Defence PSUs have unfair advantage: SIDM
Issues over a level playing field with government-owned enterprises still remain, according to the Society of Indian Defence Manufacturers (SIDM), which has expressed concern over increasing military imports and declining modernisation budget for the armed forces.
SIDM president Jayant D Patil told ETthat it would be impossible for the private industry to compete with public sector units (PSUs), which have access to low interest capital, fixed infrastructure and manpower. He said government investments in PSUs should be taken into account and added to the cost of a product for competitive bids. “The fact is that government-owned assets provided to PSUs have to be at some point taken to book. A sizeable amount of money has gone into creating these enterprises; this has to be measured. The moment it is brought to book, the PSUs will need to provide the extra cost (while bidding),”
said Patil, who is also a Larsen and Toubro board member.
He said that unless the costs are accounted for, private industry will not be able to compete against government-owned units like Hindustan Aeronautics Limited that have been getting nominated orders from the forces for decades.
Patil, who recently took over as the SIDM president, raised concern over an increase in imports of defence equipment over the past few years which had reduced the share in the pie for the Indian industry. “We saw that through policy changes, the domination of imports had started reducing.
However, over the last two years or so, imports are increasing again,” said Patil. “The situation we had been getting used to was that 60-70% orders were placed with PSUs and 30-35% with overseas companies. But what we have now seen is that 65%of contracts actually signed were with foreign companies.” He said the actual import percentage could be even higher as the domestic products too could have components and parts that have to be sourced from abroad.
Patil said there has been concern in the industry over a deficient defence modernisation budget that could impact procurement plans. “Earlier, the spending on defence was 2.8% or more of the GDP. Today we are down to 1.6%. We can say that the GDP has grown, but the fact is that the cost of equipment has also gone up,”
The industry has shared its concerns with the parliamentary standing committee on defence, which has expressed shock over a lack of funds being allocated to the forces and said that the international image of the country can come under question if committed liabilities are not paid off due to the inadequate budget.
“The committee finds the shortage baffling, as these are the payments towards procurements already done in previous years. The committee feel that making the country defaulter in payment will not go well in the international markets, therefore, they recommend that allocation as promised should be disbursed for committed liabilities,” said a report of the standing committee tabled in Parliament last month.