Defence Industry

The Contours of IDDM: A user’s Perspective
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Issue Vol. 31.3 Jul-Sep 2016 | Date : 23 Dec , 2016

It is my belief that, from such an amalgam, will rise the soul of IDDM. The recent news of hiring young IIT students for certain design assignments by the DRDO, implementation instructions of ADB getting issued by the Army, the Indian Navy scaling newer heights in indigenous design after the Arihant, the GOI, in Feb 2015, has sanctioned the construction of six nuclear-powered attack submarines to be designed completely by the Directorate of Naval Design and built by the Shipbuilding Centre at Vishakhapatnam), Tejas and beyond, the story is positive albeit with many ‘ifs’ at the moment. Also, with what I saw in the effervescent spirits of the small and big Indian players at the DefExpo, I would like to believe (with a tongue-in-cheek reality) that the decade ahead is one that belongs to the ‘Indian Design’ – the soul of IDDM.

If there is something that can really be called the soul of the entire euphoria of the new DPP 2016 anchored in the magic of ‘Make-in-India’, it is this newly introduced acquisition category – Indian Design Development and Manufacture (IDDM). I, as a humble user and the operator of the DPP for years on end that includes seven years in the flag ranks, actually handling procurements at the cutting edge and experiencing the many joys of completed cases and the frustrations of the ones fallen aside, have tried to examine the various contours of the IDDM including the take on it by a few Subject Matter Experts (SMEs) on some apparent contradictions related to IDDM when seen with other categorisations. Here it goes…..

Buy IDDM

The first point of debate among the SMEs is about the percentage of Indigenous Content (IC) required. The figure is 40 per cent on cost basis of the total value of the contract for products that have been indigenously designed developed and manufactured and 60 per cent for products which may not have been designed and developed indigenously.

Excruciating delays in decision-making and file clearing has to become history over time…

While there may be some merit in the argument that the percentage figures are quoted wrongly and these should have been the other way round since the product, that is not designed and developed in India cannot be expected to have an IC percentage higher than the one designed and developed in-house, my take is as under:

  • Percentage figures, as quoted, are correct and have an implied logic to it.
  • The lower percentage of IC will work as an incentive for a product developer to push for an Indian design rather than looking outwards for the same.
  • Talking of 60 per cent, the same will relate to a particular class and category of products. Which one? Well, experience has it that there are many a product which are at the ‘horizon of indigenous manufacture’, i.e. These are those products that we have almost indigenised except for a small portion that is still beyond our reach.
  • For example, take the case of active and passive RF seeker for a range of missiles, both surface-to-air and surface-to-surface. While we can do almost the entire missile, including the propellant and fusing, in-house, the RF seeker still remains elusive. Such products will foot the bill in this category (IC – 60 per cent).
  • While we can manufacture the latest guns, the smart ammunition capable of receiving round-to-round intelligence is beyond our capability. Some portions of the cutting-edge radar technologies (4D/AESA/capability to fire-control conventional, as well as, guided ammunition from the same platform), a bit of special materials (nano-driven), powering of laser weapons are some such areas where we are almost there. Such are the cases that will fit in IDDM 60 per cent IC category.

Another argument against the IC percentages in IDDM category has been that, given the situation today where we are 60 to 65 per cent dependent on imports for our requirement of military equipment on the whole and about 70 to 80 per cent, when it comes to aviation related wherewithal, how on earth are we imagining 40 and 60 per cent IC, as quoted above? My views are as under:

  • It is agreed up front that the percentage figures are at the upper edge of the ‘stretch limit’ of IC but that is not all.
  • Without trying to make any exaggerated/false claims, I state with conviction that the face of the Indian defence industry is fast changing. A detailed visit to the latest Defexpo 2016 would vindicate my point. I am not talking only of the big players such as TATA, L&T, Mahendra, Bharat Forge, PunjLoyd and the like. The magic is also being spun by many other comparatively smaller entities and enterprises such as Zen Technologies, MKU, VEM Technologies, Alpha Design Technologies and many more.
  • It is a little different world today with Dhanush, indigenous update of BMPII, Sarath, Ultra Light Howitzer by Bharat Forge, 155/42 calibre indigenous, 100 per cent Indian Air Defence BMC2 and AD C&R System, Rotas BMS and many more.
  • Also the foreign OEMs such as Thales, SAAB, MBDA, Rafael, IAI, Lockheed, Raytheon, Boeing, Rosoboron Group et al are becoming increasingly proactive, not only in the euphoria of ‘Make-in-India’, but also with the stated claims of ‘Made’ in India.

With all the above and more, I state the following:

  • 40 per cent category is much more feasible even with a little stretch.
  • As regards 60 per cent IC, I would like to think that it is reserved for the category of military hardware that I have tried to explain above.

The first point of debate among the SMEs is about the percentage of Indigenous Content (IC) required.

On Indian Design

Before I go further, I would like to flag a distinct emphasis on the words ID in the IDDM. I feel that in the soul of the new-found magic of ‘Make-in-India’ lies in ‘Indian Design’. It is this field that needs to propel itself. It is doing so – bit by bit, but a solid push forward is required. Not that all is well with Make-in-India; the road ahead is one of promise and not of despair. To make this promise happen, the so-called shackles and obstructions, such as the woes of the private industry, have to be removed.

Excruciating delays in decision-making and file clearing has to become history over time. Very tall order! Easier said than done!! DPP – old or new, this rot continues. While the Government (DPSUs) have infinitely large holding power, the hard cash of private players hangs in the balance with the increasing cost of capital and an unforgiving banking eco-system with private players that can actually make the IC happen waiting endlessly for a decision/file clearance/response to query and more.

The laudable and praiseworthy aim of a level playing field has to move forward from being theory to practice. A few random examples:

  • Applicability of Exchange Rate Variations (ERV) across the board (Public and Private players) and that too, in a timely manner!
  • Common and transparent norms for the public and (bona fide and selected) private players for the complete range of procurement related activities. Just a sample:

– Making combat equipment available for the development of prototypes.

– Equal sharing of national assets such as Test Ranges, Validation Labs, EMC/EMI facilities and more on payment basis, wherever applicable.

Reducing the bias for the public sector is one cornerstone of achieving the as yet-illusive level playing field. Though that is something that cannot happen overnight, that is the way forward.

Effort by Services

Returning to my point on ‘Indian Design’, it will be of interest to know what the Services are doing in this field. The encouraging news is that while one of them is right ahead, the others are making positive beginnings. In that, the Indian Navy is already a full-fledged ship-building Navy (implying many other vessel types as well) end-to-end (design, development manufacture). The Air Force is already making a beginning to have a design acumen by way of Subject Matter Experts (SMEs) cumulated for this purpose in the field. The Army has also recently completed a study to establish something of an Army Design Bureau (ADB). This is to be done by concentrating the SMEs in different disciplines such as small arms, guns, ammunition and communications in an institutional manner to be able to provide operational inputs to the design requirements of military hardware. The author has had the privilege to be the Chairman of the ADB Study whose recommendations are being implemented now.

As time passes, some things are expected to unfold gradually. How? It is to be hoped that the above small beginnings (of the Services) will start getting integrated with the rousing ‘design muscle’ of the Indian defence industry over time, duly powered by the intellect of the academia across the entire spectrum both institutionally as well as through ‘one-on-one’ and ‘one-on-many’ networks.

If the collective wisdom driven by realities on ground has it that the Indian design is not possible/doable, the procurement will slip to the next category of ‘Buy Indian’…

It is my belief that, from such an amalgam, will rise the soul of IDDM. The recent news of hiring young IIT students for certain design assignments by the DRDO, implementation instructions of ADB getting issued by the Army, the Indian Navy scaling newer heights in indigenous design after the Arihant, the Government of India, in February 2015, has sanctioned the construction of six nuclear-powered attack submarines to be designed completely by the Directorate of Naval Design and built by the Shipbuilding Centre at Vishakhapatnam), Tejas and beyond, the story is positive albeit with many ‘ifs’ at the moment. Also, with what I saw in the effervescent spirits of the small and big Indian players at the DefExpo, I would like to believe (with a tongue-in-cheek reality) that the decade ahead is one that belongs to the ‘Indian Design’ – the soul of IDDM.

Actual Challenge Areas

To my mind, the actual challenges for IDDM lie in two areas, which are:

(a) The stipulation that the IC percentage has to be applied right through to include:

  • Basic cost of equipment.
  • Cost of Manufacturer’s Recommended List of Spares (MRLS).
  • Cost of Special Maintenance Tools (SMTs) and Special Test Equipment (STE).

What is the implication of this? The vendor has to dive deep. Make sure that besides his core Indian-design, which is the raison d’être of his bidding for the IDDM, he must involve a larger base of smaller players who will pitch in to produce many a small things in range and depth belonging to the MRLS, SMT and STE so that the elusive figure of 40 per cent is carried right down to the last nut and bolt, as mandated in the IDDM category.

(b) The second challenge area is the bigger one and spreads on both sides of the fence. It relates to proving and certifying the IC. The rules have it, that it is the responsibility of the vendor to prove the extent of IC and it is the responsibility of the buyer to verify whether the claim made by the vendor is correct. How will the buyer do it? It is envisaged that for doing this a Committee of DRDO scientists, will be formed. A few suggestions:

  • The Committee need not only comprise the DRDO scientists but could have a wider base of SMEs who have detailed knowledge of the Indian market and its current threshold of capability in the vertical in which the procurement is being done.
  • Though it may sound weird, it might be in place to have members from the peer group in the said committee. Nobody can play devil’s advocate better than a peer stakeholder in an each other/one-another arrangement. It goes without saying that the interaction among these players has to be strictly through the Chairman of the Committee and not ‘one-on-one’ or ‘one-on-many’ mode.
  • What about some Service experts? It will be a must to include professional service officers who, based on their core competency and technical knowledge of the defence industry at large, will know exactly what system capability is IC and what is not.
  • It will also be essential to have onboard, the SMEs from the Acquisition (Acqn) Department, as well as, the Department of Defence Production (DDP).
  • I would, therefore, visualise the said Committee to be a standing arrangement with a dynamic composition. There will be a requirement to have a pool of prospective members/SMEs on a standing list. Out of this superset, a specific selection of scientists, market experts, peer members, academia representatives and service officers will have to be put together, each time a requirement arises to assess the IC in an IDDM procurement case. The same will have to be done a priori (i.e prior to fielding the case for categorisation) as stated in the DPP.
  • Despite all that is said here, there will still be a large component of assessment which will have to be passed, based on certifications and assurances on the trust vote by the vendor.

An Apparent Contradiction

There is yet another thing about the IDDM percentages and IC content which stands on an apparent contradiction which actually is not there. Let me explain how.

Taking the reference point of IDDM stipulating the twin requirement of Indian design, development and manufacture with 40 per cent IC on the cost basis of the total value of the contract, the perceived contradiction runs like this:

  • ‘Buy Indian’ category also provides an option to the Indian vendor to provide products having a minimum of 40 per cent IC on cost basis of the total contract value.
  • Also, since there is no mention of ‘Indian Design Development and Manufacture’ in ‘Buy Indian’, products not of indigenous design, development and manufacture, which need to have 60 per cent IC under IDDM, can go through in this category with only 40 per cent IC.
  • Also, in yet another category of procurement called ‘Buy Global’, an Indian vendor participating in the bid process can field Indian equipment for outright purchase without any stipulation of percentage of IC. It is another thing that based on what percentage he ultimately fields, whether or not he will attract offset obligations on the Foreign Exchange component. In DPP 2013, this was 50 per cent. In all probability, the same will be retained, as and when the offset obligations are pronounced for DPP 2016.

While all the above facts are arithmetically accurate, I have some take on it:

  • The whole game lies in initial categorisation which is recommended by the SHQ and awarded by the DAC working through the approval chain of the SCAP cycle (SCAPCC, SCAPCHC, DPB, DAC).
  • It is not for the vendor to decide what to provide under what category of procurement and variations thereof; it is for the SHQ to initiate, procurement chain to endorse the SHQ (or recommend a change of category) and the approving authority to grant a particular category.
  • In the above award, the drivers are likely to be as under:

– Since the primary emphasis is on Indian Design, the first port of call will always be IDDM where the percentages of 40 and 60 will stand in their own verticals and merit with no mutual contradiction.

– If the collective wisdom driven by realities on ground has it that the Indian design is not possible/doable, the procurement will slip to the next category of ‘Buy Indian’ where the 40 per cent IC ( with no compulsion of ‘Indian Design’) will stand unambiguously, again without any mutual contradiction

– And finally, in cases where the situation is so urgent as to warrant an outright purchase (Buy Global), for a time urgent and critical need, no percentages matter in any case, only the procurement must happen yesterday. That is the reason ‘Buy Global’ is not ridden with any percentages whatsoever. It is another thing that the SMEs are trying to find an oblique connection on the offset route. Well, that is a standalone figure of 50 per cent and above, when offsets will kick in. Below that, no offset obligations.

  • It can, therefore, be seen that while prima facie and taken arithmetically, there appears to a contradiction of sorts in the percentages in IDDM/Buy Indian/Buy Global, there is actually no contradiction when each procurement category is seen as one vertical and processed within itself.

IDDM – No Time to Design and Develop?

There is this one more thing about the IDDM, related to ‘Indian design’. It is to be clearly understood that the procurement under this category is outright purchase. It, therefore, does not lend itself to the commonly understood definition of ‘design and development’. In that, it will not unfold in the typical sequence of SHQ laying down the requirement of a product and the vendors commencing the cycle of designing with the required product getting ready sometime in the future. On the contrary, it will go like this – requirement floated, vendors respond with equipment ready; period. If this be the pattern, how will IDDM ultimately lend itself to classic design and development? I would think it this way:

  • The design and development exercise has to be started by the prospective vendor with a time lead so that the product gets ready in around the same time frame when the need for it is put out by the SHQ. How is this to happen?
  • This is where the need and relevance of the Technology and Capability Prediction Roadmap (TCPR) by HQ IDS finds its place. The prospective vendors must analyse the same well into the future (considering lead times to develop) and extract from it, the business opportunities that exist for times to come.
  • For selecting prospective business opportunities the tendency to go the whole hog should be avoided. After all, what are the JVs and MoUs for? Especially in an eco-system where the foreign OEMs are going whole hog to immerse themselves in the aroma of ‘Make-in-India’ and are singing such songs as ‘Made/Already Making in India’.
  • Where else the prospective vendors can get the wind of what is required by the Services day after tomorrow? Seminars/ Conferences/Workshops/Round Tables; where else? It is indeed heartening to see CENJOWS/ CLAWS/ CAPS/ USI/ IDSA/ VIF and a host of other professional think-tanks, study centres and institutes regularly organising the above said activities in conjunction with major industry houses such as CII, the FICCI, the ASSOCHEM and the PHD et al, duly supported and patronised by the MoD, HQ-IDS, SHQ, DPSUs, the industry both foreign and Indian besides a visible media in both AV and print.
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Click to Buy: IDR Oct-Dec 2016

While the above is one reality, what follows is another. Most of the above events are conspicuously devoid of actual stakeholders as well as cutting-edge decision makers. Who are these persons? The concerned Minister, officials from the dealing branch of MoD, decision makers from the Acqn and DDP branches, DGs of the Arm/Service concerned, DRDO/DPSU reps at the appropriate levels of seniority and more.

Seeing this trend over time, I have experienced, that even the CEOs/decision makers from the vendor entities shy away and send junior executives. The entire purpose of crystal gazing by the Services and its likely take-away effect for the industry is lost, rendering these important professional exercises impotent. The above needs to be corrected and the only way to do this is probably self-realisation by both the parties viz. buyers and sellers.

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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 VK Saxena

former Director General Army Air Defence. He is presently an Advisor to a leading Defence PSU.

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