The ‘Make in India’ initiative has made a huge impact on the domestic sector and motivated the private sector to participate in the government projects with renewed confidence. Indian domestic private sector now has the ability to deploy the best of the technology available worldwide, invest large finances and produce state-of-the-art equipment in the country. If necessary, they are also in a position to get into Joint Ventures with the best technology providers in the world. Changes being brought in the policies for doing business with the MOD, specially under the provisions of the new DPP and DPM must aim to bring the domestic private industry to invest in defence manufacturing sector.
The Indian Armed Forces have been facing perpetual shortage of many of the strategic defence items ranging from military hardware to a variety of ammunitions. Maintenance and repair problems have reached critical levels wherein our aircraft, helicopters, tanks and electronic warfare systems are functioning at nearly 50 per cent serviceability. It is a matter of operational criticality and concerns national security, an issue which has been highlighted by the Chief of the three Services from time to time. The situation has also been discussed in the Parliament and commented upon adversely by the Comptroller and Auditor General (CAG) as well as defence experts.
This situation is not new. It may be recalled that during the Kargil conflict, the army had to move guns, ammunition and equipment from deserts and other sectors due to deficiencies and maintenance issues. While certain organisational restructuring and modernisation initiatives have been undertaken from time to time, not much has happened on the ground which would substantially enhance the confidence of the three Services.
There are few inherent issues that can derail the new initiative of the government…
In so far as the Indian Army is concerned, the shortage of ammunition has been a matter of great concern. The criticality is across the entire spectrum from quality to quantity. Such is the criticality that substantial restrictions had to be placed on the ammunition for training so as to manage huge shortages of critical items such as tank ammunition, Bi-Modular Charge System (BMCS) for medium artillery guns, 30 mm ammunition and modern hand grenades for infantry. While some initiative for modernisation of hardware is taking shape, the TNT filling in the tank and artillery ammunition is of late 1960s and early 1970s vintage. This has resulted in stockpiling less efficient ammunition and longer logistics chain due to the large quantum of ammunition necessary for the assigned task. This in turn has a tremendous effect on the government exchequer.
In the past, the Ministry of Defence (MoD) largely depended on the Defence PSUs (DPSU) and imports to meet India’s defence needs. It remains so even now. The change that has taken place relates to the coming of age of private sector manufacturing in the country. The interest of the indigenous private sector to invest in the defence sector has been lacking due to various reasons. Perhaps it did not have technology, finance and confidence to venture into uncharted and risky defence business. The policies were not conducive and were found restrictive for the domestic sector to enter the defence manufacturing sector.
The Defence Procurement Procedure (DPP) and Defence Procurement Manual (DPM) were complex and inflexible, as also huge delays in finalising procurement projects created considerable uncertainty. The resultant delays in procurement processes and dependency on imports has resulted in huge outflows of foreign exchange and delays in meeting commitments by the foreign suppliers. The case of the Gorskhov aircraft carrier, SU-30 fighter aircraft, T-90 tanks, ANTPQ 37 gun locating radars, air defence radars, missiles and guns are well known and needs no emphasis.
The ‘Make in India’ initiative has made a huge impact on the domestic sector and has motivated the private sector to participate in government projects with renewed confidence. Indian domestic private sector now has the ability to deploy the best of the technology available worldwide, invest large finances and produce state-of-the-art equipment in the country. If necessary, they are also in a position to get into Joint Ventures with the best technology providers in the world. Changes being brought in the policies for doing business with the MoD, specially under the provisions of the new DPP and DPM must aim to bring the domestic private industry to invest in defence manufacturing sector.
The DRDO, OFB and other government organisations are carrying out substantial original research work…
However, there are few inherent issues that can derail the new initiative of the government. Foremost among these are the issues of level playing field and overreach by the DPSUs to take projects beyond their present and future installed capacity and thus restricting private sector participation. Perhaps this is one of the principal reasons for the present criticality in the equipment holdings with the three Services. This issue needs to be resolved through major policy initiatives by the government.
While there are many cases affecting the Indian Army’s preparedness due to unmanageable equipment deficiencies, the most critical example is that of the Bi-Modular Charge System (BMCS). BMCS is the propellant used to fire 155 mm category guns such as Bofors, Dhanush, up-gunned Soltam and other modern artillery. Without BMCS, the army will have Bofors and other modern guns that cannot be fired. It is reported in the media that BMCS deficiency in the army is over 1.5 crore sets, which is expected to grow rapidly in the future once the modernisation programme of the artillery gathers momentum.
Now that the government is amending the DPP and DPM to bring in policy interventions so as to provide opportunities to the domestic private sector and integrating them with the MoD, a new chapter in defence manufacturing is opening up. The challenges are complex and have multi-departmental ramifications. The complexities can be better explained by few examples as follows:
BMCS. It is a well-established fact that long term perspective plan of the army had approved full mediumisation of artillery to 155mm howitzers. The process of induction of new 155mm guns has already commenced with the induction of Ordinance Factory Board (OFB) built Dhanush howitzers, up-gunning of 130mm guns to 155mm and trials of the 155mm self-propelled and towed howitzers (Buy and Make), issue of RFP for 155mm 52-calibre Mounted Gun System (MGS) and issue of indent to DRDO for the developing fourth generation 155mm 52-calibre gun. It is appreciated that the quantum of new medium guns to replace the existing 105mm/122mm/130mm guns held on the inventory of the army would be over 2,000 or more. The shells for all these guns are made in India by the OFB. Sufficient manufacturing capacity exists with the OFB to meet the army’s requirement in the near future. However, the crisis in the artillery is due to acute shortage of BMCS.
The ‘Make in India’ initiative can change the parameters of the way the MoD does business with the domestic private sector…
In fact, appreciating the huge requirement of BMCS once the artillery modernisation gets underway, the MoD embarked upon an ambitious project to manufacture BMCS in the country. Accordingly, in the late 1990s it was decided to set up an Ordnance Factory (OF) at Nalanda in Bihar. Vast tracts of land were made available by the State Government and the plant was partially constructed after long delays. The Rs 300-crore project overshot to over Rs 1,200 crore and yet not a single piece of BMCS has been produced by the factory as yet. There are lingering technical and administrative issues that will affect commissioning and regular production from this plant for a considerable time, maybe four to five years or more. In the meantime, OFB is supplying some quantity of BMCS from its existing plants making base ingredients and some are being imported from abroad at high costs.
With galloping deficiencies of BMCS in the Indian Army, final installed capacity at OF Nalanda would not be able to meet the basic minimum requirements of the Army now or in future. If the Investment and the Return on Investment to the government on this project is worked out, then the OF Nalanda will be at a perpetual loss. To make up the losses the OFB would have to increase the cost of BMCS periodically. The Army will have to fund the increase from its Revenue budgetary allotment, which otherwise should have been utilised in other critical procurements. Thus, the Indian Army and the MoD would face huge avoidable losses of revenue on a long term basis and yet the deficiencies of BMCS would continue to increase thereby affecting the Army’s training and operational commitments. There is a need to appreciate that new guns will need intensive training for which the training firing would have to be increased substantially. Absence of BMCS would not permit such an essential aspect of integration of the new guns in the army for which the government is spending crores.
The MOD should, therefore, consider offering the domestic private sector which has the relevant license, approvals and capabilities to come forward to support the operationalisation of OF Nalanda as also manufacture the BMCS within the country. However, such a far sighted initiative would require serious policy intervention by the government as only one or at best two domestic manufacturers may be interested in such a high-tech, high investment project. Therefore, the issue of single vendor limitation for concluding such contracts may be considered prior to embarking on such an initiative. Such initiatives in other critical deficiencies must be considered now and included in the new DPP/DPM. The new DPP/DPM should permit comparison of the product cost and quality of the private sector with the procurement cost from the DPSUs and other sources viz ex-imports.
On its part, the domestic private sector needs to assure the MoD of its ability to produce world class quality within the laid-down timeframe utilising technology already approved by the army and in use. It is well known that approval and absorption of different technologies takes years to mature and absorb, which is not advisable in critical deficiency conditions. Issue of an RFI to find out the interest and capability of the private sector to produce BMCS in the country should be considered by the MoD. However, it would be prudent to suggest that much caution and due diligence would be necessary to weed out non-serious vendors who obtain a Letter of Acknowledgement from foreign vendors and join a project to derail it. Such vendors would eventually defeat the purpose of the initiative. Therefore, core competency should be one of the governing factors for selection. This concept should be considered by the MoD for any new project of this nature.
Pinaka Rocket. The Pinaka is a successful ‘Make in India’ venture. The equipment was developed by the DRDO and the technology was transferred to L&T and Tata Power for commercial production. In view of planned raisings of quite a few Pinaka regiments in the near future, the Army HQ placed indents on OFB for 10,000 Pinaka rockets to be supplied over a period of five years at the rate of 2,000 per annum. However, very limited numbers could actually be produced by them. This affected the training and optimal utilisation of the Pinaka in the Army. Yet the existing policies do not permit outsourcing of the shortfall to the private sector by the OFB. Thus, due to policy limitations, neither can the OFB/DPSUs fulfill the demand of the armed forces nor can the shortfall be outsourced to the private sector on turnkey basis with technical support of the OFB.