Issue III | November 2010 DPSUs: Self Reliant or Redundant Introduction India’s defence spending has grown manifold since the country announced its first defence budget in 1950, to USD 32 billion in the year 2010-2011. 1 Of this, approximately 40% relates to capital expenditure which is currently driven by equipment modernization programmes in each of the armed forces. India currently procures approximately 70% of its equipment needs from abroad, but the government aim is to reverse this balance and manufacture 70% or more of its defence equipment needs in India. India has 8 Defence Public Sector Undertakings ( “DPSUs” ) under the control of the Ministry of defence ( “MoD” ). These DPSUs together with 40 Ordinance Factories form the backbone of India’s defence production. 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 import of weapons by India. This bulletin makes an attempt to examine the role of DPSUs in the context of India’s aim of self-reliance in the defence production. 1. Defence Production in India India maintains a defense industrial base principally owned by the government. Post independence, industrialization was considered to be the base of growth and since then the government has owned a large fraction of the industries and also tightly regulated the private sector. India believed that public ownership was necessary to ensure developments that would benefit the entire country. India’s defense industrial capacity lies in three main classes of enterprises: the Ordinance Factories, the DPSUs, and, to a much lesser extent, private sector manufacturing establishments. The Ordinance Factories are departmentally run government units. There are forty Ordinance Factories, grouped into five areas based on the type of armaments they produce: Ammunition and Explosives, Weapons, Vehicles and Equipment, Armoured Vehicles, and Ordnance Equipment. 2. The Role of DPSUs in Defence Production The eight DPSUs that India has maintained over the years are: (1) Hindustan Aeronautics Limited; (2) Bharat Electronics Limited; (3) Bharat Earth Movers Limited; (4) Bharat Dynamics Limited; (5) Mishra Dhatu Limited; (6) Goa Shipyard Limited; (7) Garden Shipyard and Engineers Limited; and (8) Mazagaon Dock Limited. Over the years, these organizations have aimed to achieve self sufficiency and indigenization of defence manufacturing in India. The items manufactured by various DPSUs are summarized below: 1 Union Budget for the year 2010-2011. Disclaimer – This bulletin is for information purposes and should not be construed as legal advice. © PSA Issue III | November 2010 S. No DPSUs PRODUCTS 1 Hindustan Aeronautics Design, development, manufacture, repair and overhaul Limited of aircraft, helicopters, engines and their accessories. 2 Bharat Electronics Design, development and manufacture state-of-the-art Limited electronic equipment components for the use of the defence services, paramilitary organizations and other government users. 3 Bharat Earth Movers Design and manufacture of a wide range of equipments Limited including specialized heavy vehicles for defence and re- engineering solutions in automotives and aeronautics. 4 Bharat Dynamics Missiles, torpedo counter measure system, counter Limited measure dispensing system. 5 Mishra Dhatu Limited Aeronautics, space, armaments, atomic energy, navy special products like molybdenum wires and plates, titanium and stainless steel tubes, alloys etc. 6 Goa Shipyard Limited Builds variety of medium size, special purpose ships for the defence, Indian Coast Guard and civil sectors. 7 Garden Shipyard and Builds and repair warships auxiliary vessels for the Engineers Limited Indian navy and the Coast Guard. 8 Mazagaon Dock Submarines, missile boats, destroyers, frigates and Limited corvettes for the Indian Navy. India is the third largest importer of defense hardware in the world, and is one of the top ten countries in terms of defense expenditure. The necessity of establishing DPSUs was to meet advanced weapons and equipments required by the armed forces, and attain self reliance in defence production. The DPSUs are the major providers of weapons to the defence forces. The DPSUs have increased their total value of production but their dependence on external sources for production requirement has also increased significantly. The performance of the DPSUs has been far from satisfactory as they suffer from the same problems as any other public sector undertaking- excessive bureaucratic control, low productive level and slow in adapting to technology. Disclaimer – This bulletin is for information purposes and should not be construed as legal advice. © PSA Issue III | November 2010 3. Suggestive Measures to improve DPSUs The following suggestions can be drawn about to improve the DPSUs in the production of defence equipments: i. The major importers of defence equipment are the developing nations. If the domestic defence base of India can be improved and advanced capabilities in niche areas developed and marketed, then India can put itself into the league of supplier countries. ii. The involvement of the private sector can contribute immensely to speed up the armaments race and increase weapon proliferation. iii. By making DPSUs more accountable and not providing them extensions and to encourage their competitiveness. iv. There should be incentives for the public sector to motivate it to strive towards excellence in work. v. There should be transparency in the contracts made by the MoD. There should be no preferential treatment for the public sector, over any other vendor. The contractual allotment should strictly be ability based and competitive. vi. There has to be proper handling between the Private and Public sector, both the sectors have to cooperate in terms of capability and resource sharing. DPSUs have been showing signs of illness and decrepitude. They face limitation of being wholly governmental organization. These DPSUs are far from efficient and have been so because of the bureaucracy. Any organization to be successful has to follow certain business principals. Self-sufficiency and indigenous development are redundant concepts if there is no efficiency, accountability and autonomy in the organization. Conclusion More than five decades after it began its quest for self-reliance by establishing a series of government-owned defence research and production units, India has been unable to indigenously develop, produce and export any major weapon system. It remains overwhelmingly dependent on foreign vendors for about 70 per cent of its defence requirement, especially for military products and high-end defence technology. Although it would be unrealistic to expect any country to be hundred percent self- reliant, India has not been able to develop any core strength in defence technology to enable it to be placed on the world map, except arguably to a limited extent in missiles and warship design and production. In contrast, the world’s major and middle-rung military powers, which possess a strong and well-established defence industry and military-industrial base, are largely self-sufficient in cutting edge military technologies. In addition to being major Disclaimer – This bulletin is for information purposes and should not be construed as legal advice. © PSA Issue III | November 2010 producers of defence technology, these countries are also major exporters of defence equipment, which, in turn, serve as a source of influence in their foreign policy. The defence production has many achievements to its credit during the past years. Unfortunately, the achievement of self-reliance is not one of them. The simple fact remains that after so many years and spending thousands of billions they are still a long way away from India's goal of self-reliance. Authored by: Kartikay Sharma Disclaimer – This bulletin is for information purposes and should not be construed as legal advice. © PSA .