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DEFENCE PRODUCTION POLICY: ARE WE SERIOUS?

The 'Make in India' policy, can potentially be a turning point in India's endeavor to have a robust home-grown defence industrial base. This initiative will pave the way for Defence Industry to realize its dream for self-reliance and sustenance. However, to accomplish this dream, India needs to take many harsh decisions and it has to bring a change in its policies and working.

The Indian Defence Industrial base has been dominated by DRDO/DPSU/OFB, and is based on Pre World War II model. Overloaded with assured orders due to nomination, resorting to 'copy-paste' production and charging the nation on cost plus basis, with no accountability have made the country dependent on import. They never focused on technology development or upgrade at their own. Despite realization, the half hearted attempts to create a domestic defence industrial base is one of the missed opportunities, extended deadlines and glaring inefficiencies,  which became the hallmark of the defence public sector units functioning. It is matter of concern, despite all boast and claims to achieve 70% indigenization by successive Govt in last 30 Years, India held the top spot for world arms import in 2013 and second largest till now. Any self respecting Indian won't feel proud on such an achievement.

Govt Sector Domination

This is mainly due to the inertia of the Ministry of Defence and the stronghold of the defence public sector units. Over-governance promoted conservative, cautious and risk-averse organisational culture, with procedures being paramount and outcomes secondary. Consequently, the DPSUs have drifted from monopolist to bit-player due to regulatory protection relative to private-sector rivals. It is unfortunate that on the name of security we have been using imported equipment but not letting our Private sector to manufacture.  Although Private sector said to have been allowed entry into the defence production in 2001 but it did not get any big-ticket orders till date. Despite the rhetoric and the claimed intent to push through the procurement cycles to reduce the monopoly of the defence public sector units and to allow a meaningful role for the private sector, the status quo continues.

The recent initiatives are slowly revealing some of the major challenges and constraint, but we hope the Govt will facilitate building indigenous capabilities. The 'Make in India' policy, can be potentially a turning point in India's endeavor to have a robust home-grown private defence industrial base. It can  pave the way for Defence Industry to realize its dream for self reliance and sustenance. To accomplish the dream, India needs to take many harsh decisions and it has to bring a change in its policies and working.  However, the big question is, ARE WE SERIOUS?

Making the Elephant Dance

The draft Defense Production Policy 2018, outlines a number of steps to achieve self-reliance in the manufacturing of Defence equipment. These includes boosting R&D, supporting MSMEs and start-ups, establishing testing infrastructure, rationalizing the tax structure, enhancing FDI in defence to 74 percent, exploring the prospects of setting up an aeronautical commission on the lines of atomic energy commission and space commission, liberalizing the defence offsets policy, and improving the ease of doing business in the defence sector. Besides ambitious  targets of achieving a turnover of US$ 26 billion in defence production and US$5 billion in defence exports by 2025 through investment of nearly Rs.70,000 crores creating employment for nearly 2 to 3 million people. Laudable targets and aims indeed!  Such Rhetoric’s of Self-reliance in the past never saw realization on ground.

The policy does not dwell on crucial issues which have been mainly responsible to the present state of affairs in defence production, accountability, domination, competitive environment and level playing etc. India should make its process of procuring defence equipment more “transparent, efficient and effective”. An improved procurement process have to provide a level playing field and create a conducive environment for India to eventually become self-reliant in defence.There is need to ensure that the DPSUs are not nominated for projects by default or design. There is already an extra capacity and infrastructure in existence with OFB/DPSU and the relevant questions are:-

  • Why national resources need to be unnecessarily spent on creating additional infrastructure private-sector to build Helicopters, Aircrafts tanks and Small Arms etc?
  • Why don't we privatise all DPSUs to become publicly listed so that they can choose their own partners from the country's private-sector?
  • And most importantly why should the Govt be manufacturing and it is time to bite the bullet and go in for privatisation of DPSU/OFB.

It is understood that Government is dwelling on review of the Govt entities in Defence production to make them competitive and ready for partnership and joint ventures. However keeping past history in view, it remains to be seen will the Govt, make the elephant Dance?

Private Sector Partner

The 'Strategic Partnership' policy intends to identify the private defence companies which can forge a joint venture with foreign companies to build major equipment. Selecting an Indian private company for a mega project is a long process. From inviting bidders to starting financial evaluations, assessing technical capabilities and then getting involved in lengthy conversations on pricing and delivery, the process is not only long, but is fraught with the many perils of working in the defence sector. Strategic Partnerships with private sector has to cross hurdles created by vested interest.

In the recent years, Indian private industries are contender for several defence 'Make' projects, such as Tactical Communication System (TCS), Battlefield Management Systems (BMS) and Futuristic Infantry Combat Vehicles (FICV). Most of these are still in the early stages of procurement despite taking double the estimated time. “Make” projects the “soul of indigenisation”, and recommended launching 8-10 “Make” projects every year to build indigenous defence capability. However scrapping project BMS, half way through is a matter of concern to the Indian industry and is not in the “Make” spirit. Defence Ministry is known for shutting down the project arbitrarily and such a repeated act   destroy trust with Foreign as well as Indian industry, who put money and effort into the project.

India needs to develop the entire eco-system and a robust supply chain as it is in the Auto sector, the same must be for manufacturing the defence platforms involving Tiered suppliers for the component and materials with a life cycle product support to maintain, repair, overhaul and upgrade the platform.

OEM's Concerns

Advent of technology and global economic environments necessitates joint development of military technologies. This is more relevant in our context as we need technologies. Partnership with OEMs for development of joint R&D and integration of supply chains in defence will create jobs and lower costs. At the same time need to analyse whether its lowest cost approach to defence acquisition is in national interest, as often the best valued and most capable systems are not the lowest cost ones. About 90 percent of the major defence equipment produced in India at present are under license from foreign firms. They do not provide the complete 'know-how' of product design which is major part of the value of a platform. Consequently, the desired level of indigenization is not achieved, example being  SU30, T-90 and 84mm rocket launchers, thus remain dependent during life cycle for maintenance and in view of the above, OEM insist Indian partner selection need to  be based on its ability to absorb technology, financial capability, experience in managing joint development arrangements and strong ethical & governance standards and not nominated by Govt.

There is a great need to create ecosystem that will allow Indian companies and professionals to learn, innovate and export back to the OEMs.  Hopefully, some of the measures will be adopted in national interest to establish the competitive defence Industrial base and  devolve more freedom and powers  to the private sector  to enter the fray and be equal partners in making the “Make in India” successful in Defence Sector.

Way Forward

Achieving substantive self-reliance in the design, development and production of equipment required for defence in a reasonable time frame is possible. The Production policy need is to create conditions conducive for the private industry to take an active role in this endeavour.  Enhancing potential of Indian industry in indigenisation, broadening the defence R&D base and manufacturing of defence equipment can be facilitated by the Government through several policy measures. Giving weightage to indigenous products in the acquisition process, apart from increasing the participation of the private sector, these changes once incorporated will also somewhat enhance absorption of world class technologies making India a starting place for cutting-edge innovation. These changes will impact on companies business strategies as under:-

  • Level playing field for domestic firms with DPSUs.
  • Encourages Indian companies to begin design & development within the country.
  • Encourages domestic and foreign players to collaborate to absorb technology.
  • OEMs need to reorient India strategy.
  • OEMs to support on life cycle support and upgrade.

As on near term basis Indian defence market is attractive, but as we go along, the industry has to plan for global outreach for their products considering that there are no assured orders on long term basis and external markets need to be explored. With the increasing pressure of production costs and reduction in military's demands, the civilian and military production processes are compelled to converge along the entire range of technology hierarchy to achieve economies of scale. This change is evident as systemization of production becomes a universal technique with wide spread use of computer-aided design and robotics leading to automated manufacturing processes. Flexible or lean manufacturing techniques which were successfully innovated in the Japanese motor car industry are being incorporated in military production because of lower unit demands and higher technological and cost competitiveness.

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