No More Public Investment in Defence Production: BJP’s Move Would Undermine National Security

The Government of India has reportedly decided not to make any further investments in the Ordnance Factory Board (OFB) and Defence Public Sector Undertakings (DPSUs). At the same time, the government is moving to sell stake in two major Defence Public Sector Undertakings (DPSUs) – the Hindustan Aeronautics Limited (HAL), and Bharat Dynamics Limited (BDL).

While core military hardware such as battle tanks, combat vehicles and specialised military trucks will remain in the domain of government-owned enterprises, the introduction of products and the creation of additional capacity will have to be undertaken by the private sector, according to a Business Line report.

“Modernisation, upgrades, repowering, product launches and improvement in operational efficiencies are to be carried out with the help of private players with proven track records in a particular field,” the report said, quoting Defence Ministry sources.

The dangers associated with relying on the private sector for meeting the country’s defence needs are well-known – private players, after all, make more profits when there are more wars. The nexus between the private weapons manufacturing industry and those in the government and the resultant military-industrial complex would have obnoxious effects on the country’s policies.

It has also been pointed out that Indian private companies in defence production are marginal players compared to the foreign Original Equipment Manufacturers, and are far less qualified that the DPSUs. In this context, a bigger pie for the private sector in defence would imply more dependence on foreign companies, further undermining national self-reliance.

But this has not stopped cheerleaders of defence privatisation from lauding the government’s decision, and even claiming that it will reduce the defence import bill!

Reacting to the government’s reported move, C Srikumar, General Secretary of the All India Defence Employees Federation told Newsclick, “We have seen news reports, but we haven’t received any official communication regarding this. But the budget for Ordnance Factory Boards for this financial year has been reduced by more than Rs. 4000 crore. So that means it is an indirect indication.”

“Our production will suffer very badly. The production will remain half-way. We will not be able to pay our suppliers who give us the raw materials, components and so on.,” he said.

The AIDEF, along with other major defence employees’ federations Indian National Defence Workers Federation (INDWF), and the Bharatiya Pratiraksha Mazdoor Sangh (BPMS), have been agitating against the central government’s move to privatise defence production and to marginalise the Ordnance Factories which manufacture defence equipment.

“After all the pressure we built up, the government called us for a meeting on 12 February. The meeting was chaired by the Joint Secretary of the Ministry of Defence. We said in the meeting that the government’s moves are in violation of the agreements we had with the previous governments,” Srikumar said.

“Moreover, we were not consulted before the recommendations of committees such as the Shekatkar Committee were drafted. Decisions such as outsourcing more than 250 items manufactured by the 41 Ordnance Factories to the private sector by declaring those items as “non-core” were taken on the basis of the Shekatkar Committee’s recommendations. That committee never bothered to call and discuss with us. We are one of the major stakeholders and we are in dark. Our views have not been taken into account.”

Since no concrete assurances were given at the meeting, the three federations held a protest demonstration at the Parliament Street in Delhi on 15 February to press their demands. They have announced that there would be a one-day strike on 15 March in continuation of the agitation.

Privatisation of DPSUs on the Anvil?

In an indication that the government is moving in the direction of privatising India’s DPSUs, government stake in two DPSUs are sought to be diluted through the Initial Public Offering (IPO) route.

These are the Hindustan Aeronautics Limited (HAL), which is planning to raise about Rs. 4000 crore, and Bharat Dynamics Limited (BDL) which is hoping to raise about Rs. 1800 crore, The Economic Times reported.

HAL had filed a draft red herring prospectus with market regulator SEBI in September 2017, while BDL filed its draft prospectus in January 2018.

HAL, which is valued at Rs. 40,000 crore, manufactures military aircraft (including Light Combat Aircraft ‘Tejas’), jet engines and helicopters. BDL manufactures missile systems such as the Akash surface-to-air missile.

Both the companies have been making large profits, with HAL reporting profit after tax of Rs. 2616 crore for the year 2016-17, and BDL registering Rs. 524 crore profit after tax.

Earlier the government had deferred the privatisation of another DPSU, the Bharat Earth Movers Limited (BEML), following a prolonged struggle by the company’s employees