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Capability Development in Defence Production

India needs to involve capability development by increasing know-how, design and system integration through co-production, and high-technology joint research and development.

As the new government has take over, the task at the Ministry of Defence is well cut out. The requirement of defense equipment has only grown over the years and it is no secret that the defense services are in dire need of a wide range of equipment and other platforms. Capabilities of the Armed Forces are measured by the combination of doctrine and technology. For a self respecting nation self reliance is a must and every effort must be made to make defence indigenisation a success. Hence there is a need for India to develop intrinsic capabilities in the field of defence equipment. Indian defence production base desperately need to acquire technology to achieve any semblance of the desired self reliance.

The decisions, especially those on induction of critical military equipment, will define the level of military readiness for India in the coming years. Equipment Modernisation Strategy’ for Armed Forces must address the strategic, technological and fiscal environments and build our equipping priorities based on value, vulnerability and risks in temporal terms. To build and maintain the desired capabilities, we must focus on affordable, sustainable, prioritised and cost effective modernisation decisions which integrate mature technologies and incremental improvements, while investing in emerging technologies for the future in a spiral approach. No country can attain the military power by depending upon the imports for their crucial weapons and machinery. It needs indigenous capability to meet the requirement of its armed forces. Therefore, we require more establishments hence; involving private sector can be another best possible option and will bring competitiveness and accountability in defence production.

Major Defence Procurement

“Make in India” programme has leapfrogged in some areas such as Missiles, but it is struggling with basics in many others such as an evident neglect in others such as Small Arms, the primary weapons have no explanation. The defense services also need capital intensive platforms such as medium multi-role fighter aircraft, utility and multirole helicopters, and submarines. Some of the emergency procurement mentioned below is the sad story of our development and production failure.

  • Rs 700 Crore contract with SiG Sauer to buy 72,400 Assault Rifles in Feb 201
  • Plan to produce 7,50,000 AK-203 rifles with Indo-Russian joint venture at OF, Korwa
  • Procurement 93,895 Carbines from Caracal worth over Rs 700 crore is likely to be inked soon
  • Procure 16,400 numbers of 7.62x51mm cal Light Machine Guns (LMG) in pipeline
  • Spike-LR Anti-Tank Missiles from Israel
  • Igla-S Very Short Range Air Defence Systems (VSHORAD) from Russia
  • 24 Lockheed Martin MH-60R anti-submarine helicopters

The new government will now find it much easier to sign defence contracts during its second term after the bogey of the Rafale jet controversy did not have any adverse impact on election results. There is need to expedite the process of tendering to the number of defence projects worth $47 billion, which received acceptance of necessity in the last three years. Deals include the procurement of

  • 114 fighter jets for the Indian Air Force worth around $15 billion
  • 111 Naval Utility Helicopters (NUH) for Rs 21,738 crore
  • $7 billion deal for 57 fighter jets for the Indian Navy
  • Project 75 India (P75I) $6 billion purchase of six conventional submarines
  • Army equipment FICV FRCV Etc.
  • Unmanned aerial platforms and new warships

Procurement of 10 Kamov Ka-31 Airborne Early Warning and Control helicopters.

Taking the Challenge

India’s defence industrial base continues to be overwhelmingly dominated by the three under MoD controlled Defence Public Sector Undertakings (DPSUs), Ordnance Factories (OFs) and the Defence Research and Development Organisation (DRDO). Their dominance has been associated with inefficiency and lack of accountability on delivery, productivity, and quality, etc. These facts are known to the policy makers since long. Still, the competitive environment has not been created in defense development and manufacturing, which is pre-requisite for reducing import.

There is undoubtedly some change in mind-sets in treating private Industry as part of National endeavour by the MoD, however still a long way to go to create true trust-based relationships. MoD’s approach needs to transform to one of partnership with Industry to build indigenous capability. Some of the specific examples of private sector demonstrated capability being Arty Guns K-9 Vajra and M-777 ULH in partnership with OEMs and Pinaka development by Tata Power SED and Larsen & Toubro and ATAG 155 mm Gun in a partnership of Private sector with DRDO.


The ministry must finalise the “defence production policy” (DPrP), the draft of which was issued in 2018 with unrealistic targets such as catapulting India into the world’s top five defence producers, and achieving self-reliance by 2025 in building fighters, helicopters, warships and tanks. Uncertainty also shrouds the mooted “strategic partner” (SP) policy, through which the private sector is to build major defence platforms using technology from global defence majors. The proposed amendments to the offsets policy related to, the establishment of a fund regulated by the Securities and Exchange Board of India (SEBI) and incentives for investing in the defence manufacturing corridors. Such projections like achieving 70% self reliance since 80s, may serve little political purpose but It is time to be realistic rather than making tall projections and take bold decisions.

Procurement on Fair Competitive Basis

There is tremendous scope for improvement in the pace of acquisition through a definite shift from nomination to competitive procurement by providing level playing field. With the allocation of Projects on nomination basis to DPSU, the Make in India is turning as (Assembled in India) through import as on an average, government-owned defence units undertake less than 15% of real value addition on projects they are awarded, with the rest being imports. Indian industry leaders are capable of building ‘system of systems’ say, for instance, a submarine, a ship, a complete communication solution, an FICV and a whole variety of weapon turrets.

Decision Making
The delay in decision making is affecting the credibility of Indian industries with OEMs. Improved decision-making and adhering to timelines in capital acquisition programmes. Greater accountability of stake holders is essential to fix responsibility.

Resources Allocation
The defence budget having steadily dropped over the last five years as a percentage of government spending be gradually reversed to attain 2.5 to 3% of GDP. Defence capital allocations needs to be about 30 per cent of the defence budget would require an Rs 30,000 crore rise in capital allocations over the interim budget of February. The adequate allocation of funds could accelerate self-reliance. A sustained increase in the defence capital budget allocation is imperative with steady growth in GDP.

Promote Exports
Besides institutionalized export promotion, there is a need to extend Defence specific allocation in Line of Credit to friendly nations to boost export of defence systems and subsystems.

Indigenous Development
Most of the DRDO programs have come up with little to no result besides cost and time overrun.

Defence market is monopoly (single seller) and monopsony (single buyer). The successive government has paid lip service to defence indigenisation. Need to develop the eco-systems for indigenous design, development and manufacture. It is time to involve Industry in R&D in Defence sector with proper incentive on a long-term basis.

Public and Private Partnership
Synergizing public and private sector is a must for creating robust indigenous defence industrial capabilities. It is time that the defence manufacturing units under the Department of Defense Production (DDP) be empowered to take their decisions. DDP should not have any say in the procurement process. The Private industry is also a stakeholder in defence production, and the Government should chalk out a strategy in consultation with Industry organisations to promote indigenous design, development, and manufacture.

Technology Transfer
Technology acquired, so far has stagnated at the rudimentary level and not matured as envisaged to leapfrog technological generations. To boost domestic defense manufacturing, Indian industry would need concrete action on a partnership for transfer of technology from Foreign OEM. Technology transfer needs to be carried out in the true spirit where both the supplier and the recipient are competent organizations. The local industry should be able to absorb and further develop the technology thereby leapfrogging existing technology lag.

A certain class of Defence technologies are strategic by nature. Having invested over decades, sovereign nations would not like to share critical technologies, without commensurate benefits and controls. G2G relationships would still play a decisive role in such cases wherein Make in India would be a prudent step for the Government rather than resort to imports.

Today India needs to involve capability enhancement and development, increasing know-how, design and system integration, rather than having numerical targets.

Focus on Co-production
Defence trade must look beyond the buyer-seller relationship to co-production and, eventually, high-technology joint research and development so that technology is ultimately transferred to India. Though India may be a late starter, with own domestic market advantage we should be able to get the updated and most modern technologies with midlife upgrade capability, mainly as these systems would be used for a number of years.
Today India needs to involve capability enhancement and development, increasing know-how, design and system integration, rather than having numerical targets. By enhancing the participation of domestic players in the defence space, the share of imports is projected to drop by 20 to 25 percent in the next four to five years, which will reduce the outflow of Foreign exchange and create jobs. If we could raise the percentage of domestic procurement from 40 percent to 70 percent in the next five years, we would double the output in our defence industry. It is time to be realistic rather than making tall projections and take bold decisions. Indian industry will benefit if adequate policy measures are taken for instance by offering incentives and strengthening overall supply chain from component manufacturers to system integrators.

Conclusion
The defense indegenisation drive, must lead to a transformative change in defence industrial base or else we will remain dependent on imports for major platforms. Technology acquired, so far has stagnated at the rudimentary level and not matured as envisaged to leapfrog technological generations. Synergizing public and private sector is a must for creating robust indigenous defence industrial capabilities. Gradual and systemic reduction of import dependence must be achieved by involving all stakeholders of our country. Defence acquisitions must look beyond the buyer-seller relationship to co-production and, eventually, high-technology joint research and development so that technology is ultimately transferred to India. Though, India may be a late starter, but with own domestic market advantage we should be able to get the updated and most modern technologies with midlife upgrade capability, particularly as these systems would be used for a number of years.

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