 2006-07. It is to be noted that HAL in the
meantime is involved in the manufacturing of Su-30
dependence on MKI35 and Jaguar aircrafts, Light Combat Aircraft
external sources (LCA), Dornier-228, and Advanced Light 36
Helicopter
for production (ALH) among other high-value items.
requirements, have
The dependence on external sources is across the
also increased DPSUs, from the biggest one (HAL) to the smallest
significantly. one, i.e., MIDHANI.37 It is to be noted that the DPSUs
missile boats, etc. are the production agencies, the technologies are
either provided by external agencies or by the DRDO.
For instance, HAL produces Su-30, AJT-Hawk etc
under licence from Russia and the UK, respectively.
For production of these items along with its other
activities, the company's dependence on raw materials, components and spare
parts, and capital goods is to the extent of 74 per cent, of which import content

is about 80-90 per cent. In last two years (2005-06 and 2006-07) its value of
imports totalled Rs. 4,753 crore and Rs. 6,715 crore, which are nearly 73 and 80
38
per cent of its total cost of VoP, respectively. Compared to HAL, BEL's
dependence on external sources is far less. In the last two years, the foreign
exchange outgo was to the extent of 36-37 per cent of its total value of
production.
Unlike HAL, few other DPSUs do provide the break up, in value terms, of import
and indigenous content. Some of them however provide volume of foreign
exchange outgo in each financial year. The foreign exchange outgoes are mostly
on account “of import of production requirements”, as is the clear case with
BDL.39 The foreign exchange outgo of BDL in 2007-08 was Rs. 287.74 crore, of
which 99.9 per cent (Rs.287.45 crore) was for import of production materials.40
This represents nearly 57 per cent of total VOP in 2007-08.
The above high dependence on external sources for production requirements

run contrary to many DPSUs' idea of achieving greater self-reliance and
41
“substantial cost reduction through indigenisation.” More importantly,
resorting to import route is not due to the “economic reasons rather due to the
lack of commitment for indigenisation”.42
The high dependence on external sources could be due to several factors, one
being the little in-house R&D efforts by the DPSUs. A Review of expenditures in
2006-07 by DPSUs reveals that the Undertakings spend around four percent of
their turnovers and five per cent of their annual sales on R&D. However,
dedicated R&D efforts are not across the DPSUs; half of eight Undertakings do
not spend anything on R&D (see Table- 3).

Laxman Kumar Behera
As the table above shows, HAL and BEL are two companies with noticeable
R&D efforts. HAL, which spends the highest percentage of its production or
sales values, is however, dependence much of its production requirements on
others.
Low Labour Productivity
DPSUs in general suffer from low productivity compared to their counterparts

in the global defence industry. The top five arms producing companies in the
world together have an average labour productivity of $0.3 million;43 where as
the eight DPSUs' combined productivity is less than $0.06 million.
Meagre Exports
Among the DPSUs, three – HAL, BEML and BEL – have been successful in
entering into defence exports, though the volume of exports can be termed
meagre in comparison to global standard. HAL is so far is biggest exporter
among DPSUs, accounting for nearly 64 per cent of total exports in 2006-07. In
value terms, HAL's exports have grown from Rs. 103.89 crores in 2002-03 to Rs.
341 crores in 2007-08.44 During 2006-07, HAL booked export orders worth Rs.
501.10 crore. As per the perspective plan of the company, the export target is to
reach Rs. 500 crore by 2011-12. The areas in which HAL has established its
foothold in international market include aero-structures – supplied to Boeing
of USA and Aerospatiale, France – and “spares and services for a variety of
military and civil aircraft, engine, equipment, spares and devices.” In addition,
HAL has been successful in terms of entering export market in the area of
Computer Aided Design (CAD) Modelling and Services. HAL's biggest
achievement in exports perhaps came in 2008, when it won two bids worth
over US $ 70 million from Ecuador and Turkey for supply of Advanced Light

Helicopters, Dhruv.45 The order with Ecuador was worth US $ 50.7 million.
According to a MoD Press Release, HAL won the bid “amidst strong
competition” from other established international players and its bid was
“about 32 per cent lower than the second lowest bid.”46
BEL's exports have increased from Rs. 48.12 crores in 2002-03 to Rs 57.1 crores
in 2007-08.47 BEL has exported to countries such as USA, Israel, Indonesia,
Ireland, Honduras and Surinam. During 2007-08, the Company bagged a “high
value” export order worth US $ 9.0 million from Honduras. As on 1st48 April,
2008, the Company has an export order book of US $ 19.68 million. BEL-
manufactured items that have been exported in last two years include, among
others, Satellite Radios (to US), Satellite Communication equipment (to
Nigeria), HF Radios (to49Suriname), Vacuum Interrupter Tubes and Magnetrons
(to various countries) , data display unit and accessories, Small Arms Training
Simulator, Radar Warning Receiver for MIG 29 fighter upgrade programme,
Non Eye Safe and Eye Safe Laser Range Finder, Radar spares, X-Ray parts, and
Small Signal Devices, Power Devices.50
BEML has the unique distinction of exporting to more than 50 counties,

including UK, South Africa, and in Middle East.51 In 2006-07 it made inroads for
the first time in countries such as Indonesia, China, Thailand, Oman, Saudi
Arabia, Zimbabwe, Sudan and Myanmar.52 In last 10 years, BEML's exports have
exceeded Rs.1, 093 crores, including Rs.200.62 crores in 2007-08.53 The
product of the Company has been found greater
acceptance in few counties like Syria and Tunisia,
which have placed repeat orders on the Company.54 The low export
base of DPSU can
The overall performance of DPSUs on account of
exports is not so satisfactory, especially in be ascribed to a
comparison to global defence majors. In 2006, the number of factors,
estimated international arms trade was in excess of such as quality of
US $ 45.6 billion.55 DPSUs' total exports in 2006-07 product offered,
amounted to Rs. 422.71 crores. This along with
exports of Ordnance Factories' Rs. 13.08 crores 56
marketing strategy,
57
stands at approximately at US$97 million. As among others.
mentioned earlier, among the DPSUs, only three have
exports of any significance. But their exports as
percentage of VoP and total sales (see Table) are
below international standard. For instance, Lockheed Martin, the biggest
defence company in the world in terms of defence revenues in 200758,
59
generated over 16 per cent of its total revenue through exports.
The low export base of DPSU can be ascribed to a number of factors, such as
quality of product offered, marketing strategy, among others. As far as the latter
is concerned, DPSUs, especially the shipyards are way behind. Goa Shipyard

Laxman Kumar Behera
60
Limited (GSL), which has made no exports between 1999-00 and 2006-07, is a
clear example. Though the shipyard's export offers to at least nine counties61
were “considered favourably” the offers could not be materialised “for want of
financial assistance” required by the importing countries. MDL also face
similar situation while promoting its ships in international market.
Conclusion
The value of production across the DPSUs has no doubt increased over the past
decade or so. However, the Undertakings have not been able to arms the
defence forces, resulting in huge arms imports, to the tune of over US $ 5-6
billion per year. The failure of DPSUs in producing systems required by the
Armed Forces defeats the self-reliance objective set out by the government a
long time ago.
Though the volume of production by DPSUs has increased over the years, the
value addition by them has progressively decreased. This in turn indicates
larger the production value, lower the value addition. A deeper insight into
companies' production profile reveals that most of DPSUs are over-dependent
on external sources for raw material, components and spare parts, and capital
goods for the production requirements. The over dependency is not costly, but
raises the fundamental question of strategic importance of some of DPSUs.
The export performance of DPSUs taken together is below the three per cent
of total value of production or total value of sales. On the other hand, the
global defence majors generate as much as 10-15 per cent of their revenue
from exports. Some of the DPSUs do not have any exports despite several
efforts. The low export base contradicts the cost-effectiveness of the some of
the companies like HAL which has been able to successfully compete against
established international players to export its items. What India needs is an
aggressive export policy, backed by favourable incentives to some importing
counties who find Indian products attractive but turn their back due to lack
of availability of any cheap credit.
Crippling the Trinidad and Tobago Defence

Force
Sanjay Badri-Maharaj April 09, 2018
By the end of 2016, the Trinidad and Tobago Defence Force (TTDF) was experiencing a
rejuvenation occasioned by an infusion of new equipment, support packages and adequate
budgetary support. Between 2011 and 2016, the strength of the TTDF reached over 4600
active personnel and over six hundred reservists. The Trinidad and Tobago Coast Guard
(TTCG) saw the induction of seven large patrol vessels, the Trinidad and Tobago Air Guard
(TTAG) saw the acquisition of four AW 139 helicopters and contracts were signed for the
procurement of four Bell 429 and one Bell 412EPI helicopters to augment the National
Operations Centre (NOC) Air Division. New equipment for the Trinidad and Tobago Regiment
(TTR) in the form of armoured personnel carriers was in the offing with contracts nearing
signature.
Two years later, the situation could not be more different. The Air Guard’s AW 139s have been
grounded for over a year for want of funds for maintenance, no payment has been
forthcoming for the Bell helicopters and the APCs never materialized for the Regiment. More
seriously, however, has been the failure to pay fuel bills leading to a drastic curtailment of
Coast Guard operations as well as a cut in flying hours for the NOC Air Division. Most
recently, there have been severe cutbacks in rations for the enlisted personnel of the
Regiment with poor quality of food emerging as a major complaint.
Budget woes
In the 2015-2016 budget, some TTD 10.8 billion dollars (approximately USD 1.7 billion) was
allocated to the Ministry of National Security. While the lion’s share was allocated to the 7000
strong Trinidad and Tobago Police Service (TTPS), there was ample allocation to the TTDF
and the NOC. Since then, and indicative of the country’s economic woes occasioned by the
2015 collapse in international oil prices, the national security budget has been severely
curtailed with an allocation of only TTD 7.625 billion (approximately USD 1.17 billion) being
made in the 2016-2017 budget and even that sum being reduced to TTD 6.4 billion (less than
USD 1 billion) in the 2017-2018 budget.1
While salaries continue to be paid – relatively lavish by the standards of both the non-energy
sector in both the public and private sectors – the budgetary cuts have disproportionately
affected operational assets and logistical support. The TTDF continues to recruit personnel
into the Regiment and Coast Guard to plug existing vacancies but the logic of such
recruitment is questionable given that the planned recruitment efforts will bring little
improvement to operational or maintenance and support capabilities.
Air operations curtailed

The TTAG acquired four AW 139 helicopters during 2010-2011. However, on June 29, 2017,
in an unexpected decision, especially after investing over USD 348 million in the acquisition of
the helicopters and the training of personnel, the government of Trinidad and Tobago decided
that it could no longer afford the annual maintenance costs of the helicopters amounting to
some USD 29 million.2 Despite the fact that the TTAG’s AW 139 squadron had won awards
for humanitarian assistance — and despite two previous administrations being committed to
keeping the aircraft airworthy, the cost of maintaining the helicopters was deemed excessive.3
Since the TTAG remained entirely dependent on external contractors for the maintenance of
the AW139s, they have been grounded since June 2017 in a closed hangar at the Ulric Cross
Air Station at Piarco International Airport
This decision has effectively meant the grounding of the TTAG as its two ageing C-26 aircraft
are rarely operational and in dire need of replacement. The inability of Trinidad to create a
local maintenance infrastructure has now come to haunt the TTAG and its continuing
existence may be doubtful as its separate establishment and attendant administrative costs
may no longer be deemed warranted.
While the TTAG grapples to justify its existence, Trinidad’s other national security helicopter
unit, the NOC Air Division – is facing severe challenges of its own. Flying hours have been
savagely cut from over three hundred hours per year on average per pilot, to under one
hundred with standing air surveillance patrols coming to a halt.4 While at least part of the
reduction in flying hours has been caused by curtailing the use of the NOC Air Division
helicopters as VIP transports, the cuts to air patrols have proved to be detrimental to the unit’s
response time to incidents.
This situation has been worsened by the failure to completely integrate Harris secure
communications suites before the removal of earlier Motorola equipment leading to a virtual
breakdown in real-time communication between the Air Division’s helicopters and ground
units. In addition, and somewhat inexplicably, the night-surveillance systems fitted to the
NOC’s three helicopters (a single AS.355 and two Bo.105) is now non-operational and have
been removed from the aircraft pending repairs which have not taken place to date – the
equipment remaining in boxes at the Air Division’s base in Central Trinidad.
An attempt to replace the NOC Air Division’s ageing assets with a new fleet of four Bell 429
and one Bell 412EPI helicopters has become embroiled in a dispute with the government
facing legal action over non-payment for both the helicopters and a special hangar for the
aircraft.5 Compounding these equipment issues was the non-payment of salaries to pilots
which led to a “sick-out” by aircrew, effectively grounding the Air Division briefly while the
government sought to make the requisite payments.6
TTCG and TTR – Food and Fuel Fiasco

In October 2017, the TTCG was at the forefront of efforts to provide relief to the hurricane
ravaged island of Dominica. Deploying no fewer than three vessels to the Dominica relief
effort, the TTCG’s fleet of Damen patrol and utility vessels alongside its largest vessel, the
79m OPV purchased from China, delivered much needed assistance to Dominica, earning
much local praise. The first vessel dispatched was the Damen SPa 5009 vessel TTS Moruga
which transported "food, water, generators and a 21-member disaster relief team which
assisted in securing and managing the distribution of relief items.7 Subsequently the Damen
FCS 5009 TTS Brighton and the TTS Nelson II were also dispatched to provide further
disaster relief.8
This relatively intense deployment masked a major problem within the TTCG as fuel, obtained
on credit, was not being paid for. As a result, despite its activity during the Dominica relief
effort, the TTCG has been unable to pay for a regular supply of fuel for its vessels. This has
meant that the formation lacks the ability to deploy its eight large patrol vessels effectively and
cannot conduct sustained operations even in Trinidad’s coastal waters.9 At most, limited
deployments are undertaken by lone vessels with other ships being operational but not sent
out to sea.
A more pressing issue, plaguing both the TTCG and the TTR relates to the quality and
quantity of food supplied to personnel on duty. The TTCG has already cut working hours of a
substantial number of personnel to between 0830 and 1300hrs daily to avoid needing to feed
them breakfast or lunch.10 In addition, personnel going to sea are apparently provided with
either no rations or inadequate rations leading many to purchase their own food supplies for
such deployments.11
In the case of the TTR, the budget for rations has been cut from TTD 17 million
(approximately USD 2.5 million) in 2017 to TTD 4 million (approximately USD 0.8 million) for
2018. This has led to a spate of discontent over poor quality food being supplied to soldiers
despite salary deductions amounting to nearly one-third of their basic pay for rations
monthly.12 What has provoked great concern among enlisted personnel in both the TTR and
TTCG is the fact that the food supplied to the officer corps is of substantially better quality and
quantity, with the officers’ messes and wardrooms being lavishly supplied while basic
commodities such as tea and coffee are missing from the ration rooms of the enlisted
personnel.13
A potential crisis – Sensitive leadership is

needed
The current situation is exacerbated by an apparently widening distrust between officers and
enlisted personnel. The TTR mutinied once in 1970, at least in part because of a breakdown
in trust between senior officers and junior personnel. While there is no indication that such a
mutiny is in the offing, the chorus of complaints and frustration seems to be mounting as the
TTDF seems incapable of meeting either its operational commitments or care for its personnel
adequately.
At a time when budgetary support is not forthcoming, it is incumbent on the TTDF leadership
– and the Chief of Defence Staff in particular – to be sensitive to the complaints of the enlisted
personnel under their command. Furthermore, middle-rank and junior officers will need to
display greater concern towards their subordinates and to ensure that any cuts are borne
equally by both the officer corps and other ranks. Unfortunately, there is a legitimate concern
that the TTDF officer corps has become somewhat self-centred and too many officers lack the
requisite leadership qualities to deal with the concerns of those they command.14 It remains
to be seen whether the TTDF officer corps can rise to the occasion and preserve the
operational capability of the force as well as address the concerns being expressed by their
subordinates.
Oli’s India visit: Resetting bilateral relations for

mutual benefit
Nihar R Nayak April 11, 2018
After a brief interlude of turbulent bilateral relations starting September 2015, a U-turn appears to have
been effected in India-Nepal relations after the December 2017 elections in Nepal. Prime Minister Modi
congratulated the top three political leaders of Nepal over telephone on December 21 for holding the
elections successfully. Exactly a month later, he congratulated the UML chairman and then PM-in-
waiting KP Sharma Oli over the UML-led left alliance attaining a majority in Parliament and offered
India’s unconditional support for and commitment to work with the new government in Kathmandu. As
part of confidence building measures, on February 1, Modi sent External Affairs Minister Sushma Swaraj
as special envoy to discuss bilateral relations with the left alliance leaders, and especially with Oli.
Media reports indicated that the Swaraj visit took place upon a special request from Oli to Modi. During
that visit, Swaraj conveyed Modi’s message and also invited Oli to undertake an official visit to New
Delhi after assuming office.
Visit outcomes
The U-turn culminated in Prime Minister Oli’s three-day official visit to New Delhi starting April 6. The
visit is widely rated as most successful and historical. In contrast to Oli’s previous visit in February 2016,
as well as to the visits made by Prachanda and Deuba in September 2016 and August 2017,
respectively, the current visit of Oli has been characterised as remarkably different. First, Oli was
received at the airport by Union Home Minister Rajnath Singh, who is second in rank in the Modi
cabinet. Second, not only was Oli’s first foreign visit to India but even his first official meeting as PM
took place with Indian business leaders on which occasion he invited Indian investors to Nepal. Third,
the two leaders held a one-on-one meeting for over one hour at Modi’s residence before the delegation
level meeting. Such one-on-one meetings rarely happen during visits of high level delegations to India.
Fourth, other than the 12-point regular joint statement, three special statements on agriculture, rail
linkages up to Kathmandu, and inland waterways, were issued during the visit. Fifth, for the first time in
the last three years, the joint statement did not mention internal issues of Nepal such as amendments to
the new constitution, inclusion of minorities, Madhesi, etc. Last, but not the least, both leaders found
synchronization between their favourite development frameworks - ‘Sabka Sath Sabka Bikas’ and
‘Samriddha Nepal Sukhi Nepali’.
Purpose of the visit

The principal purpose of the visit was to remove the mistrust that had emerged in bilateral relations in
the wake of Nepal’s adoption of the new constitution and India’s reservations about some of its
provisions. The relationship had reached a new low when Nepal unilaterally recalled its ambassador and
cancelled its President’s India visit in May 2016. A thaw emerged only after the completion of the
Parliamentary elections in December 2017. While addressing Nepal’s Parliament before his three-day
India visit, Oli said that “the visit is aimed at deepening the relations that have subsisted between Nepal
and India since ages.” From the Nepali point of view, the other purposes of the visit could have been to
seek India’s support for economic development, move forward on the implementation of past
agreements and ensure a mutually cooperative relationship. Nepal also wanted to re-frame its bilateral
relationship with India in the context of recent domestic and regional developments.
Mutual feeling to mend relations
For its part, India too undertook unilateral steps towards course-correction. This, despite all those
internal issues in Nepal that had created the rift in bilateral relations, remaining unaddressed. There
could be many reasons for India’s course correction. First, since India values democracy, Modi
personally felt that the public mandate in favour of the UML-led left alliance needs to be respected and
that India should support institution building in Nepal under a popular government. Second, this
realization in New Delhi may have also been occasioned by changes at the bureaucratic level — those
officials who dealt with Nepal affairs ever since the constitutional promulgation process had left their
desks in the foreign office and agencies from March 2017 onwards. It is possible that new officials
posted in key positions and tasked with following Nepal perhaps started looking at the bilateral
relationship from a different perspective. Third, domestically, Modi came under tremendous pressure to
improve relations with neighbouring countries and especially with Nepal with which India shares a multi-
layered relationship. The Indian media was particularly critical of Modi’s Nepal policy in the post-
constitution period. Fourth, the more than 70 per cent voter turnout and the active participation of
Madhesis and Janajatis in Nepal’s three level elections – local, provincial and federal – under the new
constitution forced India to revisit its earlier position, shed reservations on the constitution and modify
policy towards Nepal.
Even as India reached out to the new government in Kathmandu, the Oli government had its own
reasons to respond positively to the Indian overtures. First, it needed massive developmental assistance
to fulfil its poll promises like roads, rural electrification, drinking water, irrigation, jobs, hospitals,
industrial zones, railways and airports. Despite China’s increasing economic cooperation with Nepal,
India continues to remain Nepal’s largest trading and business partner. Further, India is the only transit
country for Nepal’s third country trade despite having signed a transit agreement with China in March
2016. Second, the Oli government also realized the requirement for massive funds to implement
federalism through the creation of the necessary administrative infrastructure in the provincial capitals.
Since China opposed federalism in Nepal, the Oli government was not sure about receiving Chinese
financial support for that purpose. Therefore, it decided to explore the prospects for India’s support in
this regard. And third, politically, Oli might have felt that rapprochement with India could prevent the
formation of a non-UML government in Kathmandu given the slow progress in unification of the two left
parties and intra-party factionalism in the UML. If such a situation were to unfold, Oli could seek the
support of the Terai based parties to remain in power.
Trilateral cooperation
Therefore, despite winning the elections on a nationalist plank by projecting India as an interfering
neighbour, Oli chose New Delhi as his first port of call. He was well aware of India’s obsession about
every new Nepali PM undertaking the first official visit to India. He could undertake the visit with
confidence without being apprehensive of its fall-out on Nepal’s relationship with China because the
latter, in a statement issued in March 2018, appreciated Nepal’s effort towards adopting an independent
foreign policy and “developing friendly and positive relations with its neighbours." Earlier, China had also
advised Nepal to maintain good relations with India. Chinese analysts argue that such a rapprochement
between New Delhi and Kathmandu could create the ground for trilateral cooperation and successful
implementation of BRI projects in the Himalayas.
Challenges
No doubt, the purposes of the visit have been achieved and a new phase of relationship has begun with
India acknowledging Nepal as an ‘equal partner’. While the visit has set a new tone in the relationship, it
has also brought fresh challenges to the fore in terms of each country addressing the other’s concerns.
Certainly, the challenges are more for India than they are for Nepal. There is a trust deficit in Nepal
because of the Indian reputation for delaying implementation of various projects. This has sent a wrong
message in Nepal that the delays are deliberate. After Oli’s latest visit, which has created new
expectations in Nepal, India needs to seriously address this problem of delivery-lag.
Shanghai spirit - The core value of the SCO has played a significant role in safeguarding regional security and
promoting regional development. The SCO’s undergirding values, which features mutual trust,
mutual respect, equality, respect for diverse civilizations and pursuit of shared development, was born
together with the Shanghai Five mechanism, the precursor of the SCO. In 2001, the SCO came into being after
Uzbekistan formally joined the Shanghai Five, which were China, Kazakhstan, Kyrgyzstan, Russia and Tajikistan
at that time. The Shanghai Spirit then became the guideline for the SCO cooperation.
RATS - The Regional Anti-Terrorist Structure (RATS), headquartered in Tashkent, Uzbekistan, is a permanent
organ of the SCO which serves to promote cooperation of member states against the 3 evils of terrorism,
separatism and extremism. The Head of RATS is elected to a three-year term. Each member state also sends a
permanent representative to RATS. The official working languages of the SCO are Chinese and Russian.
Raksha Mantri to Pursue India’s Defence Cooperation

Agenda in SCO P. Stobdan April 16, 2018
Defence Minister Nirmala Sitharaman is scheduled to attend the
Shanghai Cooperation Organisation’s Annual Defence Ministerial Meeting to be held in Beijing on April
24. This is the first time that an Indian Defence Minister will be attending such a meeting, which will have
the participation of SCO’s Secretary-General and Director, Executive Committee of RATS. The meeting
reviews pressing global and regional security matters, coordinates action plans, and issues a Joint
Communiqué.
The meeting will certainly offer an opportunity to reset India-China ties especially after last year’s 73-
day long standoff at Doklam. National Security Advisor Ajit Doval has just returned from Shanghai
after meeting with the Chinese Politburo member Yang Jiechi on 13 April – both agreed to set ties on
track in a comprehensive way.
The critical point is whether India is willing to join the SCO’s defence solidarity and coordination
efforts defined under the “Shanghai Spirit”.
The agenda this year is to hold a Fanfare for Peace Military Tattoo in China and Peace
Mission 2018, the Joint Counter Terrorism Military Exercise in Russia. India was part of this decision
taken early this year when an Indian military delegation led by Major General Ajay Seth participated
for the first time in a meeting of the international military cooperation departments of the SCO since
joining the bloc last year.
Importantly, India and Pakistan also joined an anti-cyber-terrorism drill in Xiamen organised by the
SCO Regional Anti-Terrorist Structure (RATS) last December. It was designed to improve
coordination in a scenario dealing with a terrorist group that had infiltrated into SCO countries.
Apparently, Pakistan and India expressed willingness to actively participate in defence and security
cooperation within the SCO framework to contribute to regional security and stability.
The SCO’s common security threats were conceptualised as fighting against the “Three-evils”. Article
6 of RATS stipulates action by SCO Parties to deal with the three-evils including sharing of
intelligence on extremist groups and individuals. RATS is based in Tashkent, and gathers information
on terror networks, spread of ideology and propaganda, cross-border organised crime, and terrorist
financing and money laundering. So far, it has seemingly curbed over 500 terrorist crimes, eliminated
over 440 training bases; caught 1050 international terrorists. It maintains a list of terrorist outfits that
are banned in the SCO space.
The focus this time is expected to be on anti-terrorism cooperation. Significantly, SCO adopted a
draft convention last year on a single consolidated legal framework on terrorism, terrorist acts and
terrorist organisations. The Astana Declaration last year expressed agreement to cooperate against
individuals and legal entities related to the recruitment, training and employment of terrorists.
Importantly, the SCO holds the Annual “Peace Mission” or “anti-terrorist” drills, which focus on the
anti-terror command, coordination and combat readiness. Currently, Russian and Chinese are the
common operating language for military exercises. Whether English will be added to improve
interoperability (after the entry of India and Pakistan) is yet to be seen.
SCO also holds the military music festival "Trumpet of Peace” with military bands participating from
member States.
The 2017 defence ministerial meeting decided to study and preserve the historical and cultural
heritage. It also confers awards on people who contribute to strengthening better cooperation
between the organisation's defence ministries.
Defence Ministers normally use the SCO to highlight their respective security and strategic concerns.
Examples include: Russia’s position on the Syrian conflict; and China’s position on the South China
Sea issue, garnering support for its "One Belt, One Road" connectivity plan under SCO, etc.
So far, China is seen following an opportunistic but non-confrontational approach to using the SCO
platform to create a favourable atmosphere for itself based on the idea of deepening strategic
cooperation and mutual trust. The consensus-based decision under “Shanghai spirit” tends to serve
Chinese interests mainly due to the strong bilateral economic ties it has with other member states.
Notably, SCO is also about harmonising China’s policies with Russia’s regional agenda.
The SCO-Afghanistan Contact Group was revived last year (dead since 2009) in the context of
Russia’s renewed interest in Afghanistan to counter the growing threat of ISIS, and China’s interest
in playing a peace-building role and expand its BRI and CPEC projects into Afghanistan.
Central Asian defence policies (barring Uzbekistan and Turkmenistan) remain Russia-oriented owing
to their militaries’ Soviet origins, but China has been subtly seeking influence in the regional defence
and security areas under the aegis of SCO. Beijing has been hedging its own bets in Afghanistan by
formulating a Quadrilateral Cooperation and Coordination Mechanism (QCCM) security grouping
involving Afghanistan, Pakistan, and Tajikistan.
From India’s perspective, RATS is important for gaining information on extremist movements from
SCO States to Syria, Iraq, Afghanistan, and Pakistan. It also collects information on the Taliban’s
activities, but it is hard to imagine how all sides would share high value information mainly because
of the closed nature of the various intelligence services and the mutual suspicion that generally
exists between China and its Central Asian neighbours. It is even harder to imagine RATS sharing
hard inputs on terrorist hideouts say in FATA region when Pakistan is also a member.
India has been maintaining security cooperation with Russia and the Central Asian Republics from
the days of its support for the Northern Alliance in Afghanistan. India had set up a small field hospital
at Farkhor in Tajikistan in 2001. In the post 9/11 era, India made a bold strategic move by
undertaking renovation work of Ayni air base in Tajikistan in 2002.
The scale of India’s defence cooperation with the Central Asian states has expanded since then to
cover areas ranging from military-to-military cooperation, training and assistance, joint military
exercises, servicing and upgrading of military hardware, import of military equipment and spare
parts.
The SCO has certainly emerged as the most important regional grouping in the Eurasian region.
India joining the SCO has largely a symbolic meaning. As of now, there is lack of clarity about what it
means for India in terms of any specific function and benefits. Yet, India cannot afford to be left
behind in the strategic Eurasian region where only SCO has emerged as an important geopolitical
pole. Therefore, logic demanded that India better be in than out of the SCO. But to be sure, multiple
conflicting interests would intersect at the SCO forum, ranging from regional and global issues to
combating terrorism.
Last year, Prime Minister Modi reposed full faith in the SCO as he fine-tuned India’s aspirations in
the grouping to benefit in economics, connectivity and counter-terrorism cooperation, but he also
drew certain redlines of “respect territorial integrity, unite against terror”.
The SCO could become a new frontier for India, but the Pakistan factor could put a spanner in
India’s goals. The SCO sees ISIS rather than Taliban as a serious threat to regional security.
Moreover, Russia and China seemingly recognise Pakistan’s role in counter-terrorism. Clearly,
India’s positions may be at odds there. Yet, it could be used as a neutral forum to discuss terrorism
in a broader context as a leverage to obtain Beijing’s cooperation on curbing Pakistan-sponsored
terrorism or at least not to unduly favour Pakistan. As it is, China’s concerns about the threat of
terrorism are growing and, as the BRI moves ahead, Chinese nationals are getting exposed to a
greater threat from terrorist groups. Spanner - jaws for gripping and turning a nut or bolt.
Defence cooperation in the SCO ambit could possibly provide impetus for the Indian military and PLA
to shed misgivings about each other besides providing both India and Pakistan a rare opportunity to
share several multilateral tables such as the antiterrorism structure, military exercises etc., to work
together incoordinating operational details and sharing intelligence, which might change the regional
climate in the longer run. But, given existing deep differences, defence and security cooperation with
Pakistan and China would remain challenging.
But mainly, India’s journey in the SCO would depend mostly on how India and China weigh ties on
security and economic calculations. Of course, it will also depend on other factors, especially the
future trajectory of Indo-US relations. Misgiving - a feeling of doubt or apprehension about the outcome
It would be wise on the part of India and Pakistan to maintain a low profile and not act as spoilers.
They will have to respect the 38 parameters of the SCO, which, among other things, oblige member
states to “avoid active military conflict” and strictly adhere “to maintain long-term Good-
neighbourliness, Friendship and Cooperation”.
For India, the existing bilateral-level defence cooperation with individual states should provide further
impetus for enlarging engagement in the SCO.
Significantly, the SCO had banned Pakistan-based terrorist group Lashkar-e-Taiba (LeT) as long as
the July 2007 meeting in Bishkek. Even Pakistan had to put terrorist Hafiz Saeed-backed terror outfit
'Tehreek-e-Azaadi Jammu and Kashmir' on the list of "proscribed organisations" a day before it
entered SCO as a full member in June 2017, although Islamabad cited its compliance with the
Financial Action Task Force (FATF) for the ban. Proscribed - forbid, especially by law.
For its part, India should get the chiefs of JeM (Masood Azhar) and Hizbul Mujahideen (Syed
Salauddin) designated as “global terrorists” by the SCO.
Working closely with RATS would be extremely important to ensure that no undesirable elements
inimical to India gain a footing in Central Asia. Importantly, India has raised its flag at SCO’s RATS
Headquarters in Tashkent on June 15, 2017.
Finally, to increase awareness, visibility and the effectiveness of India’s role in the SCO, India should
institute regular strategic and security dialogue and conferences to discuss issues of common
interests and identify priority actions for stronger cooperation. In this regard, the foundation laid by
the Ladakh International Centre (LIC) and the Institute for Defence Studies and Analyses (IDSA)
through their various projects relating to India’s role in the SCO needs to be built upon.
Ladakh International Centre, LIC - a platform in the trans -Himalayan region to engage in informed
discussion and research on national, regional and global issues on June 13 at Leh. LIC aims to create a
neutral space for the scholars and practitioners to exchange ideas with the latest Science and Thoughts.
Established under the leadership of Ambassador P.Stobdan, Ladakh centre will provide information,
analysis and dialogue facilitation for scientists, scholars and policy makers. It hopes to become a good
information bridge for the rest of the country on the glory that is Ladakh
Standing Committee on Defence, SCoD - In the Indian Parliament, a Standing committee is a committee
consisting of Members of Parliament. It is a permanent and regular committee which is constituted from time
to time according to the provisions of an Act of Parliament or Rules of Procedure and Conduct of Business.
The work done by the Indian Parliament is not only voluminous but also of a complex nature, hence a great
deal of its work is carried out in these Parliamentary Committees
Defence Budget: Beyond the Numbers

As reported by the Times of India on April 04, this year’s discussion on the general budget in
parliament will go down in history as the shortest since 2000 with both houses collectively spending just
about 1 day on rushing through it. This puts paid to whatever expectation there might have been that the
grave concern over the inadequacy of the defence budget expressed by the
Standing Committee on Defence (SCoD) in one of its reports submitted to parliament on March 13 will
receive the attention of the law makers and some political consensus will emerge on how to deal with this
perennial problem.
Not that it would have made much of a difference. The standing committee has been highlighting this
issue for the past several years without its being taken up for discussion in parliament or a solution
being found. There have been a few odd questions on the defence budget in parliament in past
years, but one cannot recall any member seeking a debate on the issue in either house.
The public discourse, such as it is, is replete with angst over inadequate defence spending. But it
keeps skirting the periphery of this theme, with commentators focussing more on the need for
increasing the defence outlay than on why things have come to such a sorry pass. References to the
rising collusive threat from neighbours and emphasising that the armed forces need to be better
prepared to face this threat, which requires substantially higher allocations, is stating the obvious. It
does not help. Skirting - attempt to ignore; avoid dealing with.
The discourse is largely fixated on issues like the falling percentage of the defence budget in relation
to Gross Domestic Product (GDP), imbalance between the allocation for capital and revenue
expenditure, committed liabilities gobbling up most of the capital acquisition budget, government’s
procrastination on setting up a non-lapsable pool of funds for modernisation, and so on. None of this
addresses the root cause of the problem.
The budget figures keep changing every year but this analytical narrative does not. A lot of
intellectual capital is being continuously invested by the standing committee and defence
commentators in elaborating on this narrative and in trying to convince no one in particular that more
money is needed for defence. Nobody needs any convincing; not even the political class.
There is no evidence of a sharp difference of opinion between the politico-bureaucratic class and the
armed forces on the issue of defence spending, as often projected. This is evident from the fact that
the honourable members of the standing committee, cutting across party lines, have been repeatedly
recommending a substantial hike in defence expenditure, preferably equalling three per cent of the
Gross Domestic Product (GDP). But the defence budget continues to follow a flat trajectory.
This calls for some serious rethink on why the problem persists. Considering its resourcefulness, the
standing committee is best placed to initiate a genuine debate on the issue but it generally rests
content with passing strictures against the Ministry of Defence (MoD), delivering homilies and
making inexplicit or impractical recommendations which only end up underlining the problem without
offering viable solutions. Homilies - a tedious moralizing lecture.
This pretty much sums up the essence of the four reports on the current year’s defence budget
submitted by the committee to parliament on March 13. This is why it would have made little
difference even if there had been a discussion on these reports in parliament as part of the general
discussion on the union budget.
More specifically, it is unlikely that some way out would have been found through discussion in
parliament to bridge the gap of Rs 1,32,286 crore between the requirement of funds projected by the
armed forces and the allocation made in the union budget this year. This figure does not include the
shortfall of approximately Rs 12,000 crore for other organisations such as the Coast Guard, DRDO & Ex-
servicemen Health Scheme.
Merely exhorting the MoD, as the standing committee has been doing, to ask for more money from
the Ministry of Finance (MoF) so that more funds could be allocated to the armed forces misses the
point that the problem is not that the MoD does not ask for adequate funds. It actually aggregates the
requirement projected by the armed forces and other organisations/departments and projects it to
the MoF without imposing any cut. The actual problem is that it does not get what it asks for.
The crux of the problem, therefore, is the inability of the government to meet in full the requirement
projected by the armed forces. However, the prevalent discourse sees this more as a case of the
unwillingness, rather than inability, of the government to increase the defence budget. This takes
away the focus from finding a viable solution to the real problem. Those who hold this view need to
consider the fact that the overall defence budget has increased by 44.31 per cent in five years, going
up from Rs 2,80,203 crore in 2014-15 to Rs 4,04,365 crore in 2018-19.
At any rate, it needs to be demonstrated that it is possible to provide more funds for defence without
any large scale tinkering with the overall budget. This can be done with reference to the current
year’s budget by establishing that it was possible for the finance minister to allocate another Rs
1,45,00 crore for defence over and above the Rs 4,04,365 crore (including Rs 1,08,853 crore for
Tinkering - attempt to repair or improve something in a casual or desultory way.
defence pensions) actually allocated, without any other major change in the union budget, such as
reduced allocation for health, education, infrastructure development, poverty alleviation programmes,
etc., with the primary objective of meeting MoD’s demand in full.
This exercise may be of no more than an academic interest at this stage but it will help in
demonstrating the viability of increasing the defence budget without any other drastic changes in the
fundamentals of the budget, or alternatively, dispelling the impression that inadequacy of the defence
outlay is on account of politico-bureaucratic apathy to the needs of the armed forces.
To make the exercise of immediate relevance, it also needs to be demonstrated that even now the
finance ministry can locate substantial savings from within the current year’s overall outlay of Rs
24,42,213 crore and make additional allocation for defence. This will establish the viability of the
standing committee’s standard prescription that MoD should seek more funds from the finance
ministry during the year which again overlooks the fact that MoD in fact asks for additional funds
every year at the Revised Estimates (RE) stage but seldom gets what it asks for.
This new approach may be more helpful, if only in clearing the air about why successive finance
ministers have found it difficult to increase the defence outlay substantially, rather than remain
bogged down in questions like how much the defence budget works out to in terms of percentage of
GDP. It is immaterial whether the defence budget is three per cent or one per cent of the GDP as
long as the allocation matches, substantially if not fully, the projected requirement.
This challenge is not likely to be taken up because there is a reluctance to come to terms with the a
priori knowledge that higher allocations are contingent upon a commensurate increase in the
government’s receipts, which is not possible without broadening the tax base, raising tax rates,
imposing more cesses, borrowing more money, and drastically reducing the non-productive
expenditure of the government.
The problem is that there are serious statutory, socio-economic and political constraints in resorting
to these measures beyond a certain limit. That is why the focus of the union budget has to be on how
to boost economic growth and overcome the constraints that inhibit the expansion of the tax base
and increase in tax revenue. A lasting solution to the budgetary constraints faced by the armed
forces can only be found by resolving this tangle.
Meanwhile, it is unfair to ask the armed forces to prepare themselves for carrying out the
responsibility cast upon them if adequate money cannot be made available. The objectives and
resources have to be in sync with each other and if adequate resources cannot be provided the
objectives have to be suitably recalibrated and alternative ways found to achieve them.
Contingent - occurring or existing only if (certain circumstances) are the case; dependent on.
India and China – Time for a dialogue on nuclear

security?
Rukmani Gupta April 19, 2018
Discussions on nuclear security in South Asia generally focus on the India-Pakistan relationship.
Given the volatile military equation and frequent sabre-rattling between these two neighbours,
that is unsurprising. China as a nuclear power that has a bearing on nuclear security and stability
in South Asia is discussed in India primarily in terms of its nuclear relationship with Pakistan – the
materiel and technology that Indian analysts believe China provides to bolster Pakistan’s nuclear
weapons programme. That the India-China relationship might itself merit a discussion on issues
of nuclear security, perhaps even Confidence Building Measures (CBMs), is seldom mooted. A
dialogue on nuclear security between the two is supposed unnecessary since – a) Chinese
analysts maintain that India’s nuclear capability is apparently inconsequential and China does not
believe it is in a deterrence relationship with India; b) given that no shots have been fired along
the disputed border, there is no realistic scenario in which the two states would enter into a
military conflict; and, c) both countries have a declared no-first-use (NFU) policy, which is
believed to be guarantee enough against nuclear escalation. There are, however, many reasons
to re-examine this comfortable assessment of the impossibility of nuclear escalation between
India and China.
Chinese scholars continue to state that China’s technological superiority implies that India’s
nuclear weapons capabilities do not pose a threat to China and that India does not feature in
China’s nuclear calculus. This seems singularly peculiar given that Indian analysts and even
ministers have repeatedly stated that India’s nuclear deterrent is primarily a safeguard against
nuclear blackmail by China. Despite the overt unwillingness to acknowledge the reality of a
neighbour with nuclear weapons, Chinese views of Indian capabilities are certainly changing. This
is best exemplified in the changing tone of statements made by Beijing in response to India’s
missile tests. In the wake of India’s first intercontinental ballistic missile test of Agni V in 2012, the
spokesperson for China’s Ministry of Foreign Affairs (MoFA) did not so much as allude to the
missile test and emphasised only that China and India were cooperative partners rather than
rivals.1 By 2016, when India undertook the fourth Agni V test, China’s reaction to the test was
very hostile. Not only did the MoFA spokesperson insinuate that India’s missile test was in
violation of United Nations Security Council Regulations, but also sought clarity on its
“intentions”.2 From muted reactions that seemed to ignore missile development to belligerent
statements that place the blame for destabilising South Asia at India’s door, there has clearly
been a change in perception regarding India’s nuclear capabilities within the Chinese
government. When considered along with the fact that China maintains nuclear missile launch
sites and storage facilities in the provinces bordering India, it seems reasonable to suppose that
China’s security assessments do actively account for India’s growing nuclear capabilities.
It would be wilful ignorance to deny that the bilateral relationship between India and China
remains hostage to the territorial dispute which is becoming increasingly acrimonious. Perhaps,
as a prelude to the final settlement of the outstanding border dispute and with a view to bolstering
their respective negotiating positions, both sides are seeking to increase their areas of “regular”
operations in disputed territory. This has not only led to a steady increase in the number of border
“transgressions” logged by each country, but also brought troops in face-offs more frequently.
While it is true that the India-China border has not seen skirmishes of the sort witnessed on
India’s borders with Bangladesh or Pakistan involving the use of small arms or artillery and can
thus be termed provisionally “peaceful”, fisticuffs and stone-throwing along the Western border3
indicate that tensions remain high.
As India and China compete for greater influence in the Asia-Pacific, this history of mistrust and
the legacy of an unresolved territorial dispute continue to dog their diplomatic efforts. A zero-sum
analysis predominates assessments of foreign policy. India’s ‘Act-East’ policy is assessed by
Chinese scholars as an attempt by India to position itself as an economic and military alternative
to China in Southeast Asia. China’s Belt and Road Initiative is viewed with suspicion in India not
merely because there is lack of clarity on the details of the vision, but also because the reflex with
regard to developments concerning China is one of assessing what India might lose. The
possibility that efforts by both countries in Southeast Asia and beyond can be synthesised for
mutual benefit is considered utopian.
The stand-off at Doklam demonstrated that they could well become embroiled in territorial
disputes that are not strictly bilateral. Could a similar stand-off occur in the South China Sea if
Indian naval vessels were to be challenged by the People’s Liberation Army (PLA) Navy? The
rapid militarisation of features controlled by China in the disputed waters of the South China Sea
along with the active expansion of China’s area of operations in the region make this a real
possibility. Chinese investment and military presence in the China-Pakistan Economic Corridor
too raises the prospect of Chinese military involvement in conflict between India and Pakistan in
the area.
What does a declared NFU policy mean when there exists a trust deficit between two countries?
How far can declaratory positions be relied upon in the event of a conflict? Leaders in both
countries have stoked nationalism in aid of legitimising their positions in power. In the event of a
military conflict, how would a country losing a conventional war explain adherence to NFU to its
domestic constituency? Does the reliance on declared NFUs make military conflict more likely
given the assurance that the adversary will not use nuclear weapons?
Even as far as the declaratory postures of the two countries are concerned, there appears to be
continued uncertainty. From a recommendation attributed to the third National Security Advisory
Board for India to consider withdrawing from a NFU commitment in 2003,4 to remarks made in
2016 by then defence minister Manohar Parrikar suggesting that India need not bind itself to
NFU,5 there has been recurring speculation that India is reconsidering its NFU policy. Similar
speculation over changes in China’s nuclear posture is also ongoing. Within China there are
scholars who emphasise the need to review China’s NFU position.6 Furthermore, discussion over
the possible loss of China’s retaliatory strike capabilities has led to suggestions since 2013 at
least that the PLA implement a hair-trigger alert in the event of a confirmed incoming attack.7
Given President Xi Jinping’s emphasis on combat-readiness and restructuring the military for a
rapid response, the idea does not seem far-fetched. If Xi condones some version of a “launch on
alert” mechanism, it could potentially lead to accidental or mistaken launch triggered by a false
alert since the fallibility of detection and monitoring systems has been amply demonstrated in the
past.
That there will be no nuclear escalation between India and China has become conventional
wisdom. The growing capabilities, competing aspirations and overweening hubris of these two
neighbours, however, suggest that reliance on accepted assumptions will lead to complacency. It
may therefore be time for India and China to discuss nuclear issues bilaterally with a view to
mediating the uncertainties borne of their differing perspectives and postures.
Creation of Defence Planning Committee: A Step

towards Credible Defence Preparedness
Laxman K Behera April 19, 2018
In a significant defence policy reform notified on April 18, 2018, the government has revamped the
existing defence planning system by establishing a Defence Planning Committee (DPC) under the
chairmanship of the National Security Adviser (NSA). This new institutional mechanism, set up as a
permanent body, is intended to “facilitate a comprehensive and integrated planning for defence
matters” – a vital ingredient in defence preparedness, which was conspicuously missing in the
mechanism set up in the early 2000s in the wake of the Kargil conflict. The new measure, arguably
the boldest defence reform in decades, is likely to have a far reaching consequence on the way
defence planning is undertaken and on defence preparedness.
Salient Features of the New Mechanism

The heart of the new institutional mechanism is the all-powerful DPC with the NSA at the helm. The
Committee has a cross-section of members drawn from the higher echelons of the civil and military
services including the three service chiefs (one of whom is the Chief of Staff Committee, COSC),
the Defence Secretary, Foreign Secretary, and Secretary (Expenditure) of the Ministry of Finance
(MoF), with the chief of Headquarters Integrated Defence Staff (HQ IDS) performing the task of
member secretary. Besides, the NSA is empowered to co-opt other members as and when required.
The charter of duties of the DPC is of two fold. One, it is tasked to ‘analyse and evaluate all relevant
inputs relating to defence planning”, which includes, among others, the “national defence and
security priorities, foreign policy imperatives, operational directives and associated requirements,
relevant strategic and security-related doctrines, defence acquisition and infrastructure
development plans, including the 15-year Long-Term Integrated Perspective Plan (LTIPP), defence
technology and development of the Indian defence industry and global technological advancement.”
Second, the DPC is tasked to prepare at least five different sets of drafts including: “national
security strategy, strategic defence review and doctrines; international defence engagement
strategy; roadmap to build defence manufacturing eco-system; strategy to boost defence exports;
and prioritised capability development plans for the armed forces over different time-frames in
consonance with the overall priorities, strategies and likely resource flows.”
HQ IDS, which was established in October 2001 consequent to the decision of the Group of
Ministers (GoM) based on the Kargil Review Committee (KRC) Report is to function as the
Secretariat for the DPC, in addition to performing its usual secretariat function for the Chief of Staff
Committee. In order to assist the functioning of the DPC, the new mechanism provides for four sub-
committees, one each on Policy and Strategy, Plans and Capability Development, Defence
Diplomacy, and Defence Manufacturing Eco-System. The reports of the DPC are to be submitted to
the Defence Minister and further approval are to be taken as required.
Towards Credible Defence Preparedness

The formation of the DPC is likely to bridge a key gap in the existing defence planning mechanism,
which, for long, was thought would be met through the creation of the post of Chief of Defence Staff
(CDS) as the ultimate arbitrator of all requirements of the armed forces including the planning
aspects. With the CDS not finding favour with successive political dispensations, the existing
system of HQ IDS-led planning is perceived to have given way to the parochial interests of various
stakeholders. This has had an adverse impact not only on how security threats were perceived by
various security organs, but also on how scarce resources are distributed among the services and
within the various branches of each service. Equally importantly, the existing planning process has
had very little control on such aspects as true indigenisation and self-reliance in defence
procurement matters, which are being vigorously pursued through the ‘Make in India’ programme.
Overall, the extant system of defence planning resulted in: the provision of less than adequate
resources to meet numerous security challenges; chasing goals that were not of immediate priority;
duplication and wastage of scarce resources; giving less than required focus on new technological
advancements while pursuing manpower driven military modernisation; and, a defence R&D and
manufacturing base losing its sight on self-reliance.
With the powerful DPC in place and the NSA assuming the role of de facto CDS for all practical
purposes other than in operational matters, the defence planning process is expected to become
more rational as well as provide a much needed boost to defence preparedness. The realistic
enough expectation is that the DPC would clearly articulate the key national security/ defence/
military goals as well as prioritise defence and security requirements as per the likely available
resources while at the same time providing adequate focus on emerging security challenges,
technological advancements, and establishing a strong indigenous defence manufacturing base.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the
Government of India.
Keywords: Defence Planning, Defence Production

Defence Investor Cell Needs Fleshing Out

The Department of Defence Production (DDP) has set up a Defence Investor Cell
under the chairmanship of a Joint Secretary. The office order issued by DDP in
February 2018 has assigned an amazing range of roles and responsibilities to the Cell,
most of which are inadequately defined.
Among other responsibilities, the Cell has been tasked to facilitate several functions:
investment in the defence sector, process of acquisition of industrial and export/import
licenses, formation of joint ventures (JVs), transfer of technology (ToT), and the search
for strategic partners for the potential investors. The office order does not say how the
Cell would facilitate these tasks.
Investment in the defence sector is sluggish not because of the absence of a

facilitating agency but on account of there being no compelling business case for
making heavy investments. Arguably, the investment so far has been commensurate
with the quantum of business being given to the private sector entities. To be sure,
there are several other reasons, including the de facto cap of 49 per cent on foreign
direct investment (FDI), which account for the disinterest shown by investors.
As in the case of investment, the grant of industrial and export/import licenses also
does not pose any serious problem that requires the intervention of a government
facilitating agency. It, therefore, needs to be made clear as to what it is that the
applicants can expect from the Cell, especially because licences are granted by the
Department of Industrial Policy and Promotion and the Ministry of Home Affairs on
which the Cell may not have much influence.
The responsibilities of facilitating the formation of JVs, ensuring ToT and searching for
strategic partners for the potential investors assigned to the Cell appear to be a case of
bureaucratic overreach. As of now, the MoD does not have domain expertise to handle
these task. And, at any rate, there is no reason for the ministry to get itself entangled in
such business-to-business dealings. It is best left to the private sector entities to work
out arrangements and tie-ups among themselves. To meddle in this would be contrary
to the government’s policy of minimum government and maximum governance.
It is possible that the Cell’s role with regard to the formation of JVs and ToT is to be
limited to facilitating a dialogue between the Ordnance Factory Board (OFB) and the
Defence Public Sector Undertakings (DPSUs), on the one hand, and the private sector
entities, including foreign companies, on the other. Even if that were to be the case, it
may amount to interference in the affairs of these organisations, which need greater
autonomy to take commercial decisions.
The ministry’s track record on managing ToT has also not been very encouraging.
DPSUs and OFB, both of which are under the administrative control of the DDP, have
had problems in the past in obtaining and absorbing technologies from foreign
companies. Perhaps, the best that the Cell could do in the immediate term is to revise
the 2012 guidelines on the formation of JVs between DPSUs and private sector entities
which have not had a very successful run.
All this leaves the Cell with some run-of-the-mill responsibilities, such as providing
‘advisories regarding the ‘Defence Procurement Process various Make procedures’
(sic) and ‘Offset Policy and Offset Discharge’ (sic). That advisories – whatever they
might mean – should be required to be issued on the defence procurement process
and the ‘Make’ procedure reflects poorly on textual clarity in the Defence Procurement
Procedure (DPP) 2016 which covers both.
If the intention is that the Cell will issue clarifications on the procurement procedure in
general, it ought to function directly under the Defence Acquisition Council (DAC) or
the Defence Procurement Board (DPB) and not under a Joint Secretary in the DDP
since defence procurement does not fall in the DDP’s charter of duties.
The Cell being assigned the task of issuing advisories in respect of offsets is baffling,
not least because a Facilitation Cell of the Defence Offsets Management Wing
(DOMW) is already functioning under the DDP since February 2014, ostensibly for
answering the queries on offsets of existing and potential Indian Offset Partners (IOPs)
as well as foreign vendors.
There is a similar overlap between the Cell and other organisations in respect of the
task of facilitating the availability of public sector testing infrastructure for testing
requirements of the industry particularly the Micro, Small and Medium Enterprises
(MSMEs). These facilities are presently available with the OFB, DPSUs, the Services,
and the Defence Research and Development Organisation (DRDO).
The list of testing facilities available with the DRDO and OFB are available on their
respective websites. Similar lists with respect to the Services and the DPSUs must
already be available, or can be made available, on their respective websites. Besides
providing the link to all these lists on its webpage, it must be specified what more can
the Cell be expected to do to facilitate the availability of these testing facilities to Indian
industry and what in particular it can do to help the MSMEs.
The Cell has also been tasked to assist investors in identifying the location for the
proposed investments and help the MSMEs/start-ups explore various outsourcing
opportunities offered by the OFB and DPSUs. The Cell could set the ball rolling by
posting on its website the information and contact details of various state governments
which are actively engaged in wooing the investors. This should be followed up by the
provision of access to information regarding outsourcing opportunities in a format
which helps the MSMEs. It will help if the format were to be decided in consultation
with the MSME associations.
Assisting the MSMEs and start-ups in identifying various outsourcing opportunities

offered by the OFB and the DPSUs is one of the few responsibilities that the Cell could
play some meaningful role in since both are under the administrative control of the
DDP. But what is not clear is what exactly that role would be.
The Cell’s webpage says that comprehensive guidelines have been issued by these
organisations, which include vendor development for indigenisation and import-
substitution. It will be of immense help if the Cell were to provide the link to these
guidelines on its webpage, followed by a clear indication as to how it intends to make
DPSUs and the OFB handhold the MSMEs and the start-ups.
The DDP’s office order requires the Cell to work in coordination with ‘Invest India’ in
respect of issues being addressed by the latter. Invest India is a not-for-profit National
Promotion and Facilitation Agency under the DIPP that acts as the first point of
reference for investors in India. It would have been better to let Invest India handle the
responsibilities now entrusted to the Cell because, besides offering one-stop services
to investors, the task could have been managed more professionally. But now that the
Cell has been set up, it must be empowered to discharge the responsibilities cast upon
it. Care must be taken to ensure that its functioning does not get hamstrung because of
the ad hoc nature of its set up and bureaucratic inflexibility.
In the initial stage, the Cell is to have four officers, drawn from DPSUs and the OFB,
with expertise in aerospace, electronics, naval and land systems. With the Director
(P&C) as its nodal officer, the Cell would be attached to the Directorate of Planning and
Coordination and function under the overall charge of a joint secretary in the DDP. The
Cell will remain hamstrung if its powers are not clearly defined, especially in regard to
securing budgetary support which is to be provided by the Director General of Quality
Assurance.
Considering that the Cell is mandated to interact with investors, it is inexplicable that it
has been located in the D-I Wing of Sena Bhawan, which falls in the highly protected
security zone. To begin with, the Cell must be relocated to a place that is freely
accessible to potential investors.
Views expressed are of the author and do not necessarily reflect the views of the IDSA
or of the Government of India.
Keywords: Defence Planning, Defence Production

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Galore - in abundance.

Predicated - found or base something on.

Promises Galore in the Draft Defence

Keywords: Defence Industry, Defence Production

In pursuance of Finance Minister Arun Jaitley’s 2018-19 budget announcement

Draft Defence Production Policy 2018: Salient Features

How Realistic are the Draft DPrP’s Vision and Objectives?

Will North Korea Denuclearise?

DefExpo 2018: Making India a Defence

It is requested to provide your comments on the draft policy at dirpnc-

PSUs in Defence Sector :

Organization Structure of Ministry of Defence :

DEFENCE PRODUCTION POLICY 2018

3. Goals and Objectives

The policy has the following goals and objectives:

3.3 To reduce current dependence on imports and to achieve self-reliance in development

3.3.1 Fighter Aircraft.

3.3.2 Medium Lift and Utility Helicopters.

3.3.4 Land Combat Vehicles.

3.3.5 Autonomous Weapon Systems.

3.3.6 Missile Systems.

3.3.7 Gun systems.

3.3.8 Small Arms.

3.3.9 Ammunition and Explosives.

3.3.10 Surveillance Systems.

3.3.11 Electronic Warfare (EW) Systems.

3.3.12 Communication Systems.

3.3.13 Night Fighting Enablers.

3.6 To make India as a global leader in Cyberspace and AI technologies.

The Policy is centered on following pillars:

4.1 Fostering a competitive, innovative and robust defence industry.

4.2 Encouraging collaborations to acquire latest technology, manufacturing processes,

4.3 Providing a boost to MSMEs and Start-ups.

4.5 Enabling ease of doing business.

4.6 Enhancing defence exports. IDDM - Indigenous Designed

5.2 Undertake ‘Competency Mapping’ of private defence industry including MSMEs, to

Ex-ante - based on forecasts rather than actual results.

8.2 Revenue procurement and outsourcing of services will be progressively made

12. Market Creation

13. Vendor Development and Outsourcing

14. Infrastructure Development

14.1.1 These Defence Corridors will be built on existing defence production

14.1.2 Govt of India will contribute 50% of assistance subject to a ceiling of Rs

14.2 Testing Infrastructure

14.2.3 Create a scheme for providing 75% assistance to industry to set up

15. Boosting OFB and Public Sector

15.1 Government will support infusion of new technology/machineries in OFB/DPSUs to

15.5 DPSUs/OFB will explore acquisition of technology through mergers/acquisitions

16. Standardization and Quality Assurance

17. Export Promotion

17.2 Subject to strategic considerations, domestically manufactured defence products of both

18. Innovation and R&D

19.2 Hackathons will be conducted on specific problem areas. Department of Defence

20.2 An Aeronautical University will be set up as an autonomous institution to promote

21. Electronics and Cyber Space

21.1 To leverage India’s strength in IT/software area and a program to incentivise

India’s Defence Public Sector Undertakings: A

India has established eight Defence Public Sector Undertakings (DPSUs)

118 Journal of Defence Studies

Vol 3. No 4. October 2009 119

BDL was carved out of Defence Research and Development Organisation

120 Journal of Defence Studies

GRSE was taken over by the government of India in 196021 to develop a