The idea was to reduce the increasing dependency on imports, facilitate technology transfers and modernise military hardware.
Four years later, officials admit the plan has not worked.
'Since defence production was opened for private participation under licence, 23 letters of intent and licences have been issued but there is no progress. We are looking into it,' said Defence Minister Pranab Mukherjee on Monday.
The initial idea was also to reduce the huge budgetary allocation the government sets apart every year for buying new weapons. A whopping Rs 334.8 billion -- out of the total Rs 770 billion defence outlay -- has been allocated for buying weapon systems this year.
Privatisation of key defence items, the government had argued in 2001, would considerably reduce the mounting cost of military purchases every year.
The government wanted to throw open about 50 high-tech laboratories of the apex Defence Research and Development Organisation for technical and research participation and collaboration by the Indian industry and foreign companies.
The DRDO labs that were to be opened up are spread across the country. They are engaged in developing defence technologies covering various disciplines like aeronautics, armaments, electronics, combat vehicles, engineering systems, instrumentation, missiles, advanced computing and simulation, special materials, naval systems, life sciences, information systems and agriculture.
"The idea of opening up the floodgates of our defence technological know-how to private players was good. But it has not really done well," a senior DRDO official disclosed.
The DRDO's poor track record in completing some prestigious projects had fuelled the urgency to throw open technology from its labs for commercial exploitation.
In the last 20 years, the DRDO has taken up about 190 defence projects. While only two dozen projects have been completed so far, about 90 of them are in various stages of completion. The others are being shut down.
Projects languishing in the DRDO laboratories -- mainly for shortage of good scientific manpower -- include development of electronic warfare systems, missiles, armaments, radars, the Light Combat Aircraft and the multi-barrel rocket launching system.
The projects that are being shut down include the development of an airborne surveillance platform, the 30 mm light-towed air defence gun system and a number of minor projects in disciplines like aeronautics, armaments, electronics, instrumentation and engineering systems.
Soon after the decision to hand over defence production to private companies, the government set up a task force to ensure that 70 percent of the material needed by the defence forces is produced in the country with the active participation of private industries.
The task force, comprising officials from the ministries of defence and industry, was also to deal with development of defence products by private industries, supply of credit to them, policy on defence purchase and to bring about transparency.
The government also set up an apex committee to chalk out a detailed programme to facilitate the privatisation move.
Since then, some 23 private companies have applied to the defence ministry showing interest in the manufacture of spares and parts for the defence forces.
The ministry shortlisted eight companies including Mahindra & Mahindra, Larsen & Toubro, Jindal, Max Aerospace and Aviation, and Ramoss India -- and gave them letters of intent.
The companies had applied for licences for products like bulletproof jackets, avionics and other related spares used by the armed forces.
Officials associated with the privatisation programme say that "there has been no progress on granting full-fledged licences" to these companies for defence production, thanks to red tape.
"Some of the companies that had plans to enter into the production fray pulled out because of the strict security procedures and hard licensing policy," said a senior DRDO official.
The ministry's insistence that licences be issued to companies with a minimum capitalisation of Rs 1 billion was another factor. "Some companies could not simply meet these guidelines," the official pointed out.
Many companies are said to have pulled out fearing that order quantities would be insufficient to justify the high research and development costs that weapons production entails.
With private participation stuttering, the government is now evaluating different options to kick-start the crucial defence production sector. One proposal that has been mooted, officials said, is to ensure transfer of technology through joint ventures to Indian private industry.
Under this, the government would assist the industry, particularly small and medium enterprises, by facilitating technology transfer through formation of joint ventures of co-production units.
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