Sitharaman will have 20 months to galvanize moribund “Make in India” in defence
By Ajai Shukla
Business Standard, 3rd Sept 17
The government, facing criticism over the absence of a full-time defence minister since March, when Manohar Parrikar moved back to Goa, has promoted the erstwhile minister for commerce and industry, Nirmala Sitharaman, to head the ministry of defence (MoD) as a full cabinet minister.
Sitharaman will assume charge of the MoD on Tuesday, when the outgoing defence minister, Arun Jaitley, returns from an official visit to Japan.
She will be India’s second woman defence minister after Indira Gandhi, who served twice in that post – briefly for a few months in 1975, and then again from 1980-82 in her final, ill-fated stint as prime minister. The apex Cabinet Committee on Security (CCS) will, for the first time, have two women members – Sitharaman and External Affairs Minister Sushma Swaraj.
Sitharaman will be the National Democratic Alliance’s third defence minister since it formed the government in May 2014. For two tenures, totalling 11 months, Arun Jaitley ran the MoD in addition to his primary charge as finance minister – from May to November 2014, and from March this year. In between, Parrikar held the job for 28 months. Sitharaman will have 20 months before the 2019 general elections to leave her imprint on a challenging job.
Of this, at least three months would go in learning her extremely complex and technical new job. The MoD has five departments headed by secretary level bureaucrats, in addition to the three military services. Even Pranab Mukherjee, when appointed defence minister in 2004, took three months to master the job, and Sitharaman does not have his range or experience. Doing little to help her transition will be her poorly-regarded deputy, Subhash Ramrao Bhamre.
A key result area for the new minister will be to kick off “Make in India” in defence. Prime Minister Narendra Modi has publicly declared that defence manufacture would be a key pillar of “Make in India”, but neither Jaitley nor Parrikar could translate this into reality.
Both worked to issue new policy initiatives like the Defence Procurement Procedure of 2016, which mandates preference being given to procurement of Indian Designed, Developed and Manufactured (IDDM) equipment; and also a Strategic Partners policy. However, no major equipment has been built or procured under these initiatives. In March, following an earlier pattern, the MoD surrendered Rs 7,000 crore of unspent capital procurement funds.
Similarly, the development and acquisition of “Make” category equipment – such as the Tactical Communications System, and the Future Infantry Combat Vehicle – which was initiated during the United Progressive Alliance government, has still to see the light of day.
Major reforms to the higher defence structure, such as the appointment of a tri-service commander and integrated theatre commands, which Bharatiya Janata Party leaders have repeatedly promised, remain to be delivered.
Of 99 reform recommendations in the Parrikar-appointed Shekatkar Committee, the MoD last week announced the acceptance of 65. Most important recommendations were left unaddressed.
Even so, private defence firms are upbeat about Sitharaman’s elevation to the defence ministry, given her reformist credentials as commerce minister.
“At least we will have a full-time defence minister again, who can devote her entire attention to the defence ministry and carry on the good work being done for private industry”, says Rajinder Bhatia, head of the Kalyani Group’s defence vertical.
Rahul Chaudhry, who heads Tata Power (Strategic Engineering Division) terms Sitharaman an “outstanding choice”, who worked hard as commerce minister to support “Make in India”.
He cites the example of the changes enforced by Sitharaman to the General Financial Regulations, which mandate that in government tenders above Rs 50 lakhs, Indian vendors who offer a product at a price up to 20 per cent higher than an equivalent foreign product must be awarded the contract at the lowest bid price. This has been a long-standing demand from India’s private defence firms.
There is also speculation in industry circles that Sitharaman, with her commerce ministry background, would be favourably inclined to liberalise the foreign direct investment (FDI) cap in defence above the prevailing 49 per cent under the automatic route. Up to 100 per cent FDI is permitted, but only in cases where the MoD is satisfied that strategically vital technology is being brought into India.
The commerce ministry has traditionally pushed for liberalised FDI in defence in order to bring in investment and create manufacturing jobs. MoD decision-makers and private defence firms have stoutly resisted this, aiming to protect Indian defence industry.
"Under the existing policy India allows 100 per cent FDI if the vendor is bringing in defence technologies that India needs, but are not available in the country. Where we have the technology, FDI should remain limited to 49 per cent. India has experienced technology denial regimes on multiple occasions,” says Jayant Patil, L&T’s whole-time director for defence business.