Taking The Rust Off The Cannon
To transition from a net importer of armaments to a key player in the world mart, India needs a new ecosystem for defence production
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At Def Expo 2018 in Chennai in mid-April, India displayed the indigenously built BrahMos missile and the Tejas Light Combat Aircraft to showcase its advancements in defence production. Obviously, India sees herself as an exporter of military hardware in the years ahead and not as the net importer that it is now. Perhaps, that is precisely what the new Defence Production Policy 2018 unfurled late in March also strives to do.
Seven decades after Independence and a labyrinth of ordnance factories that have only grown in numbers since, India continues to purchase 60 per cent of its defence equipment from the global mart. India’s annual purchase of military hardware is close to $5.5 billion, or more than the combined armament purchases of China and Pakistan.
Announcing its Make in India initiative in 2014, the Narendra Modi government had underscored the financial drain in arms imports and the absence of a coherent policy to overcome it. As many as eight defence public sector undertakings (DPSUs), 41 ordnance factories (OFs) and 49 Defence Research and Development Organisation (DRDO) laboratories dot the country. This massive infrastructure has enabled development of indigenous technology and products like communications and missile technology, but complex military hardware still has to be purchased abroad. The technological chasm between the best in the market and home-grown hardware remains significant.
After four years of vacillation, a draft Defence Production Policy was announced late in March. The policy is intended to lend clarity to the initiatives of not just large private companies, but also the massive clusters of medium and small and medium enterprises (MSMEs) across India that plan to build up capacity in defence production. These ventures, both big and small, are striving to develop capability and preparedness that match international standards of original equipment manufacturers (OEMs) and defence public sector undertakings (DPSUs) worldwide.
On 4 April, at the curtain-raiser of Def Expo 2018, the Union Ministry of Defence announced that it would “uncover India’s growing private industry and spreading MSME base for components and sub-systems” through a slew of measures and initiatives. The ministry announced that it was looking forward to increasing the participation of domestic players in the defence space, to be able to bring down imports by 20-25 per cent four or five years down the line. It will not be an easy task, especially since India’s defence policy has been sluggish. Defence production is a business that needs both sincerity and vision.
Business of Defence
A mere Rs 1.13 lakh crore of foreign direct investment (FDI) has flown into the defence sector in the three years preceding 2017. India allows 49 per cent FDI in the defence sector through the automatic route and 100 per cent FDI on a case - by - case basis (when the foreign partner is willing to transfer technology entirely, for instance.) The FDI norms hardly qualify as a comprehensive policy. The clause for approval on a case-by-case basis, for instance, is somewhat nebulous. “Allow 100 per cent FDI in defence through the automatic route. It is better that OEMs manufacture their products on Indian soil than on theirs,” says Amber Dubey, India Head of Aerospace and Defence at KPMG. “Almost 80-90 per cent of their employees would be Indian - a whole generation of tech-savvy Indians,” he goes on to say, adding “and entrepreneurs will build our own desi Boeing and Airbus someday”.
The Defence Production Policy slated to be rolled out later in 2018, aims to promote domestic production by the public sector, the private sector and MSMEs. The policy prophesises that indigenisation would lead to a turnaround in defence production by 2025 and generate about Rs 1.26 lakh crore in revenue.
Defence public sector undertakings (PSUs) like Hindustan Aeronautics Limited (HAL), Bharat Dynamics Ltd (BDL), Bharat Electronics Ltd (BEL), Mazagon Docks and Shipyards Ltd (MDL) and the Defence Research & Development Organisation (DRDO) laboratories are accustomed to working on defence production and R&D at their own pace and rhythm.
In the absence of an MSME cluster for defence equipment, many of these DPSUs are dependent on overseas supplies of hardware components. Many have built capabilities across the tiered value chain to complete the assembly line, only to end up with inefficient and run-down mechanisms. “India cannot develop a robust defence industry till it junks its deep-rooted, illogical and self-defeating trust deficit with India’s private sector,” says Amber Dubey.
Dubey points out that the world’s most advanced defence forces, like those of the United States, the European Union, Canada and Japan, depend almost entirely on private sector manufacturers for their military hardware, with some checks and balances thrown in. “India’s over dependence on DRDO, DPSUs and OFB has ironically, made us completely dependent on the same OEMs in the US, EU and Israel,” exclaims Dubey, referring to the big ticket deals that India constantly needs to enter into for “necessary components” every now and then.
The absence of a cogent, comprehensive defence production policy and the consequent void in production of quality military hardware and components was a primary reason why the Armed Forces had to constantly shop for equipment overseas. Rising security concerns led to frenzied buying of armaments, bringing India into the league of the largest importers of military hardware in the world.
Closer home, China, which too was among the biggest importers of heavy-duty military hardware, has changed tack. It is today among the top five exporters of defence equipment and arms, selling everything from fighter jets to military tanks. The disciplined overhaul was no Chinese miracle, but the outcome of a vision, aligned with a policy to achieve economies of scale. The Chinese makeover from an arms importer to exporter was achieved through technology transfers that resulted from collaborations with overseas manufacturers of military equipment.
India has its indigenous innovations too, like the Light Combat Aircraft, Tejas. The Aeronautical Development Agency (ADA) completed Tejas over a span of three decades. It was conceived in 1983 and reached the stage for a trial 30 years later, even though the heart of the aircraft — a single engine — comes from General Electric. Tejas still has some glitches, including just one hour of airworthiness. Air Vice Marshal Manmohan Bahadur’s (retd.) riposte is that it is high time that HAL pulled up its socks and delivered the project on time.
Edge in Collaborations
In both the United States and Israel, research collaboration with private companies and open research laboratories with academia have helped spawn indigenous defence production ecosystems. In France, the Naval Group has entered into technology collaborations across the EU countries through its Open.Lab Revolution.
The Naval Group’s Open.Lab is a space dedicated to new ideas and drivers for technological breakthroughs that the Naval Group could use. Open.Lab is a laboratory for new creations and innovations, driven by sharing of knowledge and know-how. Its in-house community is made up of coaches and employees. Externally, Open.Lab is interconnected with startups, universities and the Fab&Co network.
It is ironical that India is only able to produce 40 per cent of the defence equipment and military hardware it requires, considering the massive military and industrial infrastructure that exists around the country. Experts suggest that energising the home-grown defence production ecosystem would require a complete policy overhaul. A vibrant military equipment manufacturing industry, would be an opportunity to not only bring in world class technology, but also create thousands of jobs in a country that has a high rate of unemployment.
Most of all, a home-grown and vibrant defence production industry, would be another cannon fired by the world’s fastest growing large economy.
Some Commandments For a Zesty Thrust To Make In India
Experts say defence production needs a policy thrust. Will the new draft Defence Production Policy fit the bill? This is what analysts recommend:
1. Demand aggregation and smart procurement to evolve the scale and size that could make manufacturing in India profitable. The piecemeal orders available now will not encourage the building of national capacity
2. Liberalising the aerospace and defence
(AD) sector and increasing the FDI limit
3. Further liberalisation of FDI norms under the automatic route
4. The defence procurement procedure must be simplified and aligned with standard and simple procurement procedures
5. Speedy granting of licences where required
6. Revamping conditions for strategic partnerships
7. A push to the much-hyped Make in India projects, namely, the Futuristic Infantry
Combat Vehicle (FICV), Tactical Communication System (TCS), and Battle
Management System (BMS) that now seem to be in a comatose state
8. More clarity on the existing doubts and confusions on the Make II procedure,
9. Push to four projects under the Strategic Partnership Model (SPM), namely, P75 (I)
submarine, Naval Multi Role Helicopter (NMRH), Naval Utility Helicopters, Future
Ready Combat Vehicles and Single Engine Fighter Aircraft
10. Thrust to the public-private partnership (PPP) model
11. Trashing the dysfunctional, multi-polar, suspicion-driven and endlessly long defence procurement procedure