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We, a peace-loving & poor country, are the world’s largest importer of arms. Besides plans to spend a few hundred billion dollars over the next few years, the government also wants to transform India into a defense manufacturing hub as part of its ‘Make In India’ campaign.

Do you hear Mahatma Gandhi rolling over in his grave?

Successive governments have spent outrageous amounts on defense. When we spend so generously on defense, the government’s efficacy of capital allocation needs to be questioned.

Why should we spend so much? What has been the returns so far? Are we spending the public money in the right way? What have been the inefficiencies? Can we avoid increasing defense expenditure every year? More importantly, can we conserve & divert part of the funds for other social/national development projects?

Agni

Any large organization, over time, is weakened by the unseen force of the ‘institutional imperative’, which is the tendency of decent, intelligent & experienced managers to make irrational decisions. To quote Warren Buffett, “…rationality frequently wilts when the institutional imperative comes into play. For example: (1) As if governed by Newton’s First Law of Motion, an institution will resist any change in its current direction; (2) Just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds; (3) Any business craving of the leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops; and (4) The behavior of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated. Institutional dynamics, not venality or stupidity, set businesses on these courses, which are too often misguided.”

The Indian Armed Forces has about 1.3million active personnel with a disciplined hierarchy and certainly cannot be immune to its own ‘institutional imperatives’.

The inefficiencies and lack of accountability at DRDO, the defense PSUs, & Ordnance Factories have been questioned before. The defense budget has often been criticized as focussed more on salaries & pensions, rather than capex. Now, we are attracting national & international private sector companies to manufacture military equipment in India.

A large defense budget, less accountability & transparency, & PPP projects – a heady concoction which may blow up spectacularly if not executed well.

All About Pay and Perks: India’s Defence Budget 2016-17

Big role for private firms in defense

Weapons manufacture is backbone of ‘Make in India’ programme

Defense R&D – Analysis

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