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Govt. Must Consider Reintroduction Of Tax Incentives For R&D In Defence: Jayant D. Patil, L&T
Time-lags have proved a hurdle for defence equipment procurement in India, which is why the private sector L&T Defence’s ahead- of- schedule delivery of 100 of the K9 Vajra to the Indian Army is path-finding. L&T Defence heralds a new chapter in defence production in India, standing out as a leader with next-gen technology that ranges from the potential light tank to next generation submarines under the P75 I. Jayant D.Patil, Whole-time Director and Sr. Executive VP (Defence & Smart Technologies) - L&T, is a key force behind these game-changing initiatives and unprecedented transformation that the Indian defence industry is witnessing. In a free-wheeling chat with BW Businessworld’s Manish Kumar Jha, he addresses wide-ranging topics on technological innovation for the Indian Armed Forces.
Photo Credit : L&T
L&T's jayant D. Patil with Indian Army Chief Gen MM Naravane
In the most comprehensive account of L&T’s defence and smart technologies, Jayant D. Patil speaks on the entire range of projects and breakthrough technological prowess across—from the land forces to the critical naval projects. The innovation in the defence industry and the thrust on the R&D from the Government to the Private Industry will be the factor for India’s economic growth. Defence economy will drive and unfold such opportunities. Discussion ranges on: Light tank, Network of Spectrum (NFS), Battlefield Management System, Tactical Communications System, UAVs & CUAS, R&D, P75 I submarines, Warships and Nuclear submarines among others.
What’s next for L&T after the successfull K9 Vajra project? Even as you wait for your next order, how do you keep the partners that you worked with on this project engaged in the interim? Is there any new technology and weaponry that you have added to the K9 Vajra beyond the first successful delivery?
JD Patil: After completing deliveries of all 100 K9 Vajra gun well ahead of schedule, we have been anticipating further orders in Artillery and Armoured Systems domain. We have created a world class facility for manufacturing, assembly and testing of the Artillery and Armoured systems at our Armoured Systems Complex (ASC) in Hazira near Surat.
L&T had started the journey of indigenisation, right from the inception of the K9 Vajra program, by replacing fourteen critical systems in the Korean ‘K9 Thunder’ with indigenously developed and produced systems for the trial gun fielded for user evaluation trials, thus giving birth to the Indian version K9 VAJRA - a bespoke solution – custom built for harshest operating conditions and combination of requirements for Indian User. The VAJRA variant developed by L&T with India-specific features emerged fully compliant to Indian Army’s needs during the arduous and extended field evaluation trials. Having indigenously built 83% of work-packages for this program, team L&T Defence accomplished our inherent potential into track-record capability and empowered us develop & realize variants with enhancements as per the custom requirements of the End Users elsewhere as well as for our own Armed Forces.
While we await further orders we worked with the User for enhanced capabilities to the Vajra and make it terrain agnostic for the User. Also, we have continued to work on concepts to design other armoured systems with support of our foreign partner. On ground, the modular workstation concept to which the ASC has been built is being kept engaged with other weapon and engineering systems projects at hand and accelerate deliveries of these systems to the User given that our borders have turned active.
To prove the modularisation and agility aspect of the ASC Hazira and our PMSC complex at Coimbatore, we responded to the Nation’s call during the second wave of the pandemic and absorbed DRDO technology to produce Medical Oxygen Plants for the “PM Cares fund”. Having been ordered 249 plants in the middle of May 21, we have already realised, tested and certified 175 new plants (nearly half already delivered and expect to deliver all the plants on order by end of July 21 and empower the Nation for the impeding third wave. The skill agility to integrate complex technologies, speed, scale of production (thanks to the supply chain and inhouse robotised production lines) overwhelmed the other Govt agencies readying the sites for receiving the MOP plants.
However, our heart goes out to watch gradual withering away of the painstakingly developed supply chain of more than 1,100 supply chain partners of the ASC especially during the pandemic times while they ecosystem is fully competent to scale up production of not just further K9 Vajras but also other tracked armoured systems. While we are working on some export leads the pandemic not sparing any nation across the globe is proving to be a major constraint. Repeat orders for further K9 Vajra / other armoured systems are thus an urgent need and the decision makers are fully seized of the same.
What is the status of the light tank programme where DRDO is pursuing a partnership with L&T? The need for a light tank is an immediate and urgent requirement of the Offensive Mountain Corps (OMCs), but the “weight verses capability’’ criteria of the Army seems to be the key challenge. Do you see a breakthrough emerging for L&T in this case?
JD Patil: As mentioned above we are working on multiple concepts having been engaged to indigenously developing the FICV sine more than a decade back alongside the Vajra program. We believe that we have the requisite capabilities, infrastructure, skillsets and ability to manage and scale up production for mega programs in place as also appropriate partnerships to accelerate the development / customisation and realisation of class of platform systems such as FICV, Light Tank and FRCV.
Along the capability to upgrading the existing armoured systems with indigenous architecture and know-how, we don’t believe the challenges put up by the User are unsurmountable to achieve.
Do you think it is possible to integrate the light tank with the Tactical Communications System (TCS) and the Battlefield Management System (BMS) within 25 tonnes as specified? Are these parameters achievable?
With advent of electronics and miniaturisation communication systems and decision support systems can be truly made light today. Fact on ground is that the BMS program under Make was shelved by MoD for budget constraints and the TCS development is yet to be awarded to the two development agencies selected many years back. As to the integration of these into the Light tank, if the architecture of the Tank is keeping in tune with latest advances in electronics and does incorporate a digital communication BUS for all systems to communicate with it, the modularity and upgradability of the tanks can be architecturally inbuilt. This is similar to the IPMS in today’s Naval platforms.
Future tank concept by DRDO
A digital communication BUS can enable fully transparent armour and convert the tank in to a remote station with crew under the safety of the armour and even enable a remote controlled (unmanned) armoured systems.
On the Light tank RFI, we are midst analysing the requirements and evolving a solution that would best addresses the requirements of the End Users. Any such complex system conceptualisation would involve trade-offs & version mix in view of physical limitations of Tank internal volume envelop w.r.t. to the performance needs.
How is the Network of Spectrum (NFS) project unfolding for the Indian Army which aims to unify the entire network? How will it transform the operational capabilities for building next generation smart army?
JD Patil: As part of Network for Spectrum (NFS) arrangement Defence has surrendered 40 megahertz (MHz) of spectrum to the Department of Telecommunications (DoT) 25MHz in the 3G band and 20MHz in the 2G band. The NFS project was envisaged to on one hand release the spectrum (as a national resource) for commercial exploitation and on the other hand boost and securing the communication capabilities of the Defence Forces by providing a dedicated & enhanced tri-service communication network for better operational jointness. Bharat Sanchar Nigam Limited was appointed as nodal agency for implementation of the various Projects under the NFS program.
Broadly, the NFS network comprises Optical Media Layer, GIS based Optical Fiber Network Management System, DWDM Backbone Layer, IP MPLS backbone Network to make the network secure, and scalable with secured bandwidth at each station, Microwave Radio & Satellite Layer and the Unified Network Management System (UNMS) Layer as a common management platform.
In March 2020, L&T’s Smart World & Communication (SW&C) Business was awarded a contract for a first-of-its-kind, state-of-the-art Unified Network Management System (UNMS) to better manage & monitor the network operations and deliver high quality of service through Next Generation Operation Support System (NGOSS) solution. The UNMS architecture allows management of multi-vendor, multi technology components and devices in the network in a secure manner.
The project involves the creation of a resilient Cloud based IT infrastructure, Network Operation Centres for network services, monitoring & Control involving setting up of multiple Tier III Data Centres with state of the art capabilities including Cyber Security solutions and services in the form of Security Operation Centre to provide robust, watertight cyber and communications security.
The centralized intelligence with decentralized views and management capabilities including visualization and analysis tools, fault management, network performance analysis will Improve operational effectiveness and efficiency in managing assets to provide effective & secure communication network for the Armed forces.
Despite the challenges posed by the pandemic globally, the project an accelerated implementation track with the joint and unstinted efforts of the User, L&T & BSNL and is being expedited for earliest completion.
Last year you had announced the development of indigenously developed unmanned systems, hi-tech drones and anti-drones (UAVs) integartaed solutions in collaboration with ideaForge. Have you come up with any viable solutions for the military, which is in urgent need of such air -defence solutions in the wake of the recent drone attack in Jammu?
JD Patil: L&T is focussed on development of Unmanned / Autonomous systems across domains spanning across Land, Air, surface Seas and Underwater for range of uses including surveillance, analytics, serving as autonomous targets. We also engage with multiple startups and SMEs such as ideaForge and more. These relationships have been extremely useful in our smart city / safe city domain during the Covid pandemic times. Innovation in deployment of drones proved very efficient means to control monitoring social distance in public spaces, enforcement of lockdowns, thermal mapping of crowds and heat maps of crowd density.
L&T has been a trusted partner to DRDO and the counter drone systems is not a domain of exception. While we have been a partner to DRDO for development of few major building blocks, we have also expressed our keen interest against the latest EoI from DRDO for acquiring the ToT and scale up the deployment of counter drone systems. Concurrently, we have integrated a counter drone system solution, offered it against Multiple RFIs under different stages of discussions / acquisition and are in the process of developing an indigenous solution encompassing both RF guided as well as autonomous drone detection as well as Kill solutions.
How is the P75 I submarines programme progressing for L&T? Could you give us the sense of the investment in technology and assembly infrastructure that L&T will infuse into the programme? What are the elements of technology (ToTs) that L&T is looking at from foreign partners? What about some of the other major hurdles such as the AIP system and greater firepower than the Scorpene class?
JD Patil: As we speak, post clearance by DAC on 04th June’21, the RfP for P75(I) is in the final stage of finalization and expected to be issued soon. We, at L&T, have been preparing for this Program since 2002-3 as Navy and MoD embarked upon the path of Navy’s 24 perspective plan to build 24 submarines by 2030 and clearance by CCS to build them indigenously in two lines of construction. Having built a domain specific track record and firm beliefs in development of Indigenous technologies to build Underwater platforms, we have been building the organizational capabilities, Infrastructure, Skills, Talent, Processes and technologies to build submarines indigenously.
L&T’s technological capabilities and infrastructure have been primed for submarine construction through its three decades long association and experience in engineering & construction of strategic underwater platforms of India. In fact, L&T’s competencies and infrastructure in this field are completely differentiated in the country, especially in the facets of detailed design, development of indigenous technologies in critical fabrication and system integration of underwater platforms. Since the build philosophy of the P75(I) submarines is going to be modular, that we practice in inhouse warship design and construction in our mega shipyard, we may require to learn and imbibe the modular fabrication of Submarines as well as design, production and integration norms besides minor infrastructural augmentation in consultation with the Foreign Collaborator (FC) of choice.
As we understand, the P75(I) program is aimed at receiving ToTs from the FC in the areas of Functional Design, Detailed Design, Construction and Maintenance. L&T’s track record in all these domains as well as our inhouse ability to design and develop platform specific equipment and systems and support these through the life would differentiate us to be able to add value to the User and better fulfill the RfP mandate during the course of the Program. However, it is pertinent to mention here that L&T is fully capable of undertaking the construction of submarines and would not have to depend significantly on the Construction ToT be it in understanding the metallurgy of the materials used, processes, Jigs, Fixtures, Tooling and Industry 4.0 practices.
The requirement of AIP has always been a part of the P75(I) program and known for long years. Thus, the shortlisted FCs are all well aware of the same and been evolving their own technologies to address the same. With advanced levels of maturity of range of AIP technology solutions that the FCs are currently at, we do not believe it to be a major hurdle.
Also L&T’s association in partnering DRDO (NMRL) in development of indigenous AIP as principle integrator, we believe we should be able to deal with the variety of AIP solutions on offer by the FC’s and chose the one that best meets the User requirements combined with winability of the program for L&T.
Similarly, we are given to understand that the firepower requirements have been extensively discussed with the FCs at the EoI stage and as far as we know, all of them have conveyed their compliance to the requirements. Also we believe, L&T’s maturity in design and development of wide range of Naval weapon systems including Antisubmarine, Anti-ship, Land attack warfare will provide us an edge.
We now await the receipt of the formal RfP and upon study of final requirements finalise our strategy, partnership with FC and respond in desired timelines.
Based on years of design level work for India’s nuclear powered ballistic submarines, time has come for the indigenous effort on nuclear powered attack submarines. Does L&T intend to strive that benchmark in embracing such effort? Any talks with GOI on this?
JD Patil: L&T’s association with the strategic program dates to mid-eighties through development of a series of platform-specific equipment and systems. L&T has thereafter remained engaged with the program for development of host of indigenous technologies, detailed design and construction.
The indigenisation in the strategic submarine program has been extremely high and has attained unprecedented levels, in multiples of those achieved in any complex hi-tech defence platforms produced in India, with the exception of some very recent warship building programs.
(SSBN: It is a Ship Submersible Ballistic Nuclear Submarine. SSBN's are those class of submarines which can remain deep beneath the ocean making them virtually undetectable for months, they also carry nuclear-tipped ballistic missiles.)
L&T, in association with, and enabled by the Program, has established a track record of formidable indigenous capabilities including in-house development of technologies, submarine specific Steel alloys, plates and forgings, Production processes, jigs-fixtures and tooling, skill development for indigenous construction of submarine hulls as well as engineering equipment, weapon complex, PGD and control systems and platform integration through ‘Industry 4.0’ digital processes.
L&T has established a dedicated submarine design & engineering center for detailed design & engineering of hull, engineering and electrical systems. The center equipped with a virtual reality studio and state-of-the-art digital and automation tools has proved to be the nerve center to achieve high levels of first time right with detailed planning and sequencing being done in the digital domain as also leveraging the digital twin approach. L&T’s work centres have been ab-initio developed indigenously and matured to undertake 3D-assisted outfitting as well as quality control, system integration and system-level tests & trials.
Thus, L&T holds some unique capabilities in the underwater domain that, thus far, remained to be brought in under ToT in India. A few examples of such capabilities are,
- Technologies, processes, methods and tooling for complete pressure hull fabrication using a range of alloys used in eastern as well as western philosophies of submarine building,
- Torpedo Weapon Complexes,
- Solutions for handling of megablocks in multiple thousands of tonnes,
- Ship Lift to handle docking / undocking of vessels upto 21500 ton in a couple of hours,
- Development and Manufacturing of a range of platform-specific equipment, etc.
With these established competencies, capabilities and infrastructure, L&T is well-prepared to meet the requirement of realization of indigenous submarines and achieve high levels of indigenization and break free from ToTs for future submarine building programs.
How does the MoD support for the private sector defence industry in the way of grants for R&D compare with that of DPSUs and the DRDO which are supported to the scale of around Rs 25,000 crore?
JD Patil: L&T’s journey into the Strategic sectors commenced more than five and a half decades ago. The inception as far as Defence sector is concerned, was activated in the corporate R&D of L&T which dates back to early 70s. It was unprecedented at the time, for a company the size of L&T, then, to have a full-fledged DST accredited corporate R&D with technical experts focused on in-house development of contemporary technologies, pilot plants and prototyping facilities to offer differentiated turnkey solutions with performance guarantees to the customers. This R&D assumed the role of an ‘incubator’ for several in-house start-ups including Defence, which over the years transformed into business verticals of L&T as we see today and paving way to knowledge driven businesses with little dependence of external sources of knowledge / technologies. These initiatives of growing the business through focus on R&D was made as an in-house decision by L&T without relying on support from Government agencies for R&D funding.
L&T in mid-eighties associated with Defence Research & Development Organisation (DRDO) and also participated in the Naval indigenisation programmes funded by them, one and a half decade ahead of opening up of the Defence Production for private Industry participation. This association contributed to a series of success stories in indigenous development of equipment and systems over the years and L&T built trust amongst the End Users which paved way for our involvement in newer and complex developmental programs. This approach to R&D was unconventional and not through direct funding by the MoD to L&T.
The policy directives currently in vogue for promulgating R&D efforts in the private defence industry comprise of only two major initiatives, namely the iDEX and Technology Demonstration Fund.
iDEX strives to promote innovation and R&D for smaller solution offerings and amongst startups with a maximum cap of Rs.1.5Cr per initiative and the entire funding being around Rs.500 Cr only. The Technology Demonstration Fund (TDF) on the other hand seeks to meet the innovations for bigger challenging initiatives and a cap of Rs.10Cr per initiative is made available.
However, it would be pertinent to cite that TDF is also routed through DRDO and not directly to the Private Sector. While both these schemes are right in their positioning they can hardly be harnessed to do serious systems / platform development through access to MoD funding, irrespective of direct route through iDEX or through DRDO for TDF.
The Defence Acquisition Policy on the other hand provides a framework for enabling the funding for Private Sector through its Make-I Category of acquisition where upto 90% of the prototype funding would be released in a phases manner.
However, despite multiple acquisition cases being initiated under this category, not even a single one has taken off as on date, however the MoD leadership has recently assured at least five Make-I programs to be awarded every year here--onward.
In view of the above, despite a proven example like L&T which could enable itself to make a significant footprint in the defence sector through in-house R&D, there is an urgent need to provide a larger opportunity for Private industry to contribute to the Defence sector.
However, going forward the government must consider reintroduction of tax incentives for R&D in targeted strategic sectors to Indian economy. Such incentives were prevalent till 2015 wherein R&D funding in new product and technology development in a DSIR recognised R&D centre were allowed accelerated Tax exemption up to 200% of the investment made. This was an industry friendly policy and paved way to nationalist companies like L&T to fund their own R&D.
L&T joint ventured with European MBDA Missile Systems to offer advanced missiles and missile systems to the Indian Armed Forces through domestic production. What kind of advance system to be offered? Export opportunity?
JD Patil: L&T’s relationship with MBDA has progressed from co-operation, collaboration to partnership over the last decade. We have established a Joint venture company named ‘L&T MBDA Missile Systems Limited’ (LTMMSL) during 2017. The initial period has been invested in capability and capacity development.
MBDA is world’s largest exporter of advanced weapon systems (Missiles and PGM). LTMMSL has access to most advanced weapon system technologies and positioned to offer the select ones to suit the needs of Indian Armed Forces. LTMMSL have already offered a short-range air defence Missile system to enhance point and area defence maritime capabilities of Indian Navy’s in-service warships. LTMMSL has also responded to the requirements of Medium Range Anti-Ship Missile system for Indian Navy and is offering the globally acknowledged Exocet missile system. LTMMSL is also positioned to offer the niche technology 5th Generation Anti-tank Guided Missile (ATGM 5) to Indian Army as well as to Special Forces.
LTMMSL is currently engaged on exports of missile subsystems and launchers from its greenfield facility in an SEZ at Coimbatore and has exported air-to-air missile launchers that are also being fitted out on Rafael Fighters for IAF. This facility was created with start of work in later half of 2019 and commissioned during the pandemic after series of national lock downs and deployed digital processes for training and skill building under active guidance by MBDA team in UK and France for the assembly integration and testing.
How can India be a shipbuilding hub, building warships for others, positioning India as a real security provider in the Indian Ocean Region and beyond? What kind of policy support can enable this?
JD Patil: Defence Sector opened up for Private Sector participation in 2001 and licensed in 2002. However, all major Warship programs continued to be awarded to the DPSUs on nomination basis until recent years.
If one sees this period in segments nil RFPs were issued on competitive basis for first five years, the next five years over FY06 to FY11 witnessed 95% programs by value nominated and 5% under competitive basis. Over this period Private sector shipyards won all the programs offered on competitive basis. The subsequent decade until FY21 saw just about 15% programs by value under competitive basis (85% programs by value stayed nominated). Of these private sector won just about 5% and DPSUs won 10% as Govt owned yards learnt to bid minor programs very competitively (having lost all programs in previous 5 years) while the majority order book stayed nominated and enabled the same.
We have seen a significant change over past five years as multiple RFPs have been tendered out in competitive mode but these have been all for auxiliary vessels and just one weaponised class of ship (NGMV).
While this is a big positive for the shipbuilding sector as competition drives efficiency and price discovery, an impartial level playing field for fair competition is yet to be accorded to Private Sector Yards. This is visible from the fact that three of the four major Private Shipyards have gone bankrupt due to lack of orders and consequent idling of capacity leading to non-performance / debt trap denying them ability to service the investments made in creating assets over the past decade.
On the other hand, the Govt owned yards have continued to grow their order books that will last them between 11 to 16 times current revenues with the exception of one that has an assured large nominated program in the pipeline.
MoD’s experience with performance of Private shipyards has been a mixed bag, with extremes of delight as well as shear frustration. While L&T has consistently delivered 61 vessels against four contracts with the last and 62nd scheduled to be delivered this month, all ahead of schedule to Coast Guard & Navy, most other yard faltered on their deliveries as bankruptcy got invoked, with the exception of some minor shipyards. Navy and MoD, in line with GoI’s initiative to enhance Private Sector participation, have been at work over past two years on evolving norms for shortlisting competent yards, both Private and Public. These are reflected in the significant amendments in DPP16 that mandate upfront Capacity assessment including compliance to both Technical and Financial parameters of the Yards. While RFPs are issued only to the Technically Qualified Entities, clearing the Financial Assessment is mandatory before commencement of Technical Evaluation. Significant features of these amendments stipulate minimum turnover requirement and Financial credit ratings that the Yard must have to be shortlisted for issuance of any RFP. L&T’s shipyard has been technically assessed and graded Cat A, signifying L&T’s ability to bid for all classes of weapon intensive ships, submarines as well as auxiliary vessels.
Thus, it can be seen that MoD is moving on a firm path inclusion of Private enterprise and implementing corrective measures in the policy to ensure fair competition. These address nomination issues going forward except the Govt owned yards enjoying asset servicing costs benefits as their asset (capacity) creation was through MoD Grants as well as multiple ToT benefits. The Pvt. Yards, on the other hand, have to fund asset creation as well as servicing the assets created through debt financing and have only to rely on their efficiency, new age digital processes and Innovation to achieve better conversion costs, a must to continue to survive.
In addition to the above, expediting order placement on shipyards in a balanced manner ensuring capacity loading across the public and private yards can improve the overall efficiency in Shipbuilding. With on time delivery track record in the domestic market our yards can harness opportunities in the global market as well.
With formation of QUAD, India has assumed a responsibility to be the security provider in the region as also maintain global order. This by itself can grant India an opportunity to be the hub for Naval Shipbuilding with regional players sharing the resources to maintain peace and tranquillity in the region. For this India needs to use defence diplomacy to its advantage by leveraging the nimble footedness of Private Enterprise in Shipbuilding.