Defence Industry

Beyond defining the Strategic Partnership
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Issue Net Edition | Date : 27 Jun , 2017

Defining the ‘Strategic Partnership’ took some 18 months after the Defence Procurement Policy (DPP) 2016 was released – much time taken but mercifully it finally came through. The private industry that had been waiting with baited breath, responded immediately. Lockheed Martin signed an agreement with India’s Tata Advance Systems on June 19 to produce F-16 fighters in India, a week before Prime Minister Narendra Modi’s visit to the US.

Global demand for new production F-16 aircraft also remains strong in the Middle East, Eastern Europe, Southeast Asia and South America.

The joint venture (JV) will produce the F-16 Block 70 aircraft, with Lockheed Martin planning to move all future production from US to India, placing the Indian Aerospace industry at the centre of the F-16 fighter aircraft supply base. Of the over 4,500 F-16s manufactured by over the years, with production lines in Europe and other countries like Turkey and South Korea apart from the US, around 3,200 are still flown by 26 countries, including Pakistan.

Global demand for new production F-16 aircraft also remains strong in the Middle East, Eastern Europe, Southeast Asia and South America. However, India has not affirmed the F-16 Block 70 for the IAF, with the Swedish Gripen-E fighter also in the race. The US Air Force (USAF) is not flying F-16s and is transiting from FA/18 to F-35.

Now Reliance Defence Ammunition, subsidiary of Reliance Defence Ltd (RDL), which is an Anil Ambani Group Company, has entered into strategic partnership with Serbia’s Yugoimport (State-run company of Serbia) to manufacture ammunition in India. Yugoimport is a market leader in the field of ammunition production and has reportedly offered fully compliant technical solution to meet the Make in India requirements of the Indian Government including transfer of technology (ToT) by the original equipment manufacturer (OEM) and indigenous manufacturing in India. The announcement was made in Belgrade after Anil Ambani, Chairman Reliance Group met the Serbian President Aleksander Vucic recently. RDL has issued a statement saying that the “Two companies will work together in the field of ammunition amongst others, with projected minimum requirement of Rs 20,000 crores from Indian Armed Forces”.

In a further boost to Make in India post defining the Strategic Partnership, French electronics major Thales and Reliance Defence Limited (RDL) have announced intention to form a JV with proposed shareholding of 49% and 51% respectively.

This is a positive and welcome development considering the Indian Military; particularly the Army has been suffering from critical ammunition deficiencies. In 2012, the leaked letter from the Army Chief General VK Singh (now MoS External Affairs) to Prime Minister Manmohan Singh giving out deficiencies in tank ammunition, obsolete air-defence systems and inadequate weaponry for infantry and Special Forces battalions created ripples in the public. Recently, when Army Chief General Bipin Rawat made a statement that the military is prepared to fight a dual-front China-Pakistan war, write ups in media pointed out the continuing poor state of weaponry, equipping and inadequate ammunition to fight such war on two fronts.

In a further boost to Make in India post defining the Strategic Partnership, French electronics major Thales and Reliance Defence Limited (RDL) have announced intention to form a JV with proposed shareholding of 49% and 51% respectively. This JV is in consequence to the ‘Offset’ commitment by Thales as part of the Rafale contract. The JV will develop Indian capabilities to integrate and maintain radar and electronic warfare sensors in the Mihan-Nagpur Special Economic Zone where RDL is also involved in an Indian supply chain for manufacturing of microwave technologies and high performance airborne electronics.

Anil Ambani, Chairman Relaince Group stated, “The strategic partnership with global leader Thales is another major milestone in our march towards best in the class of manufacturing at support facilities for military hardware in India. Reliance is committed to ‘Make in India’ and ‘Skill India’ initiatives of the government and will continue to remain in the forefront, partnering with the best in the world”.

Given India’s volatile neighbourhood, enlarging China-Pakistan anti-India nexus, and with the World Economic Forum predicting India to as third largest economy by 2030 ($19.511 trillion), sky is the limit for Make in India in the defence sector. Defence Minister Arun Jaitley, who recently led a delegation to Russia called upon the Russian industry to invest in Make in India, while projects with Russia to the tune of $10.5 billion are coming through including air-defence systems, frigates and Kamov light helicopters.

Our private industry despite plenty potential, never could contribute adequately to defene requirements because everything was “through DRDO” which had the first lien despite sub-standard products.

Prime Minister Narendra Modi’s forthcoming visit to Israel too will boost India-Israel defence cooperation similarly; possible co-production of SAM systems, UAVs etc. However, much more work requires to be done to streamline ‘Make in India’ and give it the necessary boost, without which its execution will be as patchy as that of the DRDO, often described as the White Elephant.

Our private industry despite plenty potential, never could contribute adequately to defene requirements because everything was “through DRDO” which had the first lien despite sub-standard products. Certainly there was some tinkering in successive DPP’s to give some share to private industry but it did not alter much. The Dhirendra Singh Committee had recommended ‘Strategic Partnership’ exclusively for the ‘private industry’ which is in line with norms in the US and nations with modern armies. Despite this recommendation, the government has eventually allowed the DRDO and the ordnance factories (OF) under it to eventually come in through the backdoor; the reason perhaps why it took 18 months to define the Strategic Partnership.

Factually, this elaborate 18-month exercise to define the SP was redundant; existing provisions of DPP 2016 could have simply used in authorizing the MoD for allowing foreign OEMs to select Indian private companies as production agencies.

The DRDO’s record has been poor. To replace the unwieldy 7.62mm SLR which the army carried for decades, the DRDO took 15 years to develop the 5.56 INSAS rifle despite having been provided 17 state-of-the-art 5.56 assault rifles from 11 countries in 1985. It should have shamed the DRDO that even the Nepalese Army rejected the INSAS when offered it was offered to them.

It is high time the DRDO and the OF are largely privatized.

Now, despite, the MoD having approved the import of state-of-the-art assault rifles for the army, the DRDO has managed to scuttle and delay procurement of such vital weaponry for years by offering tinkered versions of the INSAS, in Excalibur and now the Excalibur II (termed R2), both of which have been rejected in trials. Had it not been for Dr Shantanu Bhowmick of Amrita university, there was no way DRDO could have developed the Ultra Light Weight High Temperature Resistant Thermoplastic Polymer-Carbon Fiber Composite bullet proof jacket (which has just been cleared for production) for perhaps another two decades.

It is high time the DRDO and the OF are largely privatized. In February 2017, the PMO had asked for the list of OFB products, plants, machinery and land held by the 41 factories operating under the Department of Defence Production (DoDP). Over 80% of the OFB’s orders come from the Army. Yet, these 41 factories meet less than 50% of the Army’s requirements. The government appointed Vijay Kelkar (former revenue secretary) Committee in 2005 had specifically recommended privatization of the ordnance factories but this never came through because of vote-bank politics.

Even now, with the Modi Government showing inclination towards privatizing these ordnance factories, protests have been going on by employees of these concerns. It is still unclear whether the government will corporatize these 41 ordnance factories, merging them into conglomerates along the lines of other DPSUs.

…given the existing state of R&D and skilled manpower in the country, the stipulation that the Indian company will always be the major stake holder, may not have many foreign OEMs coming forward.

Actually, the DRDO should be focused only on futuristic R&D, leaving the production to the industry through strategic partnership under Make in India. However, given the fact that the DRDO has managed to enter the SP through the backdoor, how many and how soon these 41 ordnance factories can be privatized / corporatized, remains a question. Developments like the indigenous ‘Dhanush’ 155 mm gun, upgraded version of the Bofors, should not be used as excuse not to corporatize the ordnance factories.

To give Make in India in Defence the right momentum, government also must review following issues with respect to Strategic Partnership:

•  debarring SP from bidding in more than one segments may not be fair to major indigenous private players who have made considerable investments in R&D already and mastered technologies;

•  given the existing state of R&D and skilled manpower in the country, the stipulation that the Indian company will always be the major stake holder, may not have many foreign OEMs coming forward;

•  foolproof selection of the correct SP since it will entail long-term relationship during the development, production and marketing stages while returns on investment will not be immediate;

•  requirement for the SP to provide-performance logistics for a period of 10 years is poorly planned considering military has been using the some platforms for up to 30 years and even beyond.

Clearly, much more thought is required, including in devising a road map for meeting defence requirements holistically.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Lt Gen Prakash Katoch

is a former Lt Gen Special Forces, Indian Army

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