The Role of the Defence industry in a country security and economy

A nation with a strong defence industry will not only be more secure it also pays rich dividends in the shape of economic benefits. If we go back into the cold war age we find that the two superpowers USA and Russia emerged as superpowers only due to their defence prowess.

Strong defence industry can boost investment, expand manufacturing, support enterprise, raise the technology level and increase economic growth in the country as happened in the US and Russia. Defence technologies are usually 10 years ahead and get released to the civil sector after 10 years.

Internet was created for use of pentagon. First computer was made in World War-II for aircraft and telecom use. Indigenization of defence manufacturing will bring significant benefits in the form of reduced foreign exchange outflow, accelerated GDP growth and creation of new high value added jobs.

In this backdrop I have no hesitation in saying that Prime Minister Narenda Modi has rightly understood that "Make in India" is in reality "Make Defence Industry strong in India".

Pitfall if a country lags in Defence

Modi's concept is clear technologically India is 10-15 years behind other advanced countries because we do not have defence technologies. That is why Modi is correct when he said at Aero India on February 18, 2015 "Defence is at the heart of Make in India programme and government is focusing on developing India's defence industry with a sense of mission".

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Defence Industry and PM Make in India Campaign

No doubt we need a vast pool of highly skilled and qualified human resources for the defence industry. Indian aerospace industry alone would need about 200,000 people in next ten years. India needs to set up special universities and skill development centres to cater to its defence industry, just as it did for atomic energy and space. Tax system should not discriminate against domestic manufacture in comparison to imports.

Role of defence industry in manufacturing

Prime Minister Narendra Modi has rightly singled out defence as backbone of Make in India campaign. Defence which is a priority sector in India accounts for 1.78% of India's Gross Domestic Product (GDP) and 12.76% of total central government expenditure. It accounts for 80% of South Asia's total military expenditure and is currently the second-largest industry after railways. Modi not only wants to strengthen defence industry but increase manufacturing contribution from 15% to 25 % in the national GDP.

The government expects to generate jobs, attract more foreign direct investment, and transform India into a manufacturing hub preferred around the globe. Modi knows that his push for Make in India programme will boost investment in defence manufacturing sector thereby imports could be reduced. For a foreign company, the benefits are twofold. On the one hand, equity investment in an Indian defence company will appreciate rapidly, while on the other, the Indian company can act as a manufacturing base to supply high-quality components in a cost-effective manner.

The defence budget of India-the world's largest arms importer-has more than doubled over the past decade from Rs 80,500 crore to Rs 229,000 crore for the financial year 2014-15. India is spending tens of billions of dollars on acquisitions from abroad.

Based on my studies I can say 20 to 25% reduction in imports could directly create an additional 100,000 to 120,000 highly skilled jobs in India. If India could raise the percentage of domestic procurement from 40% to 70% in the next five years, India would double the output in defence industry. It will not only create jobs directly and in the related manufacturing and services sector but will have spin off benefits on other sectors in terms of advanced materials and technologies.

Why India needs a strong Defence Industry

Make in India will also address the India security challenges to a great extent. As Defence industry is the backbone of country's security, dependence on foreign sources for defence materials is a risky affair when some international crisis develops. Companies negotiate contracts based on commercial interests; but the export of technology is controlled by their governments, which mostly regard technology as a strategic asset. It is only through industrial development in a big way that the national objective of self-reliance in defence materials can be achieved.

Modi said a strong defence industry would not only make the country more secure but also make it more prosperous. Modi knows that defence budgets around the world are becoming tighter. India's cheap but sophisticated manufacturing and engineering services sectors can help reduce costs. India can also be a base for export to third countries, especially because of India's growing defence partnerships in Asia and beyond.

Indian Defence Industry Status

The Indian private sector is estimated to have a relatively small share - about five per cent - of the Indian defence equipment market. Some large volume contracts are with the nine defence public sector undertakings (PSUs), which account for about 20 per cent of the market. Over 70 per cent of the equipment needs is met through imports. Of course to boost indigenous arms manufacturing, particularly by the private sector, there is a need for huge investment in plant and machinery, technology and skill development which can be done by Make in India programme.