By supporting in-house R&D by the industry players, the new measure is likely to shorten the time gap between the development of prototypes and their eventual production and help expedite procurement

By opening the defence R&D beyond the DRDO, the government has made a key policy decision to bring major technology development closer to the production centers rather than keeping them in some distant labs, as has been the usual practice till now. By supporting in-house R&D by the industry players, the new measure is likely to shorten the time gap between the development of prototypes and their eventual production and help expedite procurement

Budget FY23 holds immense importance for India’s defence establishment. While the finance minister provided a 10% increase in the overall allocations for the defence ministry (MoD), she hiked the defence capital outlays by 14%, to `1.6 lakh crore. A substantial part of the enhanced capital expenditure will be incurred on arms acquisitions and development of key infrastructure such as strategic border roads, tunnels and bridges, and will add to the heft of the defence forces which must face-off an increasingly belligerent China along the Ladakh border and India’s immediate neighbourhood.

The key takeaway for the MoD from FM’s announcement is, however, in the domain of India’s defence industry. Continuing from her previous initiatives articulated as part of the Modi government’s flagship Atmanirbhar Bharat Abhiyan, the FM announced four more measures to strengthen India’s self-reliance in defence further. One, she announced an increase in the domestic industry’s share in the capital procurement budget to 68% in FY23 from 58% in the previous fiscal year. A higher share within the large procurement budget of 1.24 lakh crore in FY23 (compared to1.11 lakh crore in FY22) will not only provide a fillip to the local industry, particularly the private sector, but will also send a strong signal to the foreign companies who have been accustomed to bagging big arms contracts directly from the MoD.

With a smaller budget being earmarked for off-the-shelf procurement from outside the country, foreign vendors would perforce look for industrial collaboration with their Indian counterparts in order to a get slice in India’s arms purchases, albeit indirectly. Their industrial participation, which the existing policy tries to facilitate through an enhanced FDI cap of up to 74% through automatic route, is likely to buttress India’s indigenisation efforts.

Two, in a move that has a far-reaching consequence on India’s future technology development and diffusion, the FM announced that 25% of the defence R&D budget would be reserved for the local industry, start-ups and academia. This translates to `53,300 crore R&D budget in FY23, which will be spent outside the labs of the DRDO—India’s premier defence R&D agency that has so far enjoyed a monopoly in India’s defence technology development.

By opening the defence R&D beyond the DRDO, the government has made a key policy decision to bring major technology development closer to the production centers rather than keeping them in some distant labs, as has been the usual practice till now. By supporting in-house R&D by the industry players, the new measure is likely to shorten the time gap between the development of prototypes and their eventual production and help expedite procurement.

It is important to underscore that the decision to open up the defence R&D is a logical step and follows several steps that the Modi government has taken in recent years to spread and harness the existing capability of India’s wider innovation ecosystem. These include a brand-new procurement category that prioritises domestically designed defence equipment over imported ones, schemes such as innovations for defence excellence, (iDEX) and technology development fund (TDF), and the streamlined ‘Make’ procedure, under which the industry can avail government money or use their resources for prototype development of key weapons, system, and sub-systems.

Importantly, some of these schemes have started bearing fruits, indicating the capability that the Indian industry can undertake defence R&D. Moreover, given the maturing of the Indian defence industry, even DRDO, which earlier used to develop every bit of technologies meant for defence use, has now decided to handover design and development work of more than 100 systems and systems to the industry. In the light of these developments, it is only logical that the Indian industry be given a larger role in R&D.

That said, some might see the split of the R&D budget as an attempt to marginalise the DRDO. Nothing can be farther from the truth. The prominence of the DRDO as the leading agency for India’s defence technology will continue for the foreseeable future. In fact, its relevance is further enhanced by the FM’s third defence-specific announcement for creation of SPV by which the Indian industry can collaborate with the DRDO and other organizations to undertake design and development of defence equipment.

For sure, the collaborative model is not a new concept. MoD’s existing procurement manual allows the industry to partner with the DRDO as development-cum-production partner (DcPP) for many sensitive products. The DcPP has led to the successful development of several products such as artillery gun, long-range glide bomb, and Pinaka srocket system and has contributed positively to the DRDO’s brand image. The SPV model will further institutionalize the DcPP model and involve the industry as an important stakeholder from the very beginning of the design and developmental work.

Four, the FM announced the creation of an “independent nodal umbrella body” to meet the testing and certification requirement of the domestic industry. This seemingly innocuous measure, has nonetheless a huge implication on the Indian defence industry, especially the small and medium enterprises, start-ups and individual innovators who now have to run from the pillar to post to get their products certified. Though the MoD has made available over 130 test labs and 25 proof ranges for industry use, there is no single agency to coordinate their efforts, leading to undue delay. Bringing all the trial, testing and certification agencies under one administrative agency will address this vital gap and intensify atmanirbharta in defence production.

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