• logo
  • logo
  • logo

Boost defence production

India is seeking to create a credible military industrial complex which can meet technological needs of its armed forces but the road to achieve such a monumental goal is not easy in a complex country like India where politicians and bureaucrats need to be re-educated.

During recent interactions with wide section of policy makers, many of them do not understand the problems grappling Indian defence industry and why India having a robust civil industrial capacity is not able to produce a single credible defence system solely on its own.

Now, the NDA is keen to make a start up venture in defence sector to augment India’s defence production by roping in private and foreign players who can put investment and bring technology. Yet, very few have trust in government policy change and various announcements.

“The mindset is still more or less same. They see us as outsiders and could steal secrecy if defence equipment plans are discussed with private companies,” remarked a senior executive of a century old conglomerate.

However, the buzzword in Indian defence industry is Make in India and the Indian Defence Ministry is overly eager to promote the Make in India initiative of the Prime Minister Narendra Modi to maximise the production of defence equipment in the country.

Indian armed forces are the biggest bulk importer of high value defence goods in the country and if the ministry is able to encourage and promote the domestic production of defence equipment in the country, it would create a huge domestic capacity to produce high end equipment domestically.

This would have spill over effect on other civilian small scale industry and create huge employment for Indian educated youth.

The Make in India initiative has the capacity to transform the defence landscape of the country. Though the country has huge domestic research, design, development, production capacity and has produced trained manpower in many areas of defence production, the Ministry of Defence has somehow not been able to capitalise on this due to appropriate policy framework accompanied by bureaucratic lethargy and lack of initiative.

In fact, the Indian bureaucracy posted in Defence Ministry is not the one who is trained in the field like the Foreign Ministry.

This causes bureaucratic hurdles in smooth progress in all the indigenous defence projects. Indian Defence Ministry already commands eight major defence public sector undertakings and over 40 sectoral research, design and development facilities and over three dozen ordnance factories.

Yet, the country looks outwards for meeting its equipment needs by importing various systems and platforms like fighter aircrafts, warships, missiles, main battle tanks etc.

Undoubtedly, Indian Navy has taken a lead in acquiring mostly domestic sourced naval platforms like the destroyers, corvettes and even one aircraft carrier is on the final stage of being acquired from the Cochin Shipyard.

The country imports around 65 per cent of its defence needs in value terms. Indian government aims to cut down this import dependence by half and by 75 percent by the next decade.

According to Defence Production Secretary A K Gupta, “defence and aerospace are going to play a significant role with regard to Make in India initiative which lays adequate emphasis on manufacturing sector.”

A positive environment currently prevails in India. Some of the key growth enablers which have promoted indigenization are simplification of procedures in defence production and procurement.

Defence Procurement Procedure in India categorically lays down the order of preference for domestic sourcing over direct purchase from abroad.

Also, Department of Defence has come out with guidelines for outsourcing and vendor development, which would help streamline existing procedures, Gupta said. He stated that involvement of private sector is a crucial aspect for realizing full potential of Make in India.

It is not that Make In India initiative is the first ever program of this nature and a very novel idea of the NDA government to indigenise defence equipment for the armed forces.

Since last decade, the Defence Procurement Procedure of the Ministry of Defence has tried to encourage and compel foreign suppliers to source 30 to 50 percent of the total deal from India, under offset rules, but this policy did not achieve much.

Positive environment

In fact, many foreign companies tried to sidestep this provision by other means.The Indian and overseas defence companies interested in setting up facilities in India are eagerly awaiting the comprehensive announcement of the Defence Procurement Procedure (DPP- 2016).

However, Indian Defence Minister has partially revealed some of its important measures like enhancement of offset limit from Rs 300 crore to Rs 2000 crores.

Indian defence sector small and medium companies are not happy with this decision as it will hit their prospects of bagging orders from foreign companies, who win contracts and have to fulfil offset requirements. However, till 2015, Indian defence companies have already signed offset deals worth US$ 5 billion (Rs 34,000 crores).

During an interaction, Defence Minister Manohar Parrikar revealed that contracts worth US$ 12 billion (Rs 80,000 crores) are in the pipeline.

Parrikar conceded that this will take around two decades to be fully absorbed. Since top Indian business honchos are eyeing huge profitable business, they are seriously engaging with Indian Defence Ministry to take part in the domestic manufacture of defence products.

In fact, some of the issues which the present MoD has been trying to settle with an intent to domestically produce most of the systems, have been in execution since early eighties.

India has been able to licence produce Soviet era fighters like MiG-21s, MiG-27s etc and main battle tanks like the T-72s and many of the army hardware have been produced in Indian ordnance factories.

Now, under different cover, the Make in India has staged a comeback as licence producer of high tech equipment in the private sector.

For example, the BAE system has in February announced the manufacture of its M-777 Howitzer Gun systems in India with Mahindra Defence and Aerospace systems.

This is nothing but selling the gun in the name of collaboration with Mahindra and stamped Made In India since it will be assembled in India.

Similarly, most of the foreign vendors are asking for a guaranteed acquisition for enabling local assembly of their equipment in India.

For example, the Swedish giant SAAB has offered to produce the Grippen aircraft in India, which was earlier in competition to supply the aircraft under the MMRCA race.

The Israeli companies seem to be eager to take advantage of Indian Make In India programme have already emerged as major defence supplier to India and they will find it cost effective to use Indian labour for producing their defence equipment.

According to a top official of leading Israeli defence conglomerate, Sibat, Brigadier General Mishel Ben Baruch, “in recent years, we have witnessed a growing cooperation between Indian and Israeli defence companies. This cooperation demonstrates the warm relations between our two countries.”

Challenges for Make in India
1    No Research & Development
2    No Intellectual Property Rights
3    Direct Tax Code not implemented
4    GST not implemented
5    Labour reforms delayed
6    Poor infrastructure
7    High inflation
8    Political uncertainty and lack of strategic education
9    Poor categorisation of threat assessment
10  No long term military technology planning  

These relations are based on shared values, trust and openness. The bilateral cooperation includes not only in acquisitions but also sharing technologies and knowledge, conducting joint seminars, exchange of delegations on both sides and most of all extraordinary intimacy. Sibat, as the directorate responsible for assisting Israeli defence companies abroad, is very satisfied and proud to witness this collaboration, he said.

In early December last year the Russian giant Rostec State corporation entered into an agreement with  Indian defence aviation giant HAL for manufacturing at least 200 of the Kamov-226T helicopters at an estimated cost of Rs 6,000 crores.

The MoD had earlier thought of importing directly the Russian made helicopters but the NDA government shelved the US$ one billion deal for direct import and decided to co-produce it in India under a separate agreement.

Make hassle free

Early last year, the NDA government also cleared the lone bid of the Airbus Tata consortium for replacing IAF fleet of ageing 56 Avro transport aircraft with the Airbus C295 medium transport plane.

The overall cost of the project is likely to reach a figure of upwards of Rs 12,000 crores. The Airbus has been contracted to supply first 16 of the aircraft made in the Airbus factory in flyway condition and the remaining will be assembled by Tata advanced systems in India.

However, some of the latest reports indicate that this project has not moved an inch forward due to technical difficulties.

On the other hand, in the Naval domain, some of the frontline warships will be made in India under the Make In India program like the six diesel submarines which will be over Rs 60,000 crore project for which five of the private and public sector Indian shipyards have been selected.

A final decision is overly delayed as the cost aspects are bothering the Indian planners. The fact is that the off the shelf imported submarines will be much cheaper than the Indian assembled Made In India submarines.

Off course this transfer of assembly programme will lead to development and creation of many infrastructural facilities and train Indian manpower, for which India will have to pay very high costs.

For domestically manufacturing the six submarines in India a high powered panel has selected the Mazagon Docks, Hindustan Shipyard, Cochin Shipyard and the private sector shipyards like Pipavav and Larsen and Toubro while German conglomerate Thyssenkrupp Marine Systems, Russia’s Rubin design bureau, French DCNS, Spain’s Navantia and Sweden’s Saab Kockums have shown interest in partnering with Indian shipyards in this submarine acquisition programme.

To encourage Make in India programme the MoD has also cleared the indigenous production of 12 modern mine counter measure vessels worth Rs 32,000 crores which will fulfil Indian Navy’s minesweeping capabilities requirement.

These vessels, indeed, would have over 60 percent Indian content and the foreign shipyards in contention are the South Korean Kangnam corporation and Italian shipbuilder Intermarine for possible joint ventures.

To encourage multinational companies to make India as their manufacturing hub, the MoD has last year allowed them to raise equity participation up to 49 percent and for manufacturing certain high tech systems the FDI level could go up to maximum possible.
However, the overseas investors complain that ease of doing business in India has not improved and Indian private sector players in defence industry are still novice and joint collaboration with them would require capacity building on their part which will require them to make huge investment.

On the other hand, the public sector defence industry in India is assisted by huge research and development support from the Defence Research and Development Organisation.

On the strength of governmental support, the DRDO has at least been able to make India self sufficient in the field of ballistic missiles like Prithvi, Agni, Dhanush, etc.

These are examples of Indian excellence, in spite of overall gloom in Indian defence sector. The defence industry experts advocate the utilisation of Indian public sector defence infrastructure in collaboration with foreign and Indian private sector to extract maximum advantage.

However, defence companies, both overseas and India, are eagerly awaiting for easing of procedures and bottlenecks in actively conducting business in the country.

They said, “a change in mindset is needed among Indian bureaucracy and an enabling policy framework is required to attract foreign manufacturers to set their foot on Indian soil.”