In June 2005, the US India–Defence Framework Relationship opened a new chapter. In an age where some say that the arms race has been replaced by a technology race, access to the US for defence purchases and defence industrial partnership, a long cherished IAF desire, was expected to provide a significant boost to Indian aeronautics, both in technological and industrial terms. Unfortunately thus far, apart from many US procurements through the Foreign Military Sales route (and not the open tender route) there is no visible strategy on how to leverage this opportunity towards strengthening Indian aeronautics R&D and industry.
As we approach the ninth edition of the Biannual Aero India series, it is perhaps a good opportunity to view a snapshot of how Indian aeronautics and more specifically, its industry have evolved over the years since Aero India made its debut.
Clearly, for a high technology industry with high R&D investments, the low FDI limit came as a dampener…
Systemic change commenced early in the year 2000, when as part of reforming the national security system, new defence procurement management systems and procedures came into being. A formal Defence Procurement Procedure followed in 2002 with the avowed objectives of ensuring expeditious procurement of weapon systems to meet operational needs of the armed forces along with transparency and probity and keeping the interests of self-reliance in mind. Simultaneously, and in a significant departure from the past, defence production was thrown open to the private sector with FDI up to 26 per cent being permitted.
In 2005, an offset clause amounting to a minimum of 30 per cent of the indicative cost in the RFP for projects of Rs 300 crore and above was introduced with the aim of developing the Indian defence industry alongside capital acquisitions.1 (Significantly, the RFP for the IAF’s requirement of the MMRCA increased this offset obligation to 50 per cent). The private sector was clearly enthused by this policy initiative as reflected in an article that said, “The CII has always strongly recommended that direct offsets be implemented as a matter of national policy for defence procurement. The suggested aim of the Offset Policy should be to get state-of-the-art technologies for both public and private sectors to give major thrust to self-reliance and boost defence exports.”2 Response from the international aeronautical industry was, however, muted. Clearly, for a high technology industry with high R&D investments, the low FDI limit came as a dampener.
In June 2005, the US India–Defence Framework Relationship opened a new chapter. In an age where some say that the arms race has been replaced by a technology race, access to the US for defence purchases and defence industrial partnership, a long cherished desire of the Indian Air Force, was expected to provide a significant boost to Indian aeronautics, both in technological and industrial terms. Unfortunately thus far, apart from many US procurements through the Foreign Military Sales route (and not the open tender route) there is no visible strategy on how to leverage this opportunity towards strengthening Indian aeronautics R&D and industry.
The Defence Procurement Procedure itself has evolved over the years with the latest version currently being that of 2011. But it was the release in 2011 of a Defence Production Policy by the Defence Minister that was expected to steer the defence and aeronautical industries on a path to international standards alongside ushering in self-reliance. Amongst other things, the policy states, “In order to synergise and enhance national competence in providing state-of-the-art defence equipment/weapon systems/platforms within the price lines and time lines that are globally competitive; all viable approaches such as formation of consortia, joint ventures and public private partnerships within the Government approved framework will be undertaken. The Academia, Research and Development Institutions as well as technical and scientific organisations of repute will be involved in achieving this objective.”3
For the MMRCA, no effort was made to prepare the Indian industry – both public and private to absorb the 50 per cent offsets that were required of the competing vendors…
As intentions go, the above is unexceptionable except for the portion in italics of which there is more later on. Self-reliance in the field of defence production has been a much-heralded mantra for decades now and is not new. The problem is that we have no strategy or plan or indeed an organisation to achieve this very challenging vision. The new policy did nothing to bridge this gap. Instead, periodic issuance of procedure and policy appear now to have become an end in itself and are hailed as progress. The following examples indicate that not much seems to have changed over the last decade and a half.
Along with the RFP for the MMRCA, no effort was made to prepare the Indian industry both public and private to absorb the 50 per cent offsets that were required of the competing vendors. Nor was there any institutional framework for strategising and prioritising of technologies from contending parties that would best meet our strategic and technology needs and hence be given due weightage. These are complex issues and cannot be achieved by the MOD and its defence acquisition systems as existing today. These are best achieved through a mission-oriented management organisation tasked with achieving specific operational, technological and industrial goals. This single weakness could well become the Achilles’ heel of an otherwise ambitious and potentially game changing MMRCA programme in so far as it concerns the indigenous aeronautical industry and consequently, our proclaimed objective of self-reliance.
Whilst the policy encompasses all possible approaches such as Joint Ventures (JV) and Public Private Partnerships (PPP), the dampener to any private enterprise will be the rider ‘within the Government approved framework’. Since the defence production sector has for decades been the zealously guarded preserve of the Department of Defence Production and its DPSUs, with the services as captive and often hapless customers, the private sector will not find ready acceptance into this exclusive club. In addition, the private sector will be saddled with issues relating to other government departments like licensing and many others. The policy is silent on how the Department of Defence Production proposes to be a welcoming felicitator in encouraging and promoting the private sector. Instead it, along with the DRDO, will have a say in approving any private sector proposals. Not only does this give them authority to veto, it would also amount to a conflict of interest as Defence PSUs could also be in competition.
For a programme like the MMRCA that has drawn wide interest from across international aerospace giants as also their governments, it was somewhat intriguing to learn that in the very final lap of this long drawn and competitively fought race, the French aerospace major Dassault, the winner, has now asked the government to clarify what role it envisaged for HAL and had requested the freedom to decide the proportion of work to be allocated to HAL versus e Indian companies in the private sector.4 Considering that the RFP had designated HAL as the agency to handle the indigenous portion of this programme, the very fact that such question has been raised at this penultimate stage, reveals the wide gap that exists between the policies and procedures of MOD on the one hand and the absence of sound organisational and institutional framework on the ground to assist in their fruition, on the other.
It will be recalled that there was much consternation when the contents of a cable from the US Embassy in Delhi became public in which the then US Ambassador to India after a visit to HAL in February 2010, had expressed doubts about HAL’s capability to manufacture jets under the MMRCA program. He reportedly also expressed surprise at the lack of automation and safety precautions at the HAL plant and had cautioned his government that despite the progress evident within the Indian defence industry, American firms need to approach partnerships carefully to understand the management and technological experience of Indian firms. Cost, schedule and quality will be key challenges for any company engaging in joint production ventures.’5
Defence production has, for decades, been the zealously guarded preserve of the Department of Defence Production and its DPSUs…
That he resigned as soon as the US competitors had lost the MMRCA race may have been co-incidental, but if he were to read the latest reports from India, he may well have the last laugh. Writing in the Business Standard6 Ajay Shukla mentions the serious difficulties that HAL is facing in graduating to production standard Tejas (LCA) from the prototype and limited series production models. He quotes Director – ADA who runs the Tejas programme under DRDO to admitting that nobody realised that setting up production line was a technology by itself adding, “ADA and HAL have realised that creating a production line needs major effort…That realisation has come.” According to this report, a proposal to hire a foreign consultant for setting up Tejas production line is under consideration. Is it possible that having won the MMRCA competition, Dassault is also faced with a similar dilemma?
The present state is best exemplified by what two national dailies of the same day had to say on the eve of the Russian President’s visit to the country. One mentions some Rs 25,000 crore arms purchase deals expected to be signed concluding, “This will reassert Russia’s position as India’s largest arms supplier despite Israel, France and the US now snapping at its heels…”7 Another in a news item titled ‘Russia Cloud on Defence Self Reliance’, talks of the MOD having invited two years ago, Indian private companies to participate in building a Future Infantry Combat Vehicle for the Indian army. Many reputed Indian companies having tied up with foreign ones responded but continue to await a decision. Meanwhile, Russia now senses an opportunity and is urging India to settle for its latest variant of the troop carriers.8 What emerges is that foreign suppliers scarcely believe in our self-reliance mantra and the indigenous private industry that dares to venture into the defence and aerospace sector faces infinite bureaucratic impediments. For aeronautical projects, where investments and risks are significant, the message could not be starker.
The Indian aeronautical industry was earlier driven primarily by military requirements and was served by HAL. Today HAL boasts of production and research centres spread across India with a workforce of around 35,000. It is one of the largest aerospace companies in Asia and is involved in every facet of aeronautics design, development, production, repair, overhaul of aircraft and aero engines, materials and systems. Whilst this makes it a behemoth on the Indian aeronautical scene, the beguiling irony of Indian aeronautics is that when in the early eighties India took on the bold challenge to design, develop and set up production tooling for a modern light combat aircraft, the responsibility for design and project management was denied to HAL and instead entrusted to the Aeronautical Development Agency, a newly created organisation that was under the DRDO. The consequences of this ad hocism are being felt by the nation today. The programme continues to suffer cost and time overruns and we now have the Director, ADA admitting to ignorance of modern aircraft manufacture that the American diplomat had reflected upon!
The Indian aeronautical industry was earlier driven primarily by military requirements…
With recent changes in policy some of the larger industrial houses have also moved into the defence production arena including into civil aeronautics, but none to one’s knowledge into significant military aeronautics business. To one’s mind, the reason is not the lack of desire on their part, but lack of a clear strategy and plan on the part of the MOD as also the severely limiting 26 per cent FDI in a field where technology is the driver. Prospective partners would need greater incentive and say when sharing technology developed after significant investments in R&D. This is a pity, considering that there is now grudging recognition that private sector participation is a pre-requisite for bringing the Indian aerospace industry to global standards.
During the last decade and a half, the IAF and to a degree, the other services, have procured airborne platforms and associated systems from across the world. Major procurements have been made from the US, Russia, UK, France, Italy, Israel, Brazil and Switzerland. The relationship with Russia, a long time traditional supplier has graduated from a buyer-seller one to joint development with the fifth-generation fighter and the multi-role transport aircraft programmes on the anvil.
This approach may be good for diplomacy and international trade but throws up huge logistical, training and engineering challenges for the IAF, and is a poor substitute for sound operational logistics and resource management. In this context one wonders if the objective of the IAF enunciated earlier of reducing multiplicity of types has undergone a conscious change.
Since this approach is driven by user requirement and the lowest cost, it does not provide the impetus for making the Indian aeronautical industry strong and internationally competitive. As it is the industry is saddled with problems of multiple source acquisition with little consideration for how such diversity will contribute to standardisation, economies of scale and leveraging our own aeronautical strengths to advantage.
The question that must exercise the Indian defence planner’s mind is whether merely picking the best to meet individual service requirements, irrespective of variables such as technology, design philosophy, costs, multiplicity of sources and the associated engineering and logistical diversity, is the optimum solution for an air force that needs to be prepared for operations across the vast sub-continent supported hopefully by an indigenous aeronautical industry that is internationally competitive. Ashley Tellis, a Senior Associate at the Carnegie Endowment for International Peace who specializes in international security, defence and Asian strategic issues and had earlier written a comprehensive research paper ‘Dogfight: India’s MMRCA Decision’, makes the point in an article, “There is no such thing as best technology in the abstract, especially where defence procurement is concerned. The pre-eminence of any war-fighting technology in the real world can be judged only against the constraints of price and particularly in regards to India, against additional variables of consequence….what economists call, ‘constrained maximisation’.”9
The industry is saddled with problems of multiple source acquisition with little consideration for how such diversity will contribute to standardization…
Perhaps a hint of this is evident in DPP 2011 where it states, “Service HQs while laying down the QRs for defence equipment/weapon systems/platforms to be developed/integrated/made will exercise due diligence at all times to keep in view feasibility and practicability of the QRs.”10
The question that the DPP fails to address is how best this feasibility and practicability will be arrived at, unless there is an appropriate management structure in place! From all accounts, the realisation now setting in is that whilst India has invested heavily in the aeronautics industry, what is lacking is the management ethos of the private sector and a national aeronautics policy and organisational framework that is so vital for a modern aerospace power. The IAF, which for long has suffered at the hands of the industry being run as a government department, must now feel somewhat vindicated at this belated realisation.
Recently, HAL’s bid to produce a basic turbo trainer for the IAF was rejected by the MOD because costs quoted were double those of similar aircraft available for import. The Government has also decided to offload ten per cent of HAL’s equity in the market to garner resources for expansion and better management, although analysts and users say the plan doesn’t go far enough and a complete restructuring is needed and merely selling a small stake in equity will not help it revamp itself.11 DRDO and its performance are also being viewed through a critical lens. These incremental steps augur well for the future of Indian aeronautics.
Aeronautics is a high technology, high-risk and high-cost enterprise where the Indian private sector has not traditionally been allowed…
While India possesses all the pre-requisites for a sound industry, its contribution to the building of the nation’s air power has not been in keeping with this potential. Lack of an integrated and mission oriented approach, a national aeronautics vision, the requisite organisational framework and supporting institutions are the primary causes. To overcome these, a suggested blueprint follows:
The government should adopt a National Aeronautics Policy and put in place a dedicated Department of Aeronautics guided by an Aeronautics Commission, along with supporting institutional bodies, tasked with strategising and achieving the optimum blend of operational, scientific, technological and industrial goals in furtherance of this policy. A proposal to this effect was first mooted by the Aeronautical Society of India under the Presidentship of Dr Abdul Kalam in 1994 and later modified and submitted to the government in 2004. It draws on the successful model of the other two high technology areas of Atomic Energy and Space and is not new to Indian governance.
Aeronautics is a high technology, high risk and high cost regime where the Indian private sector has not traditionally been allowed. The time has now come for the Defence Ministry and the armed forces to take the private sector into their fold as partners along with generous financial and technical support to enable them to reach take-off stage. Leaving them entirely to seek unequal partnerships and joint ventures may, in the long, run, be detrimental to all parties. This can only be achieved under the broader umbrella of the Aeronautics Commission and Department of Aeronautics.
It is time for research to be delinked from weapon system design and development, which must remain the preserve of the industry. The ADA should either revert to HAL or be privatised.
As technology advances, costs rise and even the Air Forces of developed countries are being confronted with budget constraints. In this evolving scenario, international partnerships are becoming the norm. The limit of FDI in defence production must be raised to 74 per cent from the existing 26 per cent, if any meaningful participation by high technology partners is envisaged.
Funding of aeronautics R&D in both defence and private sector labs by the IAF and other aeronautical users including civil aviation must be generous. This should be under the aegis of the Aeronautics Commission.
The nation continues to pay for delay in setting up of the National Defence University…
The Industry should consider setting up a trade association of aeronautical industries to enable constructive and meaningful participation in promoting the growth of the national aeronautical industry in harmony with all stakeholders.
Ad hoc approach to resource and technology strategy as well as management is evident from the current state of affairs. One of the mission objectives of the proposed National Defence University is ‘to educate national security leaders on all aspects of national security strategy, national military strategy, national resource strategy, national information strategy and national technology strategy through teaching and research.’ The nation continues to pay for delay in setting up of the National Defence University.
In an article titled ‘Challenges facing the Indian Aerospace Industry’12 on the eve of Aero India 1998, whilst making the argument for restructuring of this strategic industry and evolving a unique structure of doing business suited to the Indian environment, the writer had concluded with the following, ‘Aero India 1998 is an appropriate milestone for the beginning of this exciting journey such that when Aero India 2000 heralds the new millennium, Indian aerospace industry will be well on the path of reorganisation, reconstruction and a focused future. Only then can events such as Aero India become meaningful trade promotional activities towards benefiting Indian aerospace. For the present, they mean little.’
Fourteen wasted years on, one can only hope that the stirrings of change now visible herald a new beginning. The aeronautics community within the country has the potential; it cries out for bold leadership and change.
- Defence Procurement Procedure 2011. MOD
- http//www.ciidefence.com/indiandefpolicy.asp CII Defence Division. Indian Defence Offset Policy
- Defence Production Procedure. 2011. Para 6. MOD
- Indian Express. 8th December, 2012
- The DEW Line. http://www.flightglobal.com/blogs/the-dewline/2011/09/wikileaks-indias-hal-hacks-own.html
- Business Standard 9 December 2012 Ajay Shukla
- Times of India 22.12.12
- The Telegraph. Calcutta. 22.12.12
- Decoding India’s MMRCA Decision-Ashley Tellis. FORCE June 2011
- DPP 2011. Para 8 MOD
- Indian Defence Review, Issue 14.1 Jan-Mar 1999.