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MAKE IN INDIA FOR DEFENCE PRIVATE INDUSTRY – A NEED FOR AN ATTITUDINAL CHANGE

The dream called "Make in India" is still a "charismatic slogan". However, while there is much talk of strengthening the private defence industry, the same is not backed up with orders. Therefore, an ATTITUDINAL CHANGE is a need of the hour.

Ever since Feb 2015, when the hon'ble PM unleashed the majestic "Lion" giving a clarion call for "Make in India," a lot has happened, both on the positive side, as well as, on the side of not so positive. With all the gains made in the context of "Make in India" on one side, the sad reality is that the dream called "Make in India" is still very much a "charismatic slogan" in so far as the defence private industry is concerned.

This is not to sound negative or belittle the many initiatives taken by the Ministry of Defence (MoD) to improve and strengthen the defence eco system in the country, it is only to sound a cautious alarm for action if the "Make in India" is to be realised the way it was envisioned, especially for the private defence industry.

It is the sense of the author that the most significant positive step by the MoD after the PM's "Make in India" call was to follow it up with the issuance of a comprehensive Defence Procurement Procedure (DPP) 2016 document, released in the Goa Def Expo in Mar 16. This document is an "enabler" and not an "obstacle" (as claimed by some). The only demand it makes, is a deft handling by "experts" and not by the "novices" or the "uninitiated".

The "enabling virtues" of DPP are many. The top procurement category of  Indian Design Development and Manufacture or IDDM, provisions in Services Qualitative Requirement (SQR) where the user need not only stick to the bottom line stated parameters as made available by technology  today,  but also, such other "essential parameters" which are desired and  which can be realised in a finite time frame.  Also, there is a scope to go in for a system offering "enhanced features" over above the SQR, thus giving a go by to the L1 syndrome, where a vendor could win a contract by offering the "cheapest" that just scraped the "bottom line requirement".

Not only the DPP, the MoD has backed it up with many other facilitating provisions.... Easing of offset guidelines, getting rid of the debilitating blacklisting policy of "blanket ban even on suspicion "and replacing it with a much more practical policy of blacklisting, that features several grades of sanctions and recommends punishment only on actual confirmation of wrongdoing, easing of foreign direct investment (FDI), putting in place the "outsourcing and vendor development guidelines", putting on line the entire process of industrial licensing and issuing scores to the industry at large. The list can go on...

Besides the above, big changes have been envisaged through major provisions like Make-I and Make-II procedures for giving a boost to defence private industry, especially the Medium, Small and Micro Enterprises (MSMEs), introduction of the Strategic Partnership Model (SPM) and more.

With all this and more, why the "Make in India" dream is not flowering as it should, in so far as it concerns the Private defence industry including the MSMEs? That is the big question.

In the opinion of the author, the main reason for this is that while there is much talk of strengthening the private defence industry, the same is not backed up with orders.

In that, there is an urgent need to address the current totally skewed balance where more than 95% of all the orders related to defence procurement are assigned to Defence Public Sector Undertakings (DPSUs) and Defence Research Development Organisation (DRDO) while the share of private industry is less than 5%.

Not only it keeps the private industry always starving for more, but also, it keeps the defence forces in perpetual wait as the public sector companies with order books much larger than their finite capability keep queuing up the orders, ending up in invariable time and cost overruns. Factual details can be sited in support of this assertion

The order book of Bharat Electronics Ltd (BEL) stood at 33,806 Crs as on 01 Jan 17 (currently it is over 40,000 Crs with 13000 Crs expected more in this FY itself) .

In the financial year 2015-16, the DRDO was sanctioned 78 new Projects worth 3723 Crs though it could complete only 42 Projects at a cost of 1353 Crs. It currently has 291 Projects amounting to Rs 49030 Crs, which amounts to a whopping 70% share of all procurement Projects.

Bharat Dynamics Ltd (BDL), which is emerging as the world's largest missile house (orders wise) had an order book of Rs 11100 Crs (111.64 billion rupees) as on  31 Oct 17 . Similarly, Hindustan Aeronautics Ltd (HAL) received orders worth 21000Crs in the FY 2016-17.

All the above figures are likely to go up significantly as the DPSU duo of BEL and BDL along with DRDO, is to embark on manufacturing a series of air defence and anti tank missiles (Short Range Surface to Air Missiles or SRSAM, Quick Reaction Surface to Air Missiles or QRSAMs, Anti Tank Guided Missiles or ATGMs) in the foreseeable future.

To add to the woes of private defence industry, the Make Procedure which was launched with a great promise is not moving forward the way it should have. In that, the much hyped "Make in India" Projects, namely, the Futuristic Infantry Combat Vehicle (FICV), Tactical Communication System (TCS), and  Battle Management System (BMS) have not even reached the development stage even after four years,  leave aside the approval stage which itself is years away. Even after approval, a long process of selection of the prototype manufacturer, actual production and placement of orders is to follow (8-10 years for that).

Going further on the Make procedure, while the recent simplification if Make II procedure by the Ministry of Defence (MoD) is a step in the right direction, there are a lot of doubts and confusion as to its execution. There is a need for the MoD to carefully work out the modalities of implementing each and every point in the "relaxed criteria" and providing clarification on issues like suo-moto proposal, foreclosing of Projects and more.

Even in the SPM, there is not much progress or forward movement in any of the four Projects, namely,  P75(I) submarine, Naval Multi Role Helicopter (NMRH), Naval Utility Helicopters, Future Ready Combat Vehicles and Single Engine  Fighter  Aircraft. Though the SPM is based on the laudable aim of allowing local private sector companies to form manufacturing joint ventures with foreign OEMs, there is lack of clarity on many issues . Even the definition of 'strategic partner' itself, has gone through so many rounds of amendments that it has lost its objectivity and focus leading to several different interpretations and connotations.

The OEMs need clarity and assurance on a large number of issues, most importantly, the Transfer of technology. It is the sense of the author that the SPM has not yet acquired the type of traction and momentum that is required to make steady progress. It is for the MoD to come clear on all the lurking doubts in the SPM. Given its tardy progress, some of the Subject Matter Experts have come to believe that the Govt itself is not keen enough to take this initiative forward

Even in the Public-Private Partnership  (PPP) model, while good beginnings have been made in the context of Akash Weapon System, Pinaka, 3D Tactical Control Radar and more, there is a scope of increasing the overall quantum of PPP Projects on a year-on-year basis.

This is the Reality of 'Make in India'

It is the sense of the author that until AN ATTITUDINAL CHANGE COMES ABOUT in the MoD, in making the defence private industry a part of the Make-in-India process, not by talk and assurance but by way of actual orders flowing to them, the balance of procedural and policy changes will have little meaning.

Article published in Magazine issue “Mar-Apr 2018 “

 

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