The monopoly of the West over the production of all industrial goods a hundred years ago has been taken over by Far Eastern countries such as China, Taiwan, Korea and Japan who have offered significantly better products at breathtakingly lower prices. Weaponry is the last bastion for the Western nations and they will defend it by all means, not necessarily fair. With the exception of Communist China, the Far Eastern nations did not allow ‘a socialistic pattern of society’ or politicalisation of their education. The Partition of India and the espousal of a socialist pattern of society was possibly a deliberate act of ‘scorched earth’. In the liberalisation of the 1990s, the areas ‘liberalised’ were only those which were already lost to the West. Weapons production and development was retained for the PSUs despite evidence of inefficiencies and the prevalence of many scams and scandals.
Any discussion on the development of the Indian weapons industry tends to focus on the technical problems. This distracts from discussing the fundamental problem. India has an inefficient weapons Industry by choice of organisation and its management. We import 70 per cent of the weapons we require. This unacceptable state has been caused by our continued espousal of a Socialist pattern of society for the defence industries. The technical problems are not the reasons for having an inefficient weapons industry (see IDR Vol 32.2). However, realistic specifications will only reduce the demands on technology; they will not create weapons. The process of weapons development are choked by the legacies of colonialism, the overrunning of our education systems by the politicians and by the sustained refusal to organise our defence industries as a highly specialised and competitive industry that should be self-financing.
Countries with large forces ‘afford’ them by developing weapons and exporting these at very high profits. We have for long not exported any weapons, ostensibly on ‘moral grounds of non-violence’. Our abstinence has not stopped violence; we have merely ignored the economics of actually having successful indigenous weapons industries.
In its editorial of July 02, 2018, The Statesman noted that Hindustan Aeronautics Limited (HAL)-produced Light Combat Aircraft (LCA) Tejas Mk-1A will cost Rs 483 crore apiece. This makes it weight for weight, the most expensive single-engine aircraft in the world beating the Lockheed-Martin F-35. Clearly something is amiss. The production cost of any imported weapon is a closed book to us. We only know the quoted cost. No authorised study exists about how much it costs the vendor to make the product. The inefficiencies of the Public Sector Units (PSUs) mean that their prices are not a reliable index. Typically, a current jet fighter is kilo vs kilo about sixty times more expensive than the most expensive limited edition luxury cars. There is probably no justification for such a difference. The development of a database by which we can estimate the cost of production of any imported equipment is an immediate requirement.
A Modeling of Comparative Cost
The basics of calculating comparative costs vs production quantities, however, are very simple as the following model will explain. The cost of an aircraft depends on four inputs viz:–
- Raw Materials (RM) costs – sheet metals and rolled stocks, composites and forgings.
- Bought Out Completes (BOC) such as engines, radars, accessories and cabling.
- Labour to process and assemble.
- Overheads, which are all other costs required to run the programme.
If we now make a simplifying assumption that the four components RM, BOC, labour and overheads are all equal with the overheads assumed at a production rate of 50 aircraft per annum and an order size of 500 aircraft, then we get the unit cost of an aircraft comes as 4x which we take as the comparator cost of one unit. (See Table 1, Sl. No. 1)
|2.||Indian 12/100||X||X||0.2 X||5X||7.2X||1.8|
XX/XXXX Annual Batch Size/ Total order size.
The production rate of fifty aircraft per annum and an order size of 500 is the minimum number for a competitive, commercially successful weapon such as combat aircraft and Armoured Fighting Vehicles. Beyond these numbers are massive profits. This minimum number is essential and explains the cut-throat competition for markets abroad and our need to export. If we now produce with the above set up only 12 aircraft p.a as is being done for the LCA and the order size is about 100, the costs go up 1.8 times. (See Table 1, Sl. No. 2) If the production is cranked up to Chinese standards of say 100 aircraft per annum and an order size of 1,000, we see a remarkable drop in the unit cost to 0.675 or about one-third of Indian costs. (See Table 1, Sl. No. 3)
The above is assuming that only the aircraft assembly line utilisation has been optimised. If we assume that the same process has been applied by the Chinese to the production of RM and BOC items, we get a figure of 0.4854 or one fourth of our costs! Despite having a much larger size force, the Chinese equipment budget for their massive armies may not be much larger than our budget for the equipment. The model is simple but the Carnot Cycle ‘model’ is equally simple and much more unrealistic in its assumptions. Nevertheless, the Carnot Cycle model is widely used. As a comparator, the model proposed is practical with the bonus of being simple.
We have willingly allowed ourselves to be fettered by the continued use of ‘bonded’ or ‘Aerospace’ quality materials. This implies a de facto reliance on materials imported from the West. Metallurgical quality control systems have been sufficiently improved and automated over the last hundred years to allow our designers to specify materials from selected Indian vendors but not confined to the PSUs. This is an area where the politician must enforce as the bureaucracy will not; the former have nothing to lose if they do not. So why bother? The extremely long development timelines makes the interest cost of the capital untenable. That cost alone will make our weapons unaffordable to us, let alone for exports! Finally, until recently, we neglected exports. The impact of production volumes has been discussed.
Organising the Academia’s Contribution
Exporting defence equipment will require not just technical research to produce fault-free weapons, but also historical and economic research to manage and market these as well as trained workers to produce high quality defence equipment. The word ‘unemployability’ indicates how badly equipped our academia is at present for the task. That the American Universities carefully commercially research into everything is a model. We have 819 universities and in term of numbers, we are not at a disadvantage. Research funds are also not a problem because well-directed research is rapidly self-regenerating as the US has shown. The problem is in the quality of our academia and its lack of orientation and training for applied research.
Yet it was not always thus. Although derided as being designed to produce clerks for the Empire, the British set up in India, an education system that was once rightly vaunted to be second only to Oxford and Cambridge. Almost from the start, Indian universities produced an unbroken stream of exceptional leaders in every field. Though the study of the sciences was not encouraged, Radio Telephony, the Raman effect, the Crescograph, semi-conductor junctions, the Bosons were right at the forefront of Technology and Science and indicated the highest levels of originality and these were done with modest, if any, grants. Such brilliant work required an intellectual uprightness and boldness coupled with originality. Unfortunately, the cradle of such minds – the schooling system, has also been thoroughly vandalised.
It is well known that our top universities do not rank anywhere in the list of top 200 universities of the world. Various suggestions to improve ratings have been made; these are unlikely to work. For example, the number of foreign students is one of the inputs in the ranking and hence “efforts will be made to enroll more foreign students”. The cart is truly before the horse. Foreign students do not patronise Indian universities because they see no value addition. That has to be corrected. Mere enticement will not work.
The problem is that it is inconvenient for those who can rectify the situation – the politicians and political-academicians – to admit that it was their collaboration for partisan aims that has ruined our universities. In their ‘suggestions’, therefore, they will studiously ‘fail’ to see that the top two hundred universities in the world do not see the rampant, disturbing, perennial publicity seeking academic activism that our universities and campuses have unendingly seen on various issues. The people did not take out bannered processions demanding lowering of pass standards nor change of the medium of instructions or other unending ‘issues’. Only the politicians and their collaborators in academics did and only they have benefitted. The lowering of every long established academic standards – entry, recruitment, qualifying – post independence is unique and not done by any nation anywhere. The solution lies here. A return to status quo ante has to be aimed for.
The origins of the concept of “academic freedom” lay in the fact that it was the Church that funded the universities and so the Church made the rules. For example, professors were not allowed to marry. The state did not fund and was not allowed to enter the gates. He who paid the piper called the tune. Our political academics claim for the “leave the money on the table and go” variety of freedom from the state, has no historical or moral basis. As it has happened with other welfare schemes since independence, the increased funding for education has “leaked”. The resistance and organised outrage to what should be routine administrative matters such as introduction of biometric attendance or audits of funds are noteworthy. It could be an indication of the scale of leakage. Audits which would ensure funds are used as intended may have the side effect of a reduction in the kind of demonstrative academic agitation that is seen.
The Partition – An Economic Scorched Earth?
The published History of the Partition of India is clear. It blames the people of the sub-continent. This propagated model needs to be re-examined. This alternate view is that the people of India were made to participate in the vote for partition, but it was not their demand. To the British, India was too great ‘a Golden Goose’ to be given up. There were never any plans and certainly no date by which the British planned to grant Independence to India. Churchill’s famous proclamation, “I have not become Her Majesty’s Prime Minister to preside over the dissolution of Her Majesty’s Empire”, though made at a later date, typified the attitude of the British ruling class towards Indian Independence. It was the Financiers of the British Empire who foresaw circa 1916 that India’s independence was inevitable and the new nation’s Industry would be a considerable threat to their investments worldwide. To safeguard their interests, they initiated several processes aimed at reducing the efficiency of the yet-to-emerge Indian economy. These included the partition, destruction of academics, propagation of a Socialist pattern of Society and encouraging and funding of secessionist movements. Post Independence regime changes by prompt assassinations in Pakistan (Liaqat Ali Khan) and Bangladesh (Mujibur Rehman) both within a few years of Independence indicates planned prevention of reconciliation, tranquility and commercial reconsolidation of the fractured markets and supply chains.
For hobbling the Indian industry in particular, in around the 1920s, there was a strong movement for a “socialist pattern of Society” in two of the UK universities and this was eagerly propagated in India with missionary zeal by some of the Indian alumni of these two universities and their acolytes. Unfortunately, this was ill considered. By the 1930s, the scale of Stalinist terror was obvious, but extraordinary support from a small minority of our then leadership. The proposed Socialist pattern of society was a regime almost Soviet in its rigidity and central authority of a pattern never allowed to be applied in the “Home country” (UK) even under Labour rule.
The espousal of a “socialist pattern of society” in the garb of welfare had several “anti-Indian industry” measures such as:–
- It allowed a relatively small number of people in key positions to stifle the inherent enterprise of the people. In the early fifties, a Parsee gentleman had designed and built two prototypes of a glider, the Baroda 001 and Baroda 002 which was significantly in advance over the Government department’s glider which was a copy of the German ‘Zogling’ of the 1930s.The Baroda design was not produced. In all probability, the Industrial Policy Resolution and the stifling License and permit procedures, killed the effort. By 2006, the Baroda 002 was slowly being “reduced to produce” in a workshop shed, an incredible-and unique-symbol of state-sponsored Industrial repression.
- Through a ‘dog in the manger’ policy, the Government created large “no fly zones” where, illogically, in an era of shortage of capital and management skills, private capital was prevented from entering.
- When licenses were given, the permitted production rate was always and unfailingly below the level to make the product globally competitive.
- One side effect of the “license permit” Raj was the total lack of design and development jobs for the engineers from the IITs. Those who did not migrate to the US spent their careers selling soap and toothpaste for the multinationals in India.
- The Defence sector PSUs jobs were significantly less paying with the worst working terms as compared to other state enterprise jobs such as EIL or STC or the bureaucracy.
These are either random errors of policy or indicate a crafted plan that protects monopolies. The irony was that, in defending the socialist pattern of society, the PSU unions claimed the de facto right to be inefficient and in espousing an academic ‘freedom’ of the above sort, we are collaborating for the continued prosperity of the capitalism that socialism professes to be against! The degeneration of Socialism can be gauged by examining the decline of Air India. Once a prized airline, it is now not even worthy of re-sale.
The opposite and happy example of the vibrancy and the potential is that of the Indian automotive industry which pre-liberalisation, ranked nowhere. It is today the fifth largest producer in the world exporting worldwide with a fairly good design capabilities and in some segments, it is the largest producer in the world. It would be reasonable to expect the same from a liberalised defence industry.
Funding Defence Research
Successful research is always and everywhere, viewed as a business. Research funding must pay back by a Return on Investment (RoI) within a reasonable time; only then will a corpus of fund build up. Complaints of inadequate funding for research go hand in hand with mis-directed research project without any plan for commercialisation. In the US, large funds are available for research because they are self-generating. It is run like a venture capital funding agency, closely monitored for returns. In India, the emphasis on RoI is completely missing. By doctrine, the private sector cannot be funded; though scam-ridden, it is ‘safe’ for the bureaucrat to fund the PSUs. The result is that influential people obtain public money for what de facto, becomes a life time sinecure. Such wastages lead to non-performance and the consequent lack of regeneration of funds creates a ‘drought’ which hampers further research funding.
The Defense Advanced Research Projects Agency (DARPA) is one organisation in which the US government funds defence research. DARPA funding is always for a three-year project a period long enough to show progress and results. The advantages of this approach are:–
- Initial funds are for very small amounts even for big projects. This allows funding of several concurrent and even competing proposals.
- The private sector has an equal right to public funds.
- A three-year termination means that the bad projects or incompetent leaders are weeded out and the funds redirected.
- The ‘residue’ of the above project, if successful, is funded to the next level until a saleable product is the result. The F-117 stealth fighter was developed and entered service in a period of eight years (1974-1982) on a funding level at Purchasing Power Parity (PPP) of 3.5 lakh/ 3.56 crore/ 117 crore (See IDR Vol. 31.4, Developing the Stealth Technology). By comparison, we funded Rs. 565 crore in 1983 on a ten-year plan to a yet-to-exist entity to develop the critical fighter programme – the LCA. Illogically, a 1978 request for Rs. 64 crore funding to develop the HF 24 with RB 199 engines, which had a higher chance of success, was turned down. Given our experience with the LCA programme, the minimum now expected is that any future project, the Advanced Medium Combat Aircraft or New Main Battle Tank should be a three-step programme over six to eight years, and with private sector proposals also equally funded. We continue to ignore the private sector and there is no justification! The PSUs have seen more scams than we could ever imagine!
Knowledge leaders are especially precious because they are rare and they take a lifetime of dedication to produce. India has a history of being remarkably careless of its human resource assets. Homi Bhaba, Vikram Sarabhai, the scientists associated with the nuclear submarine projects and the engine of the Arjun MBT, the test pilot who was an enthusiastic proponent of the HF 24 ‘reheat’ project – all died under doubtful circumstances yet the investigations into their deaths were significantly cursory. The failure of ISRO to stand by its expert in Liquid Propulsion Engines, when he was falsely charged with espionage, wrecked his career. The expert was later exonerated; but the desired damage – delay of our ability to compete commercially in the satellite launch market by fifteen years – was achieved. The common courtesy – given unstintingly to felons and politicians – that a man is not guilty until legally proved so, was denied to this scientist.
Surprisingly, in the Soviet Union, where sometimes failure meant facing the firing squad, the key scientists were ‘imprisoned’ in their work places. The question is why this was not arranged? The final gall of the ISRO episode it appears is that the police officer who caused such damage to the nation went scot free when the charges against the officer were dropped by a Chief Minister. Chairmen of HAL who supported strongly local development, were removed, sometimes unceremoniously. A particularly active Chief Designer was retired promptly whilst non-performers have been given sinecures. Again, the US is a model for the way it attracts, develops and retains human resources. Knowledge is a precious resource; it takes a life time to develop. Suitable security protocols must be developed along with discreet surveillance of all personnel. It is remarkable how effective even routine and non-intrusive surveillance of a few key parameters can be.
Defence as a Business
A weapons industry is a high-risk, high-profit ‘full time’ business requiring all the time, dedication, energy attention, knowledge and efficiency such a business needs. In the totalitarian states, it was possible for “the man in charge”- e.g. Admiral Gorshkov- the father of the Soviet Navy’s renaissance to stay at the helm for thirty years. As a senior “cabinet minister” and political leader, he combined job knowledge, national policy and clout in one person. The result was that the Soviet Navy became a challenge to the mightiest Navy, the US Navy. In Western style democracies, since this kind of tenure is not possible, the Government leaves the weapons industry in the private sector and acts as a facilitator and stakeholder. A bureaucrat, no matter how astute, on a three-year tenure, just cannot do it. The odds are entirely against him.
From continuity of management as with the private sector, we can expect the following:–
- Projects will be closely monitored and with dedication.
- Projects not progressing will be closed down or assigned new managers.
- Projects will be in ‘digestable’ packets or steps not over the horizon or beyond visual range in terms of timescales.
- The economics of the project will be carefully analysed for RoI because only a positive output will increase the funds for further work.
- India is the only democracy which has attempted to handle the entire weapons industry as a government department. With the private sector freed, a transformation similar to our automotive industry can be expected.
- To achieve the above, the government, as a facilitator, must actively support the Indian producers to generate and pursue exports.
The monopoly of the West over the production of all industrial goods a hundred years ago, has been taken over by Far Eastern countries such as China, Taiwan, Korea and Japan who have offered significantly better products at breathtakingly lower prices. Weaponry is the last bastion for the Western nations and they will defend it by all means, not necessarily fair. With the exception of Communist China, the Far Eastern nations did not allow ‘a socialistic pattern of society’ or politicalisation of their education. The Partition of India and the espousal of a socialist pattern of society was possibly a deliberate act of ‘scorched earth’. In the 1990s, the areas ‘liberalised’ in India were only those which were already lost to the West. Weapons production and development were retained for the PSUs despite evidence of inefficiencies and the prevalence of scams and scandals.
A functioning world class education system has been vandalised to ‘unemployability’. The vilification of the private sector – even from before Independence – as being unworthy and untrustworthy to receive public funds for weapons development, proved unjustifiable. Despite a continuing list of PSU scams, these are indulgently patronised despite shocking irregularities. India’s democratic government treats its weapons industry as another government department, no different in its style of running from, say, the Ministry of Labour.
License restrictions, muzzling of effective research, non funding of promising projects and sustained funding of projects that are not producing the desired results have been the rule rather than the exception. We can treat all of the above as random unconnected events or we can see it as a carefully planned scheme to protect the monopoly over weapons import. Whatever the truth, it has hurt our defence industries and our preparedness.