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INDIGENIZATION WAY FORWARD

India's defence industrial base continues to be associated with a huge amount of inefficiency. Measured in any performance parameter such as innovation, customer satisfaction, timely delivery, productivity and export earnings, they portray a rather dismal picture. India is the world's largest arms importing country with about 13% share in the global arms import during 2012-16 as per SIPRI data. No Indian would be happy with the label of world's largest importer of arms. Indeed, there is displeasure over the fact that a technologically dynamic country like India should continue to import a substantial volume of defence hardware. In fact, with 40 ordnance factories and eight state owned high profile defence enterprises around, it is inconceivable that India is far from self sufficient in meeting the needs of its armed forces. Fact of the matter is despite hype on “Make in India”, which talks big on private sector participation, not a single major contract of significance has been awarded to private sector. Instead the order book of the state-owned entities have been swelling without competitive process, but on a golden platter handed over to them by the government on nomination basis. Resultantly we are likely to retain our World ranking in Defence Import.

In the recent report Parliament's Standing Committee on Defence reveals that the United States has been India's biggest supplier of weapons platforms over the past three years. It is followed by Russia, Israel and France in that order. India concluded contracts worth Rs 28,895 crore ($4.35 billion) with the US during 2013-14, 2014-15 and 2015-16. (Refer Fig below)

The MoD, when providing Parliament with figures, treated all orders placed on DPSUs and OFs as indigenous orders. On Friday, 10th March 2017 the defence minister told Parliament that, of the Rs 66,821 crore in capital procurement in 2013-14, Rs 31,576 crore was paid to Indian vendors; and of the Rs 65,584 crore capital procurement in 2014-15, Rs 39599 crore was paid to Indian vendors. (Refer Table)

Capital Procurement in Rs Crores

YearTotal Capital ProcurementFrom foreign OEMs*DPSU/OFB*Ratio Direct Import: Indigenous
2013-14  66,821 35,245   31,576 53:47
2014-15  65,584 25,985   39,599 40:60

As per the figures* provided to the Standing Committee, we are dependent on import for our weapons and equipments nearly 40-53% of our defence requirement each year and about 40-50% is indegenous inventory, which is far from ground reality. These figures only indicate direct import i.e, complete platform import.

Indirect Import

The myth of substantial indigenous production that the MoD perpetuates by citing orders placed on defence public sector undertakings (DPSUs) and Ordnance Factories (OFs). The MoD response does not give details of extent to which orders for “indigenous" weapon systems and equipment actually pay for imported equipment. This is because the equipment supplied by DPSUs and OFs contains many components, sub-systems and systems acquired from foreign vendors, but are not shown as DPSU or OF into the “indigenous” kit it supplies. These could be from 35-40% of the supplies as evident from the facts below:-

  • MOD data shows that between 2009-15, the Govt sector production units, nine DPSUs spent a whopping Rs 78,740 crore on these indirect imports. The amount spent represents 57% of their combined turnover, and is comparable to the direct import undertaken by the MoD.

Hindustan Aeronautics Ltd retains the import content of the Sukhoi-30MKI fighter at 44%, even after building it in India under license for over a decade. However, as an estimate how much foreign component each DPSU or OF puts into the “indigenous” kit it supplies can be made from the Table above.

As seen in the chart the DPSUs spent an average of Rs 13000 crore worth of business to overseas entities in 2013-14; and 2014-15, which dramatically enhances India's foreign arms dependency.

The actual picture of import dependence will emerge once we combine the direct and indirect import beside the procurement of spares ex-import. This has been compiled in Figure above.

 

Import from Revenue Head

In fact the above figures also does not give the real picture. In addition, the equipment imported and supplied by DPSUs and OFs contains many systems, sub systems and components acquired from foreign vendors and a huge sums of foreign exchange is spent on procuring them ex-import. Russia supplied 68 per cent of the equipment India imported in recent period. Most components and spares required for maintaining the platforms and life-cycle support though manufactured in India through technology transfer or through joint ventures with Russian companies are still being been procured for platforms such as SU-30 MKI aircraft, Mi-17 helicopters, MiG-29K aircraft, aircraft carrier INS Vikramaditya and T-90 tanks. These are procured from Revenue allocation and are never disclosed or shared. On the average these could be about 3-5% of the cost of platform. Taking above in mind, in reality the indigenous contents are less than 40% only and the import is over 60%.

Need to Involve Private sector in Design and Development

The work culture of the Defence Research and Development Organisation also came under the scanner of a parliamentary panel which, in its recent report, had pointed out the number of delayed projects. The armed forces, the end users of the technology, were far from satisfaction with the performance of the research body as several top of the line equipment under development fell short of expectations. There is an urgent need to overhaul the organization; there have been many complaints about projects getting delayed, leading to cost overruns impacting the modernization of the armed forces. The younger scientist with better profile should lead to lead the organization.

DRDO is responsible for development of products, technologies and upgraded military systems to make India self-reliant in the development and production of defence hardware. Since 1958 on an average DRDO has spent huge sum of money the nation can afford for its research, design and development. Despite tall claims the reality is the DRDO has been wallowing in a state of complacency, has achieved little to fulfill the requirements of the Indian armed forces, despite the massive investments the nation has made. Projects assigned to the DRDO are characterized more by time and cost overruns and it does not need a great deal of wisdom to realize that in its present disposition as well as the track record so far, the organization is unlikely to do any better. The Indian armed forces therefore will have no option but to continue to depend on foreign sources to meet with even some of their basic needs in respect of military hardware. It is indeed a sorry state of affairs.

The government-dominated sector who are enjoying virtual monopoly in defence has resulted in very little indigenisation, with a captive customer base, and no government demand on performance improvement, DPSU have become a predominant assembler of systems for the Indian military. Indian defence establishment is quite content with import, and the happiness is ingrained in its strategic planning and in the way defence procurement and industrial affairs are handled. Very little is being done to change the status quo. Number of studies have been conducted in recent past to  encourage design and  manufacture own defence related systems and they  remain confidential taken almost negligible action on them to improve the situation.

The DPSU' and OFB's are only assembling the system when ToT's are sought from OEM on built to print basis resultantly due to lack of spares and maintenance there has been number of accidents like recently a Sukhoi-30MKI fighter plane crashed in Shivkar Kudia village in Barmer, Rajasthan, hours after an IAF Chetak helicopter crash-landed in Allahabad on 17th March 2017. The need of the hour is to transform India's state owned defence outfits from being a just manufacturing hub into defence and aerospace powerhouses. Private sectors in defence industry, some of the organization with half of the manpower are having about double the turnovers compared to the DPSU's and OFB's despite competing against all odds of preferential orders and advances could provide boost in the national endeavour.

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