Aatamnirbharta in Defence: A National Mission
Sub Title : Importance of self-reliance in defense is axiomatic to exercise adequate influence as a regional power
Issues Details : Vol 14 Issue 4 Sep – Oct 2020
Author : Lt Gen JP Singh,PVSM, AVSM (Retd)
Page No. : 22
Category : Military Affairs
: October 2, 2020
The importance of self-reliance in defence is axiomatic. To exercise adequate influence as a regional power, enjoy greater independence in pursuing the country’s foreign policy options, reduce vulnerability during hostilities; defense needs, including unforeseen surges in demand, must be fulfilled by indigenous Defense Industrial Base (DIB). Indigenous DIB apart from contributing to rise in manufacturing activities, job creation and saving foreign exchange, will also trigger innovation and incubation of Next Wave Technologies.
India has a very large defense industrial base which includes:
- Nine Defence Public Sector Units (DPSUs),
- And, 41 Ordnance Factories(OFs).
These are primarily engaged in licensed/lower technology production. They cater for approximately 90% of indigenous defense production. A number of MSMEs are largely involved as feeder to these public-sector integrators. Post 2001, after opening up the defense production to the private sector, their potential, which is way above the public-sector units, remains unexploited.
Ironically, India despite creating a large DIB supported by 52 labs of Defense Research and Development Organisation (DRDO), remains the second largest importer of defense equipment in the world. Its ability to equip its armed forces remains woeful and is vulnerable to potential sanctions from arms suppliers, life cycle support, meaningful upgrades, emergent/surge requirements and to disruption to supply lines.
The government which bears ultimate responsibility for the nation’s security, set a 70% self reliance goal in 1992, to be achieved in 8-10 years. However, in 2011, the self reliance achieved was 38% with negligible FDI and exports. Several committee reports on self reliance in defense production, series of a defense procurement policy and defense production policy documents were released over the last two decades. The impact of all these efforts has been minimal.
Owing to the dynamic security environment and sluggish DIB, a determined top down move by the PM to be AtmaNirbhar in defense production and be a net exporter is a positive assertion.
DIB requires scientific discovery and niche technologies, unambiguous policies, structural collective approach by stakeholders within legal framework, fiscal backing, production skills and an eco environment to compete with foreign OEMs and attract FDI in defense sector. Global arms manufacturers will always oppose establishment of indigenous DIB. The challenges are surmountable by an integrated accountable endeavor of all stakeholders in an interactive progressive environment keeping a correct balance between aspirations and capabilities.
The government backing to upgrade our Defence Industrial Base to a global standard has never been so absolute.
Defense Industry Fundamentals. The defense market is different from any other.
- Domestic order quantities of platforms and major systems are mostly limited and not disposed to mass production unless there an export potential.
- Export is a challenging option because of multilateral control regimes and stiff competition in the market. Order cycles are prolonged requiring deep financial sustaining ability of the exporters.
- The basic platforms have not changed for decades. Modern cutting-edge upgrades, especially in electronics, have been resorted to by the designers and skilled system integrators of the platform/system.
- In advanced defense manufacturing nations, mergers and acquisitions have limited the number of viable manufacturers.
- Being a monopsony and the producers being limited, the market forces work differently in price determination and commercial relationship.
- Restrictive technology transfer regime prevails, and no country will freely share “know how”. ToT arrangements are heavily weighted in favour of the sellers.
- Foreign investment in any defense sector would be dictated by favourable index of manufacturing costs, ease of doing business, availability of skilled scientists, researchers and engineers, unskilled relatively low wage labour, and infrastructure in dedicated SEZs.
- Without government support, it is not possible for the private defense industry to flourish.
- Long term production plans of defense industry must conform to Services Perspective Plans. An institutionalized mechanism to share qualitative and quantitative requirements has to be set up.
- Facilities for user trials in field and laboratory conditions by the government need to be established and shared with manufacturers.
- Major platforms/systems have an active life of nearly 30-40 years. The platform will require periodic maintenance, repair, overhaul and upgrades. Having invested heavily in equipment manufacture, the relationship between the Buyer, ie, the Government and primary integrators and between the latter and tiered industries needs to be sustained.
Challenges and Opportunities
Technology superiority is a critical component of national security. Measure of indigenization as a percentage of manufacture is flawed.
- The most crucial step in indigenization is the capability to design major platform/system to meet the operational requirement and environment conditions.
- The indigenous concept therefore involves in-house design and development capabilities, increased know why, system integration to produce prototypes, subject them to successful users trials, convert the development drawings into production drawings and go for mass production to specifications (Built to Design).
Most of our in-service platforms are built to print under licence from foreign OEMs (FOEMs). Since the design is not available to the production agency, no worthwhile indigenization and upgrades can be done. In addition, the FOEMs, even after the transfer of ToT, continue to supply some critical components in fully formed condition. Therefore, the dependency on FOEM, if the design is not with the manufacturer, is in perpetuity.
*DRDO, with 52 laboratories, has had major achievements in strategic and missiles systems. Technology denials, sanctions on imports, co-jointly drafted operational requirements, spiral development, best of the scientist and engineers, superior project management, adequate fiscal support for research, design, development, and production have factored the success.
*But in conventional systems, DRDO lags the advanced countries by two technology cycles and has chased technologies without users’ support and meaningful understanding, strategy or resolve by the Government. With users mostly resorting to outright BUY or BUY and MAKE with ToT to DPSUs and OFs , the DRDO and private defense enterprises got marginalized. Private manufacturers, in the absence of any major orders and mainly engaged as feeders to public sector integrators, have not invested in defense related R&D.
The latest resolve by the Government in initially classifying 101 items in negative list of imports and directive to use own Design and Development capabilities and/or adopt DRDO developed technologies is very encouraging for firming of India’s DIB.
The way ahead
- AtmaNirbhar Bharat with DIB servicing at least 70% of Armed Forces requirement with indigenously designed, developed, and manufactured equipment in the next five years needs to have a clear understanding of fundamentals.
- The Government must remove fog of uncertainty to arrest the waning interest amongst the private industry and muted FDI for this enterprise.
- More vital than releasing new Defense Acquisition and Defense Production and Export Policy documents is creating an integrated Acquisition and Production structure to function under a common executive.
- Hand holding by the Government is sine qua non. It is not possible for the private sector to flourish without government support. Like wise, government owned enterprises must be corporatized in real time for better management.
- Creation of defense corridors with tailored infrastructure and test facilities and setting up maximum MSMEs with long term relationship with domestic and global system integrators will form the backbone of DIB.
- 74% FDI in defense sector, recently passed new labour law in the parliament, ease in getting clearances, formalizing Indian Mil Standards, Quality Control monitoring and Self Certification will propel India as an emerging defense manufacturer.
Three macro suggestions related to advancement and harnessing of prevalent technology base
- DRDO should carryout major internal audit and restructuring. They should redirect their focus on technologies like Hypersonic, Quantum Technology, Big Data Analytics, Machine Learning, AI, Robotics, Autonomous Systems, High Energy Lasers and more “Second Wave Technologies”. Dedicated labs with top scientists should be earmarked to work on such technologies along with duly screened Academia and technology start-ups. Applied research and technology demonstration in these technologies should be a national priority. Recent Technology Demonstration of Hypersonic Missile was a big achievement. The national aim should be that any platform/system based on second wave technologies will be Made in India with Indian design (Know why and Know How).
- DRDO along with public and private sector enterprises should indigenize critical components of imported equipment and launch major programs on mission mode to upgrade in-service platforms/systems. This program by itself will trigger notable activity in DIB and resuscitate large percentage of equipment leaning towards obsolescence. An example is upgrading the power pack of T72 tank, reformat the turret and customize it to be a better tank than the PLA light tank. This can be done within one year by combined effort of CVRDE and HVF under overall management of user.
- DRDO has taken a wise decision to identify 108 technologies and related products on which it will no longer be working. Private enterprises who have capabilities and infrastructure to design, develop and manufacture such products should have a hassle-free access to Government test facilities at various stages of design, development and production.
Defense Manufacture Enterprises
As things stand, production of defense items is dominated by the Public Sector. The infrastructure developed over the years is reasonably impressive. However, servicing a captive customer in the absence of any competition has negatively impacted the production matrix.
- The output, quality control and timelines of most of the public sector units, especially the OFs has been sub-optimal.
- Overheads on salaries, dubious bonuses, mounting pension bills, social security, infrastructure creation and maintenance under the defense budget, and under achieved production targets have been negatively commented by the recent CAG report.
- The users especially the Army who are the biggest customers of ammunition supplied by the OFs have serious complaints about the quality and reliability.
Government has taken the right decision to corporatize the OFB to bring in greater efficiency and accountability through best market practices. This transformation, guided the nominated Empowered Group of Ministers, will demonstrate government resolve. This should thereafter lead to disinvesting some DPSUs and/or adopting a PPP model.
Private Sector enterprises must carry out a realistic mapping of their capabilities, domestic defense demand in short and medium term and opportunities being a part of Global Value Chain (GVC). Domestic requirements under revenue expenditure can give sizeable business to MSMEs who have the capabilities to service, OH, indigenize imported components and upgrade in-service platforms/systems.
In addition, high value purchases made by the Armed Forces in recent past have generated sizeable offset obligations. The offset partners must expand their footprints to be part of GVC and in long term acquire the principle integrator.
Bigger private sector manufactures must appreciate that the “Demand Pie” has to be shared by the Public and Private Sector with the latter having the initial lead and advantage. In the Indian context, capable Private manufacturers should emerge as Strategic Partners. Even in advanced countries, demand dictated mergers and acquisitions have resulted in limited number of major manufacturing companies supported by large number of MSMEs located worldwide.