Defence Industry

Make in India – Indian Style
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Issue Vol. 32.2 Apr-Jun 2017 | Date : 15 Aug , 2017

The vibrant defence industrial base of DPSUs, OFs and R&D that has existed for decades has not produced the desired results; though there has been success in many fields, predominantly in space ventures, defence manufacturing is not one of them. A low plateau has been maintained in gaining self-reliance in defence production, the reasons for which are many. Can India usher in an era of transformation and self-reliance in defence production with the Prime Minister’s call for ‘Make in India’, supported by the introduction of new policies, thus leading to a shift in focus from being import-dependent to a global exporter in its own right? The answers to this and other questions can be found only if all facets of the problem are examined.

Indigenised defence production is a significant factor that provides strategic independence to a nation…

It is now nearing three years since the present dispensation at the Centre announced its ‘Make in India’ programme with much fanfare. The Government has not tired of announcing its success at every possible forum, yet a brief report in the media in mid-March, announced that the metallic lion, symbolising the programme, has been relocated to an insignificant spot at the Ministry of Heavy Industries, giving it the short shrift!

Some of the big announcements of achievements in the ‘Make in India’ programme have come in the electronic space – mobile phones; one wonders if they are factual. Flextronics, with its headquarters in Singapore, has a capacity to make about ten million mobile phones at its Chennai facility. However, at Flextronics, where mobile phones under the popular brands of Lenovo, Motorola, and Huawei, roll out, the products are assembled, not manufactured! The same is the situation at every other mobile manufacturing site in the country! Yes, it is a big change, considering the difference between imports and assembly; nevertheless, the country still imports the components. The same story exists in the defence manufacturing sector too, where the announcements of ‘Make in India’ were received with much enthusiasm.

Indigenised Defence Production

Indigenised defence production is a significant factor that provides strategic independence to a nation, thereby adding exponentially to national security through round-the-clock defence preparedness. All over the world, military supplies are high-value goods due to their specialised nature and the control exercised over the defence industry. Indigenisation provides flexibility in security planning to a nation, by reducing continued reliance on external sources and frees it from peripheral pulls and pressures, be they political or otherwise.

The technologies used in defence production and more so in the aerospace industry, are normally at the high-end of the spectrum and hence, are very complex and expensive to develop…

India has been pushing for indigenisation in defence manufacturing for over three decades now, but with little success to show for the efforts made; the dubious status of being the world’s largest arms importer, continues to be ours. On assuming office, the current Government, amidst a flush of hopes and slogans such as ‘Make in India’, promised the Indian Armed Forces their long outstanding demands for modernisation, through indigenisation. The Armed Forces, and the industry, national and international, perked up with excitement!

The Government, especially the Ministry of Defence (MoD) was positive in its pronouncements. Officials in the MoD began talking of spending Rs 15,00,000 crore over the next ten years; the Defence Acquisition Council (DAC) cleared proposals worth Rs 3,10,000 crore within a few months of the Government taking over. It does go to the credit of the Government that reforms in the defence-manufacturing sector have had some effect on its growth. Removal of over 60 per cent of the products, components and accessories from the list for compulsory licensing, has indeed opened the gates for a large section of the defence industry to collaborate with MoD in R&D and thereafter, in production. The much discussed and maligned Defence Procurement Procedure (DPP) has been revised, though for the umpteenth time and with a chapter missing; it, however, has provided a boost for indigenous manufacturing, encouraging MSMEs for direct partnerships with the Government. The ‘Make’ procedures have been revised to quite an extent to provide the necessary impetus to the industry to take up challenges and partner the Government. That is where all the initiatives stand as on date! Barring an odd story of success, India continues to place orders for military hardware with foreign vendors!

The vibrant defence industrial base of DPSUs, OFs and R&D, that have existed for decades, has not produced the desired results; though there has been success in many fields, predominantly in space ventures, defence manufacturing is not one of them. A low plateau has been maintained in gaining self-reliance in defence production, the reasons for which are many. Can India usher in an era of transformation and self-reliance in defence production with the Prime Minister’s call for ‘Make in India’, supported by the introduction of new policies, thus leading to a shift in focus from being import-dependent to a global exporter in its own right? The answers to this and other questions can be found only if all facets of the problem are examined.

Production in the aerospace industry has a long gestation period and is technology-intensive, involving many other industries of the nation…

The Current Aerospace Industry

Production in the aerospace industry has a long gestation period and is technology-intensive, involving many other industries of the nation. Hindustan Aeronautics Limited (HAL), the aviation DPSU in India, is synonymous with the aerospace industry in the country, with sales turnover of Rs 15,622 crore during the Financial Year 2014-‘15. It reportedly has an R&D corpus that comprises ten per cent of its profits, has about 30 licenced-production and indigenous aircraft to its credit, and has developed over 2000 tier-two suppliers. The author’s notes of an annual Seminar in 2014, on ‘Energising Indian Aerospace Industry’, indicate that HAL had then, around 34,000 employees and is a ‘Navratna’ company since 2010. It also claims to have over 60 per cent indigenous content in the much-delayed Light Combat Aircraft (LCA), collaboration with about 20 academic institutions and about 150 industries for its production of which about 80 are in the private sector. Such impressive figures and yet, it has not been able to meet the demands for modernisation of the Indian Air Force (IAF) or the air arms of the other Services! One should not wonder why the IAF and other Services take their shopping list outside the country!

No aerospace company in the world today worth its reputation, attempts to cover all aspects of aerospace activity as HAL does. HAL is engaged in an endless list of activities ranging from design, development, manufacture, repair/overhaul and upgrade of aircraft, engines, accessories, avionics, structures for aerospace launch vehicles, integrated systems for satellites and industrial/marine gas turbine engines. Technologies in the aerospace industry are so spread over a broad spectrum that it is almost impossible for any single company to be self-contained, irrespective of its size. I It is essential to have cross-linkages to be vibrant, proficient and economical. Yet HAL attempts to do just the opposite! Why has this sorry state of affairs been permitted to exist?

India’s march to progress after independence was bolstered through major contribution in the fields of science and technology by organisations such as the CSIR and ISRO. This notwithstanding, the Armed Forces have continued to depend on imports to meet their needs for military hardware. Even as India moves ahead in its 70th year of Independence, there is no major change in the situation. Be it snow boots and gloves for soldiers in Siachen or the humble combat rifle or augmentation of operational and strategic capability with the purchase of aircraft, India goes with a shopping list to friendly nations. These scary situations are not because the lack of capability to produce, but because of the delays involved due to misplaced priorities and the use of outdated technology.

Even as India moves ahead in its 70th year of Independence, there is no major change in the situation…

Challenges Facing the Aerospace Industry

Before commenting on the challenges facing the aerospace industry in India, there is a need for a quick lesson on air power – or aerospace power as it now should be so addressed. Aerospace power is the cross-domain effect provider which it provides with simplicity, through flexibility, an inherent quality of aerospace power and which is so essential for survival. With the other Services, depending upon the target selected, aerospace power makes strategic operational integration and tactical effectiveness easily available. For the political decision makers, aerospace power naturally supports a global approach through gradual visibility, an adjustable footprint and more importantly, with an ability of reversibility and instant disengagement. Do the lower level government machinery and the private/public sector industry in India understand the character of aerospace power to support the IAF requirements? It does not appear so!

The technologies used in defence production and more so in the aerospace industry, are normally at the high-end of the spectrum and hence, are very complex and expensive to develop and integrate; a fact not well comprehended by many who have to take the final decision on file. Defence procurements are not a standard “off the shelf” purchases. They have certain unique features such as, supplier constraints – both domestic and foreign, technological complexities, extremely high costs, foreign exchange implications and geo-political limitations.

The word ‘technology’ is often loosely used, without an understanding that it comprises a number of hard and soft elements, which have to be collectively understood to gather an all-inclusive picture. The hard elements include materials to be used, design documents, manufacturing and assembly infrastructure – available and required – and more such issues; these, however, do not complete ‘technology’ on their own. The soft elements too are numerous and include the likes of human skills, attitude and aptitude to absorb new knowledge and practices, teamwork, potential and skill to handle new equipment, leadership and application of new management processes. This package of the hard and soft elements is a part of ‘technology’, whenever one talks of technology expansion or technology absorption.

Whatever little the aerospace industry has designed and produced in the past is reminiscent of the Fiats and Ambassadors…

India missed out on the Industrial Revolution in the pre-independence era thus causing a deficiency of technologically advanced and an internationally competitive industrial base. This adversely influenced India’s efforts in defence production especially in the aerospace sector. Whatever little the aerospace industry has designed and produced in the past is reminiscent of the Fiats and Ambassadors, which monopolised the automotive segment for many years after independence. A rapid modernisation of the Indian industry in general has taken place in the last twenty-five years or so, but not in the aerospace sector, which has lacked the requisite momentum and enthusiasm, so essential to cater to force-modernisation requirements. Just as the DPSU-bureaucratic combine (one wishes to use the word ‘nexus’) has flourished over the years, the ever-increasing demand and consequent dependence on foreign supplies has continued too; indigenous defence equipment production caters to just about 30 per cent of the demand!

What Ails the Industry?

While the call for indigenisation in defence manufacturing has been getting louder over the years, the Indian aerospace industry has been stuck in the comfort zone of ‘licenced-production’, with implied support from the bureaucracy which has almost always insisted on including a clause of ‘Transfer of Technology’ (ToT) in contracts. A ToT gets the country only modern production techniques, but does not help in getting new state-of-the-art technology to assist in design and development, the need of the hour. The Intellectual Property Rights (IPR) continues to remain with the Original Equipment Manufacturer (OEM). One wonders if the bureaucrat appreciates that! It is only now that the call for “Make in India” from the Prime Minister himself, has shaken all concerned – bureaucrats, DPSUs and the private sector – out of their Rip Van Winkle stupor and projects with state-of-the-art technology are on the anvil through Joint Ventures (JVs) and Strategic Partnerships (SPs). At least there is talk of it!

The OEM and the industry await the finalisation of the policy on SPs, as was recommended by Dr V.K Atre. The Task Force has recommended a model for creating infrastructure and capability in the private sector on a long-term basis under two groups which include heavy hardware, such as aircraft, warships, guns, ammunition and material. The Indian industry, while it awaits the announcement, has submitted a dissent that a company can only be in one of the two groups, which, it feels, could create a private monopolistic venture rather than a free-market initiative. The announcement has been now delayed, with the Raksha Mantri Manohar Parrikar, having taken up another appointment.

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Inadequate privatisation is another important cause for the present ‘vegetative state’ of the aerospace industry. The conglomerate of the OFs and other DPSUs may take the credit for having encouraged medium and small entrepreneurs, but only as tier-3 and tier-4 suppliers. There are not many or any tier-1 or tier-2 suppliers. Successive governments have been hesitant to implement policy changes announced earlier. For the answer, one needs to go back into history, to the rationale that existed when laying down the First Industrial Policy of 1948. This Policy was given the importance of a statutory legislation by the Industries (Development and Regulation) Act of 1951 and a decision was taken to keep defence manufacturing under government control, recognising its critical importance for national security and the country’s need to be self-reliant in this sector. Accordingly, the Government invested heavily in setting up the massive empire of DPSUs and DRDO, the capacities of which match the biggest and in some instances, even the best in the world, but the output is nowhere near global standards.

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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

Air Marshal Dhiraj Kukreja

former Air Officer Commanding in Chief of Training Command.

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