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Defence Production by Public Sector in Doldrums
Aug 31, 2016


The country's defence landscape is dominated by Defence Public Sector Units (DPSUs) and Ordnance Factories that account for nearly half of the overall market. There are nine DPSUs and 41 ordnance factories in the country. Among them Hindustan Aeronautics Ltd (HAL) and Bharat Electronics Ltd are the largest players. These two along with the ordnance factories produced more than half of the total defence equipment in FY16 (upto Dec 2015). But the overall production by the public sector has stagnated. Defence production grew at an average rate of 5.3% in the past two years. Although a number of private companies are engaged in the production of defence equipment, but their participation has been limited owing to the sensitive nature of some projects. Therefore, the country continues to rely on imports of military equipment.

To reduce dependence on imports, the government has increased thrust on indigenisation and greater private sector participation under the Make in India policy. In its defence procurement for 2016, highest preference has been accorded to equipment domestically designed, developed and manufactured. This requires capital inflows as well as technological inputs. For this purpose, the FDI limit in Defence has been increased to 49% under the automatic route and above 49% on a case-to-case basis under the approval route by the government. So far, 36 FDI/joint venture proposals in defence with both public and private sector companies have been approved. Apart from this, budgetary allocation for defence in FY17 has been raised by 11% to Rs 2.5 trillion. These initiatives will not only equip India's security systems with the latest, modern technologies but will also help in boosting the country's manufacturing share.

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