Defence Investor Cell Needs Fleshing Out

The Department of Defence Production (DDP) has set up a Defence Investor Cell under the chairmanship of a Joint Secretary. The office order issued by DDP in February 2018 has assigned an amazing range of roles and responsibilities to the Cell, most of which are inadequately defined.

Among other responsibilities, the Cell has been tasked to facilitate several functions: investment in the defence sector, process of acquisition of industrial and export/import licenses, formation of joint ventures (JVs), transfer of technology (ToT), and the search for strategic partners for the potential investors. The office order does not say how the Cell would facilitate these tasks.

Investment in the defence sector is sluggish not because of the absence of a facilitating agency but on account of there being no compelling business case for making heavy investments. Arguably, the investment so far has been commensurate with the quantum of business being given to the private sector entities. To be sure, there are several other reasons, including the de facto cap of 49 per cent on foreign direct investment (FDI), which account for the disinterest shown by investors.

As in the case of investment, the grant of industrial and export/import licenses also does not pose any serious problem that requires the intervention of a government facilitating agency. It, therefore, needs to be made clear as to what it is that the applicants can expect from the Cell, especially because licences are granted by the Department of Industrial Policy and Promotion and the Ministry of Home Affairs on which the Cell may not have much influence.

The responsibilities of facilitating the formation of JVs, ensuring ToT and searching for strategic partners for the potential investors assigned to the Cell appear to be a case of bureaucratic overreach. As of now, the MoD does not have domain expertise to handle these task. And, at any rate, there is no reason for the ministry to get itself entangled in such business-to-business dealings. It is best left to the private sector entities to work out arrangements and tie-ups among themselves. To meddle in this would be contrary to the government’s policy of minimum government and maximum governance.

It is possible that the Cell’s role with regard to the formation of JVs and ToT is to be limited to facilitating a dialogue between the Ordnance Factory Board (OFB) and the Defence Public Sector Undertakings (DPSUs), on the one hand, and the private sector entities, including foreign companies, on the other. Even if that were to be the case, it may amount to interference in the affairs of these organisations, which need greater autonomy to take commercial decisions.

The ministry’s track record on managing ToT has also not been very encouraging. DPSUs and OFB, both of which are under the administrative control of the DDP, have had problems in the past in obtaining and absorbing technologies from foreign companies. Perhaps, the best that the Cell could do in the immediate term is to revise the 2012 guidelines on the formation of JVs between DPSUs and private sector entities which have not had a very successful run.

All this leaves the Cell with some run-of-the-mill responsibilities, such as providing ‘advisories regarding the ‘Defence Procurement Process various Make procedures’ (sic) and ‘Offset Policy and Offset Discharge’ (sic). That advisories – whatever they might mean – should be required to be issued on the defence procurement process and the ‘Make’ procedure reflects poorly on textual clarity in the Defence Procurement Procedure (DPP) 2016 which covers both.

If the intention is that the Cell will issue clarifications on the procurement procedure in general, it ought to function directly under the Defence Acquisition Council (DAC) or the Defence Procurement Board (DPB) and not under a Joint Secretary in the DDP since defence procurement does not fall in the DDP’s charter of duties.

The Cell being assigned the task of issuing advisories in respect of offsets is baffling, not least because a Facilitation Cell of the Defence Offsets Management Wing (DOMW) is already functioning under the DDP since February 2014, ostensibly for answering the queries on offsets of existing and potential Indian Offset Partners (IOPs) as well as foreign vendors.

There is a similar overlap between the Cell and other organisations in respect of the task of facilitating the availability of public sector testing infrastructure for testing requirements of the industry particularly the Micro, Small and Medium Enterprises (MSMEs). These facilities are presently available with the OFB, DPSUs, the Services, and the Defence Research and Development Organisation (DRDO).

The list of testing facilities available with the DRDO and OFB are available on their respective websites. Similar lists with respect to the Services and the DPSUs must already be available, or can be made available, on their respective websites. Besides providing the link to all these lists on its webpage, it must be specified what more can the Cell be expected to do to facilitate the availability of these testing facilities to Indian industry and what in particular it can do to help the MSMEs.

The Cell has also been tasked to assist investors in identifying the location for the proposed investments and help the MSMEs/start-ups explore various outsourcing opportunities offered by the OFB and DPSUs. The Cell could set the ball rolling by posting on its website the information and contact details of various state governments which are actively engaged in wooing the investors. This should be followed up by the provision of access to information regarding outsourcing opportunities in a format which helps the MSMEs. It will help if the format were to be decided in consultation with the MSME associations.

Assisting the MSMEs and start-ups in identifying various outsourcing opportunities offered by the OFB and the DPSUs is one of the few responsibilities that the Cell could play some meaningful role in since both are under the administrative control of the DDP. But what is not clear is what exactly that role would be.

The Cell’s webpage says that comprehensive guidelines have been issued by these organisations, which include vendor development for indigenisation and import-substitution. It will be of immense help if the Cell were to provide the link to these guidelines on its webpage, followed by a clear indication as to how it intends to make DPSUs and the OFB handhold the MSMEs and the start-ups.

The DDP’s office order requires the Cell to work in coordination with ‘Invest India’ in respect of issues being addressed by the latter. Invest India is a not-for-profit National Promotion and Facilitation Agency under the DIPP that acts as the first point of reference for investors in India. It would have been better to let Invest India handle the responsibilities now entrusted to the Cell because, besides offering one-stop services to investors, the task could have been managed more professionally. But now that the Cell has been set up, it must be empowered to discharge the responsibilities cast upon it. Care must be taken to ensure that its functioning does not get hamstrung because of the ad hoc nature of its set up and bureaucratic inflexibility.

In the initial stage, the Cell is to have four officers, drawn from DPSUs and the OFB, with expertise in aerospace, electronics, naval and land systems. With the Director (P&C) as its nodal officer, the Cell would be attached to the Directorate of Planning and Coordination and function under the overall charge of a joint secretary in the DDP. The Cell will remain hamstrung if its powers are not clearly defined, especially in regard to securing budgetary support which is to be provided by the Director General of Quality Assurance.

Considering that the Cell is mandated to interact with investors, it is inexplicable that it has been located in the D-I Wing of Sena Bhawan, which falls in the highly protected security zone. To begin with, the Cell must be relocated to a place that is freely accessible to potential investors.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.