INDIGENISATION IN DEFENCE : A STEP IN THE RIGHT DIRECTION

Introduction

1.         Self reliance in defence technology and production is a pre-requisite for any nation that aspires to become a great power and have an enviable standing in the comity of nations. Currently our defence acquisitions have more than 2/3^rd of import content, which, to be realistic, is alarming. The drying up of spares and assemblies for tanks, fighter planes and a host of other equipment after the break-up of USSR is a stark reminder of heavy dependence on imported weapons, equipment, vehicles and ammunition. Critical deficiency of Artillery ammunition during the Kargil War was made up by import from South Africa, amongst others. There are, in fact, numerous examples, where the defence forces experienced real hardship in upkeep, repair, overhaul & maintenance of the imported equipment due to low availability of spares and assemblies. For nearly all equipment and weapon platforms, the vendor offers all possible spares and assemblies in the form of MRLS (Manufacturers Recommended List of Spares). Ultimately the importing country ends up with a host of spares that are procured in quantities, well above the lifetime requirement while certain other spares and assemblies fall short of minimum inescapable requirement. This leads to a situation where the availability of weapons/ equipment gets adversely affected even after substantial amount of public money has been expended on import.

2.         As more than 2/3^rd of our total defence needs are still being imported, there is, therefore, a strong reason to find ways to expedite our march towards Indigenisation and reduce the foreign component of our weapons and equipment.

Where we stand?

3.         The current acquisition process aims at procurement of weapon platforms and equipment for modernisation while according reasonable priority for in-house research and development. However, the change in defence technology base and production capability of Defence Public Sector Undertakings (DPSUs) and Ordnance Factories (OFs)  can at best be described as ‘Incremental’ and not ‘transformative’. The host of weapons & equipment procured from Israel, Russia and certain other countries needs constant support from their engineers for repair and maintenance. Even in the case of tanks, aircrafts and vehicles that are manufactured in India, under licence from the original manufacturer, the Transfer of Technology (ToT) has not taken place in the true sense. In many cases, the Indian companies are merely assembling completely knocked down or semi-knocked down kits and the mark of ‘Made in India’ is affixed.

4.         The DPSUs and OFs are not able to meet the contracted time lines for supply of munitions and weapon systems. The levels of WWR, especially in case of certain categories of munitions are way below desired levels.

5.         There is however, a realization and a sense of urgency, clearly evident in the defence establishment for facilitating the participation of Private Industry in defence products with ToT clause, where requirement exists, is included at the RFP stage itself and being built into the contract even when the same may lead to higher acquisition cost. To make up for the lack of highly sophisticated technology, ToT is essential, as an interim measure; till indigenous enterprises, both Public & Private, are able to make reasonable forays into design and development of future platforms, vehicles and equipment.

6.         The Govt has taken significant measures to promote indigenisation by encouraging Private Sector participation in Defence Sector. Releasing the list of Defence items, further pruning down the list, initiating ‘On-line’ application for issue of Industrial Licenses and enhancing FDI limit in Defence Sector, are some of the notable measures taken by the Govt in the past two and a half years.

7.         The effort has been aimed to encourage Pvt Industry to venture into design & development and manufacture of weapons, equipment, specialist vehicles and warplanes. So far favourable recommendations have been given for grant of NOC, by the Army, in maximum cases. More requests are expected in coming months, as it trickles down to the industry that the environment is becoming more business friendly.  Also, a few DPSUs, OFs and Pvt Companies have come forward to export military equipment to other countries like Israel, Kazakhstan, Philippines and Vietnam etc. The exports have multiplied three folds in the past two years. The cumulative figure for the current financial year is likely to be well above Rs 2000 cr. We can draw consolation that a beginning has been made with the opening of export to friendly foreign countries.

Areas Needing Attention

8.         Much ground has been covered to provide conducive environment for Private Sector Participation in Defence Sector. However, certain grey areas remain, that are discussed in subsequent paras.

9.         Operationalisation of Manufacturing Processes.     OFs and DPSUs have not been able to absorb fully, the technologies after executing ToTs; forget the ability to further enhance them. Thus, we are still dependent on foreign countries for many critical assemblies and sub-assemblies; defeating the very purpose of ToT. Indigenisation is therefore, a long way ahead. Further ToTs for similar equipments with each new purchase may be avoided. After ToT, complete focus should be on operationalisation. A firm from South Africa was black listed before the operationalisation of manufacturing processes of equipment for which ToT had been carried out, thus severely crippling the indigenisation efforts.

10.       Human Capital.       The higher education standards in India are certainly not comparable with the best in the world. An example of the same is the abysmally low standing that the Indian Institutes of Technology (IIT) enjoy among the first                500 Engineering colleges in the world. With only IIT Kharagpur in the first 500 engineering colleges, we can well imagin where do the Regional Engineering and private universities/ colleges stand in educational standards. The Indian universities, both public and private, need to focus on creating a rich pool of talent for the industry to absorb for progress in defence R&D. Our curriculum has to be inclined more towards practical and research oriented studies rather than theory.

11.       Processing of Applications for Industrial Licenses.   The ‘on-line’ applications for obtaining Industrial Licenses, submitted by the entrepreneurs take longer time to respond. The applicants have no means to find out as to where the application is stuck and which ministry or department has commented adversely on the application. This needs to be resolved urgently to send a message to the environment about the transparency and probity in the system.

Recommendations

12.       To march speedily and steadily on the road to indigenisation and self reliance, certain measures as discussed in subsequent paras are recommended.

13.       Capability Development.     Focus should be basically on capability building through indigenisation. For this we need to first and foremost take steps to modernize our DPSUs and OFs. A roadmap for the same is required to be formulated urgently.

14.       Funds for Capital Acquisition.      Larger proportion of funds should be earmarked for capital acquisition. Very little amount of money is left for modernisation after taking out committed liabilities. Currently only 42% of budget is available under capital head. The revenue expenditure is approximately 58%. This proportion needs significant alteration. It should be the other way around, with a major chunk of budget earmarked for the capital acquisition/ modernisation of the forces.

15.       Consortium Approach.

            (a)       Brahmos Super Sonic Cruise Missile, a joint venture between Indian Govt            and Russian Federation has been a massive success. We need to adopt          consortium    approach on the lines of Brahmos Aerospace. We need to           capitalize maximum on the ability of numerous companies, bring them under one           umbrella and push ahead for successful culmination of our Design and   Development projects. The Brahmos missiles are already inducted by the Navy    and the Army.

            (b)       Pinaka MBRL is another example where public and private companies      came together to develop a formidable weapon system. The Armament             Research & Development Establishment (ARDE), Tata, L&T and OFB have            worked in close cooperation to make the project a success. Procurement process          for induction of the weapon system into the Indian Army is already ‘on’.

16.       Public Private Partnership.    To overcome the problem of overshooting contracted timelines over and over again, two options are available. The 1^st option is to enhance production capacity and the 2^nd option is to tap the expertise gained by private sector in manufacture, management and marketing in the last six decades. There is a need to adopt middle path to achieve the desired ammunition/ missile levels. The private sector would need a helping hand in the initial stages which is feasible by forging mutually beneficial public-private partnerships/ JVs.

17.       FDI Policy.    The FDI policy has been relaxed considerably since 2014. Exports need to be encouraged and industry prodded to take advantage of economies of scales. Further relaxation, in cutting edge technological fields to ensure that the foreign companies manufacture state of the art weapon systems in our country, is recommended strongly. Manufacture of weapons & equipment in own country by a foreign firm is any day preferable than an outright import through ‘Buy’ and                ‘Buy & make’ categories.

18.       Upgrade Production Capacities.     There is a need for immediate review and  up-gradation of the existing production capacities. In at least some of the DPSUs and OFs, the expansion of capacities, without waiting any further, is a must. Once the DPSUs and OFs are able to meet demands of own Armed Forces, then, we can certainly expect exports of sizeable number of weapons, equipment and ammunition to friendly foreign countries.

Conclusion

19.       India rightly deserves to graduate from an importer of defence products to a self sufficient nation and finally aspire to become a net exporter to other friendly foreign countries. By adopting consortium approach, encouraging private sector industry to participate in defence R&D and production, streamlining the process of issue of Industrial License, liberalizing export of defence products to friendly foreign countries, relaxation in FDI policy and forging public-private partnerships, this graduation would be expedited. More needs to be done to ensure that this incremental change leads to transformational change and India emerges as a hub for defence equipment manufacturing in the near future.