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Defence

31st August – Impact of import embargo on defence

Impact of import embargo on defence

The Ministry of Defence (MoD) announced an embargo on the import of 101 items through a press release issued on August 9, 2020.

Details about the decision –

  • The Annexure to this press release lists a wide range of embargoed ammunition, weapon systems, radars, simulators, and other platforms
  • A second press release issued clarifies that “for a product to be considered as an indigenous system, the percentage of indigenous content has to meet the minimum laid down specifications”, adding another dimension to the negative list.
  • Read together, the two press releases indicate that the embargoed items must not only use technologies designed and developed by the Indian defence industry or the DRDO but also meet the specified requirement of indigenous content (IC).

Background –

  • The goal of self-reliance was set up by a committee headed by late Dr APJ Abdul Kalam recommended a plan in 1993 “to improve our self-reliance quotient from 30% in 1992 to 70% by 2005”. 
  • The Technology Perspective and Capability Roadmap (TPCR) first issued in 2013 and later revised in 2018 had a similar objective, which is also the case with 53 ‘Make’ projects notified by the MoD.

What is the objective of this ban?

The objective of this exercise in self-restraint is to apprise the Indian defence industry about the anticipated requirements of the armed forces and offer it the opportunity “to manufacture the items in the negative list by using their own design and development capabilities or adopting the technologies designed and developed by Defence Research and Development Organisation (DRDO)”.

Implications –

  • In effect, it all boils down to one thing: from the date the embargo takes effect in respect of a particular item on the list, it can be procured only under the ‘Buy (Indian – Indian Designed, Developed and Manufactured)’ category, or ‘Buy (IDDM)’ for short, with IC of 40 per cent as stipulated in the Defence Procurement Procedure (DPP) 2016 but proposed to be raised to 50 per cent in the draft Defence Acquisition Procedure (DAP) 2020.
  • As this embargo has been discussed at all levels (including Army, Air Force, Navy, DRDO, Defence Public Sector Undertakings (DPSUs), Ordnance Factory Board (OFB) and (the) private industry), we can safely assume that the indigenously designed and developed items that figure in the negative list, with IC of 50 per cent (as proposed in DAP 2020), will be available when the embargo comes into effect.

Concerns –

  • The most likely impact of the negative list would, therefore, be on the number of procurement proposals getting approved under the ‘Buy (IDDM)’ category in the coming years. This should not affect proposals involving collaboration between the Indian industry and the foreign OEMs under other procurement categories and even the Strategic Partnership Model if the proposal does not relate to any item on the negative list.
  • Whatever be the advantage, the MoD has boxed itself into a corner by promulgating the negative list. If, for whatever reason, an indigenously designed and developed embargoed item with requisite qualitative requirements and IC is not available in the domestic market after the embargo comes into effect, and it is operationally imperative to procure it, there may be no choice left but to waive the self-imposed restriction. This could be time consuming, depending on what procedure is laid down to deal with such a situation.
  • Besides promulgation of the negative list, the recent press release also announced the bifurcation of the capital procurement budget 2020-21 for domestic and foreign procurements, earmarking nearly Rs. 52,000 crore for domestic capital procurement under a separate budget head. Formal bifurcation of the capital budget into two moieties could be problematic. For example, in a situation where funds remain unspent under one segment while the other segment is in dire need of additional funds, shifting of funds will require going through the time-consuming process of re-appropriation.
  • The proposed bifurcation would also reinforce the unseemly practice of judging the efficacy of budgetary allocations through the prism of allocation and utilisation of funds, rather than with reference to the intended outcomes, measured in terms of accretion to the capability of the armed forces.

Conclusion –

It would help if the MoD issues a formal order addressing the concerns expressed by various stakeholders about certain aspects of the negative list, especially its impact on ongoing and forthcoming projects that involve cooperation with the foreign OEMs, as well as the purpose of bifurcating the capital budget without increasing the overall allocation, which is the core problem besetting modernisation of the armed forces.

SourceMPIDSA

QUESTION – The recent decision of the Ministry of Defence to put an import embargo on a specified number of items has broad implications for the defence forces and the defence industry. Critically discuss the issue in brief.

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