Indian Defence Industry–Meeting Challenges of the Future

Sub Title : Measures to make India’s Defence Industrial Base truly global

Issues Details : Vol 17 Issue 2 May – Jun 2023

Author : Brig Ashis Bhattacharya (Retd)

Page No. : 25

Category : Military Affairs

: May 27, 2023

For India’s Defence Industrial Base (DIB) to become truly  global it is imperative that all resources of the Government and the private sector are integrated with R&D organisations and the academia to create a common resource pool. This will immensely help optimise costs and quality as also aid scaling up at minimum cost. To this end a top driven approach needs to be formulated and implemented

Recently a news item in the Times of India read, “Value of desi def production up 12%, crosses INR 1 Lac crore mark”. It was an exciting piece of information that had special significance for me, having closely worked with SIDM on initiating many initiatives on ‘Ease of Doing Business (EODB)’ in the defence manufacturing sector. With 1,06,000 Cr in Defence related production, it is a 12% growth over last year, a step close to the target set for INR 1,75,000 Crore by 2024-25. One feels proud of India’s achievements in this sector which opened up its doors to the private industry in 2002. Exports have also touched  an all time high of INR 15,000 Crore, a 10x increase over figures of 2016-17. After regurgitating on the news report, on looking back, I realised that this rate of progress may not be the ideal rate, especially considering the fact that India has one of  the world’s largest Defence Industrial Complexes in the world  with a very large public sector component, more than 150 private players and 52 Defence R&D labs. Though the  autarky exercise in the defence sector started way back in 1992 when the Self-Reliance Review Committee under our erstwhile President, Dr APJ Abdul Kalam, the then SA to Def Minister, formulated a 10 year Self-Reliance  plan with a target to reach a Self Reliance Index (SRI) of 70% by 2005, we are already 18 years late and counting.

Indian planners since long have taken knee jerk steps towards bringing up the private sector, so essential for energising the base of the pyramid called the DIB. Trying to plan on ‘catching up’ with the technologically advanced nations through ’technology transfers’ has been probably one of the major flaws in Indian planning. The mindset may not have been entirely blameworthy given the weak national R&D base which works mainly through the only ‘authorised defence R&D agency’, (DRDO/ADA). Lack of funding, top heavy leadership, low work ethics of the workforce, self serving goals and not fully appreciating  the needs of the defence forces were some causal factors besides the mutual  mistrust between the users and the DRDO/ADA. Some successes like the IGMDP, Arjun (much delayed though) and LCA (delayed again) projects were an exception rather than the rule. The Navy did good to themselves and stayed out of this quagmire by raising their own ‘Design Bureau’ in 1962 which was tried to be duplicated by the other services through half hearted attempts (setting up of Army Design Bureau by Army and the Directorate of Aviation Design by the Air Force).

To make things shoddier, the contracting agency (the Government) and the contracted (mainly OFB) were bed mates leading to situation where the flaws and inefficiencies of the contracted were not only overlooked but overtly justified in every forum by none other than the contracting agencies. The fact that the approving authority, the QA/QC agencies also came from the same flock added to this.

A closer scrutiny reveals that all is not good when one boasts of reaching close to the targets of indigenisation and self reliance. Another issue is that still a major portion of the servicing of orders is through the 16 not so efficient DPSUs (earlier OFB and DPSUs), both quantitatively and qualitatively. This in spite the fact the MoD has been trying its best over the last decade to provide a level playing field to the much more efficient private sector. The failure to quickly shift over to providing a truly level opportunity to the private sector, has also to do with a large gap in capabilities and capacities of the private sector in defence. Just a year and a half back, in a conversation with the CEO of India’s largest private defence player, one learnt that their portfolio in the defence sector accounted for only 8-9% of their business. So is the case with the top 10 Indian private sector entities. Why should the group head allocate a higher portfolio unless orders flow is better; and why would the MoD place orders to a private company that does not have the capacity to meet the quantum of ask and  the ability to meet the all strict timeline requirements of the Defence Forces? A chicken and egg situation. Who should take the lead to break the cycle when at the macro level. It makes no business case for any sane entity/person to invest in the absence of guaranteed orders. The Government obviously has to take the lead.

One would not be doing justice if the achievements of the MoD are not recounted. The articulation of the Defence Procurement Procedure (DPP) in 2002 and allowing the private sector into the Defence arena in itself was a transformative step that helped break many mindsets formed since independence. However, progress on deliverables was painfully slow over the next decade or so. In 2007, five years after issue of the DPP, at a seminar on `Swabhlamban’ (self reliance),  jointly organised by the College of Defence Management and the Indian School of Business (ISB), a Joint Secretary of the Department of Defence Production walked out of the seminar when confronted by the private industry on policy support, lack of level playing field, orders through nominations and attitude of the bureaucracy towards the so called `vendors’ when it came to actual implementation. But to its credit, over the last decade, some major progress, albeit incremental has been made. Some of the enabling provisions introduced – opening up FDI (75% through direct and 100% through special routes); easing of industrial licensing; Draft Defence Production and Export Promotion Policy 2020; Reorganisation of OFB; Opening up Government testing facilities to private players; 25% defence R&D  budget for industry (including private sector), startups and academia, publication of four `Positive Indigenisation Lists’ for Defence Forces and DPSUs; setting up of two Defence Corridors, etc. etc.  However, this is definitely not enough to propel India to the level of a world leader in arms manufacturing and exports, something that the PM’s call of `Make for India, Make for the World’ envisions.

Getting back to the elating news of the 12% growth, are the milestones achieved, a true reflection of the achievements of the Defence Industry? A closer look will reveal the chimera. Firstly, other than the OFs, only a handful of companies in the private sector have the capability to manufacture defence platforms. Secondly, the OFs, which have the infrastructure to manufacture platforms, have the capability to do so only for items that are built to print based on licenses from FOEMs. Thirdly, system manufacturers in either of these types of industries are capable of manufacture of very low technology systems, mostly based on imported design. Yes, in the MSME/Startup space, some innovative designs and cutting edge technologies exist. But it will take time when they customise their product/technologies for the defence equipment platforms in India. Larger companies identifying the right MSME/Startup and including them in the value chain has not yet become mainstream. The idea of parallelly developing systems/assemblies for indigenously designed platforms is even further away.

Have we done enough to build capability in the Indian defence industry both public and private other than creating the infrastructure for under-license manufacture of platforms belonging to Eastern or Western origin. Not really. What are the options?

Chinese Model

The economic and defence related changes and reforms undertaken in China in the 1980s, were initiated under Deng Xiaoping, who came to power in 1978, playing a pivotal role in steering China’s military transformation and opening it up to market-oriented reforms. The Chinese model of capability building in the Defence and for that matter almost in every other sector was part of a major planning done in the late 70s and early 80s and put into effect in 1984, that mandated China to become a world military power while empowering its economy by becoming the manufacturing hub of the world by 2020 among other areas of development. Unprecedented success touched their efforts and today, it stands as a major arms supplier to the world. With its centrally controlled economy and polity, China model would not be the right model for us to copy. But what lessons needs to be imbibed from China is the way the leadership there defined their path of development through an in-depth study of the Comprehensive National Power Index of nations, list their own strengths, identify the gaps and their drivers and then drawing out a plan to target these through clearly defined goals, that had to be achieved over the next 40 years. This exercise, though tried by Indian think-tanks through the ‘National Power Index’ study is an exercise lacking vision. It shifted goals year-on-year, leaving planners confused on the path to take for long term capability building not only defence but all other sectors.

ROK Story

One success story that would resonate better in a democratic setup of India could be South Korean (ROK) model. Given the challenges of ROK in the face of China-backed, mad nuclear weapon capable regime of North Korea, ROK also went through its own planning exercise and set its aim at becoming a leading technology developer and manufacturing hub for the world. Talking about Defence Industry per se, ROK had a laggard state defence industry (eg. Korea Aerospace Industries, and some good defence private defence industries (like Samsung, Hyundai, Doosan DST etc). Some of these were developers and holders of latest technologies but were could not make a real mark in the export market of the world. In 2005, the then President Roh Moo-hyun’s, administration recognized the need to consolidate and modernize the defence industry to enhance efficiency, competitiveness and national security and implemented the `Defence Industry Rationalization Plan’ in support of the `Defence Reform 2020’ (DR1.0). Minister of Defence at that time, Yoon Kwang-ung. played a key role in formulating and later implementing the plan, overseeing its execution and coordinating efforts among various stakeholders. The idea was to streamline and consolidate the defence sector. The plan aimed to reduce the number of defence companies (both in private or state owned) and encourage mergers and acquisitions to create larger, more competitive entities. The results have been stupendous with ROK now ranking 8th among the top Arms Exporting Nations.

Other areas that were simultaneously addressed include:

Technology Development: The government emphasized the development of advanced technologies and capabilities within the defence and aerospace sectors by fostering innovation and research and development (R&D), to enhance the country’s defence capabilities and create opportunities for collaboration between different industries and academia.

Public and Private Collaboration: The government has encouraged collaboration between public and private sectors to drive industry reforms. This collaboration involves sharing resources, expertise, and technologies to strengthen the overall competitiveness of the defence and aerospace industries.

Investment and Financial Support: The government has provided financial support and incentives to encourage mergers and acquisitions, particularly in the defence and aerospace sectors. This includes tax benefits, subsidies, and funding for research and development projects.

Export Promotion: South Korea actively pursued international defence and aerospace markets. The government has actively supported the export of defence products and technologies, the strategy being to increase revenue, enhance competitiveness, and foster technology transfers.

The overarching idea behind these measures was to enhance the competitiveness and efficiency of the defence and aerospace industries by promoting consolidation, technology development, and collaboration. By creating larger companies and fostering synergies between different sectors, the South Korean government aimed to strengthen the nation’s defence capabilities, reduce redundancies, and improve overall productivity in the manufacturing sector.

Some general measures, part of the plan, included:

Merger and Acquisition (M&A) Support: The government provided support and incentives to facilitate mergers and acquisitions between defence companies.

Restructuring and Integration: The plan aimed to restructure and integrate defence companies to eliminate redundancies and improve efficiency. This involved identifying overlapping capabilities and streamlining operations to create more focused and competitive entities.

Research and Development (R&D) Collaboration: The government encouraged collaborative R&D efforts among defence companies.

Export Promotion: The government provided support for marketing, international promotion, and participation in defence exhibitions and trade shows.

Defence Industrial Complex Development: The government invested in the development of defence industrial complexes, which serve as hubs for defence manufacturing, research, and innovation. These complexes aimed to facilitate collaboration and synergy among defence companies by providing shared infrastructure and resources.

Technology Transfer and Licensing: The plan encouraged technology transfer and licensing agreements between domestic and international defence companies.

Supply Chain Optimization: The government aimed to optimize the defence industry supply chain by improving coordination and collaboration among suppliers and manufacturers. This involved implementing measures to ensure efficient procurement and logistics processes.

All the above measures helped formation of the current day Defence Industrial base of ROK. And all this was achieved over  several  years.

The DARPA Model of US DOD

Another model that needs to be examined is the Defence Advanced Research Projects Agency (DARPA) model.  DARPA was formed on February 7, 1958 (the same year as the DRDO in India), as an agency of the Department of Defence (DoD) with the mission of developing cutting-edge technologies and capabilities to ensure the technological superiority of the U.S. military. DARPA has around 200 government employees, including program managers, technical experts, administrative staff, and support personnel (as against the mammoth DRDO organisation employing 25,000 employees including 7000+ scientists).

DARPA operates under a model of defence capability development known as “high-risk, high-reward” research. Its primary focus is on conducting advanced research and development (R&D) projects that have the potential to revolutionize military technology. DARPA is known for its willingness to take on ambitious and risky projects that may not have immediate practical applications but could lead to significant breakthroughs in future for military as well as civilian use (internet being a prime example of its product that has revolutionised the world). DRDO, on the other hand, has a broader mandate, encompassing both research and development as well as production of defence systems. DRDO’s focus includes the development of indigenous defence technologies and meeting the specific requirements of the Indian armed forces. Its flat organisation structure combined with a lean structure and large budget gives it a flexibility not available in DRDO of India.

DARPA model encourages innovative and unconventional thinking by supporting projects that push the boundaries of science and technology. DARPA collaborates with academic institutions, private industry, and government organizations to foster interdisciplinary research and leverage expertise from various fields.

DARPA’s approach to defence capability development involves three main steps:

Identify Critical Gaps: DARPA identifies areas where existing technologies or capabilities fall short and could be significantly improved to advance national security.

Foster Innovation: The agency solicits proposals from researchers, scientists, and engineers, both within and outside the government, to address the identified gaps. DARPA encourages novel and unconventional ideas and provides funding and resources to selected projects.

Develop and Transition Technologies: DARPA oversees the development of selected projects, providing technical guidance and support. Once the technologies show promise, DARPA facilitates their transition to other military agencies, industry partners, or government organizations for further development, production, and integration into defence systems.

Through this model, DARPA has been responsible for ground breaking advancements in various fields, including the creation of the ARPANET (a precursor to the internet), GPS technology, stealth technology, advanced robotics, and many other cutting-edge capabilities that have had a significant impact on defence and civilian applications alike.

Some unique aspects of DARPA model are:

Autonomy and Flexibility: DARPA operates with a high level of autonomy, allowing it to pursue ambitious and visionary projects without being bound by bureaucratic processes.

Flat Organizational Structure: DARPA has a relatively flat organizational structure, which enables rapid decision-making and fosters a culture of innovation. The agency’s structure encourages collaboration, open communication, and quick dissemination of information across teams and program managers.

Program Managers: DARPA’s program managers are experienced professionals with deep expertise in specific technology areas. They have considerable authority and autonomy to identify, initiate, and manage projects within their respective domains.

Multidisciplinary Approach: DARPA promotes a multidisciplinary approach to research and development. It encourages collaboration between scientists, engineers, academics, and industry experts from various disciplines.

Broad Funding Opportunities: DARPA has the ability to allocate significant funding to its projects. It actively seeks out innovative ideas and provides substantial financial support to researchers and organizations through a competitive proposal process.

Technology Transition: DARPA focuses not only on research and development but also on transitioning technologies to end-users. It actively collaborates with other military agencies, industry partners, and government organizations to ensure that successful projects move beyond the laboratory stage and into practical applications within the defence industry.

Culture of Innovation: DARPA fosters a culture of innovation by encouraging risk-taking, embracing failure as a learning opportunity, and rewarding ground breaking achievements.

DARPA’s program managers play a crucial role in driving the agency’s mission forward. They are experts in their respective fields and are responsible for identifying emerging technologies, formulating research goals, soliciting project proposals, selecting projects for funding, and providing technical guidance throughout the project’s lifecycle.

Towards Transforming India’s Defence Industrial Base

The Chinese model though not suitable for democratic India, the long term setting of realistic goals and relentlessly working toward on a mission mode is something we can learn from. Of the other two models enumerated above, one can see some flavour of the DARPA model being picked up in parts by our MoD in programs and schemes like the iDEX, Technology Development Fund (TDF), Make II. However, these are having incremental effect and we can ill afford such long waits. Our defence industry continues to be beaten on the global stage due to cost and quality competitiveness and lack of developing its own technological base. For the DIB to become global, all resources of the Government and the private sector need to be integrated with R&D organisations and the academia with common resource pool created that will help optimise cost and quality and also help scaling up at minimum cost. Towards this, a top driven approach on the lines of ROK (normalised to Indian ecosystem), needs to be formulated and implemented by the Indian MoD. The R&D structure (especially removal of flab and taking away the productionising agenda of DRDO) could be structured somewhat on the lines of the DARPA. Let the industry do meaningful and directed research under the mentorship of the DRDO. Leveraging and integrating the outputs from the MSME/Startup and bringing it to mainstream through handholding should be the main mandate of DRDO. These measures would help reduce flab and energise the innovation culture in defence. It is time to consolidate R&D into an `Integrated Defence Industry Plan’ much beyond the current structure and initiatives like the Development cum Production Partner (DcPP). This integrated plan should be able to bring together the private and public defence industry, R&D organisations, academia, financial institutions and export agencies for the DIB to optimise its resources, and make it Cost, Quality and Technology Competitive. Only then can India compete at the global level.