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INDIGENIZATION: NEED FOR PUSH

The self-reliance has been witnessing an increase as compared to the levels of the 1990s, but, it has been more or less static in the last 3-4 years which is a matter of concern and needs to be addressed soon.

In a response to Parliament question recently, the Indian Defence Ministry came out with figures on di1rect defence import. India has spent a total of about USD 15.24 billion on defence imports over the past three years, with expenditure increasing by more than 50 percent during this period. The list of major import defence items during that duration includes aircraft, rockets, missiles, tanks and simulators, while navy ships and some aircraft and radars were produced indigenously. Table below depicts the details of expenditure in direct import by respective services during the last three financial years.

The value of total defence equipment procured (capital plus revenue procurement) over the same period had been witnessing a steady increase. On the average about 63 percent of the total capital and revenue requirement of the defence services was met through indigenous procurement. Further, the average expenditure on capital acquisition for direct orders placed on foreign vendors during the period was about 37 percent. These figures are for direct purchase and do not include subsystems bought from foreign companies by the public sector entities, DPSUs, OFBs and DRDO. The details of total expenditure on defence procurements from foreign and indigenous sources during the last three financial years and also the percentage share is depicted in below given table.

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The above data depicts that there has been an increase in the share of domestic procurement in comparison to the procurements from the foreign sources. However, these facts are far way away from the reality as the ground reality is that the Indian public and private companies still lack technology, expertise and skills till date. Thus, saying that the indigenous procurements are increasing day by day may not be the truth. The ground reality is that the major platforms though being produced for long in India have on the average 20-25 percent import content and are being sourced by Indian Production Agencies. The technology received under the Transfer of Technology (ToT) programmes are still not being absorbed and upgraded indigenously.

Further, most of the products under development indigenously have an average of around 40% imported contents by way of components/subassemblies/spares/other items.

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Basically, a considerable portion of the procurement from domestic sources consists of 'indirect defence imports' which is nothing but imports primarily by the public sector entities for production/ supplies for the three defence services. However, these 'indirect defence imports' are not considered while calculating the expenditure on defence import as they consist of raw materials, subsystems like engines, components, spare parts special tools etc. It also includes the amount spent in foreign currency in the form of licence, royalty fees and foreign consultancy with respect to some defence programmes and as of now there is no comprehensive data on the amount/share of 'indirect defence imports' in the final supplies made by the domestic industry.

Taking this into consideration, the figure below shows that the actual foreign imports and their percentage share are much higher.

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The above index clearly shows that although self-reliance has increased from the levels of the 1990s, but, it has been more or less static in the last 3-4 years debarring the slight improvement in the indigenous content in 2011.

Initiative So Far

It is expected that with the new Government making efforts to boost the indigenous manufacturing capacity, the dependence on import is likely to come down. Recent steps taken in this direction are permitting FDI up to 49 per cent; while other steps being, prioritizing Buy-Make (Indian) and “Make” category acquisitions over other categories like “Buy & Make (Indian)”, easing the IL issue policies, allowing manufacturers to build more defense components without licenses thus making it easier for Indian firms to partner foreigners. These steps will definitely strengthen the indigenous defence industrial base of the country and it envisages a huge opportunity for the private sector in terms of technology know-how and earnings. However, it has to be further ensured by the Government that in future they opt for 'Make' and 'Buy-Make (India)' categories for future defence procurements and go for imports as a last resort coupled with incorporating a fair competition and a level playing field during the bidding to Indian defence industries.

We Can Achieve!

The DPSUs and the OFs are the major providers of defence weaponries/equipments to the defence forces and continue to dominate domestic defence production and Research & Development (R&D) facilities in India. Over the years, these undertakings have grown both in size and as well as in their portfolio of items. However, they have acquired integration capability through license agreements for tanks, Infantry Combat Vehicles (ICVs), missiles, frigates, submarines, aircraft and electronic devices and have not been able to innovate for technology upgrades. The India's Defence Industrial Base (DIB) has not been able to absorb technology for in house production of major subsystems or any major hi-tech subsystems or carry out significant upgrades on their own completely. For even upgrade and life cycle support the country had to resort to imports and the import contents have been increasing. Despite being given a major push towards self-reliance, indigenization in the defence sector is far from reality.

This is a serious concern, which needs to be addressed. Also, what is to be understood is that the issue is not about the infrastructure as we do have enough of it be it with the DPSUs, DRDO, OFBs and Private sector. The main concern is about channelizing the skills and skill development which is lacking at present. Old learners will recall that a team consisting of DRDO, OFB and DGQA personnel along with the user developed 105mm Indian Field Gun (IFG) in mid 1970s, which is still in service with no adverse feedback till date. And thus it is relatively strange that we have been scouting for Artillery Gun for so many years and finally after 30 years of importing Bofors gun and its technology, the OFB has now managed to develope Dhanush 155x45 mm artillery gun. This indigenously designed and manufactured Dhanush has successfully met all technical parameters. We have also developed indigenous and world class defence weaponries/systems in the past such as 40mm Multi Grenade Launcher (MGL) for 40 x 46mm Low Velocity Grenades (LVG).

This brings into our minds that why didn't those responsible for such initiatives took it lightly over number of years. It only shows lack of accountability or interest from some quarters for not upgrading the skill and technology with passage of time.

Change the Rules of the Game

It is a known fact that India's indigenous manufacturing has been dependent upon three major players DRDO, OFB and DPSUs. Given that the functioning of these major players will be contributing in many of the defence programmes and also their functioning will have a direct impact on the indigenous manufacturing, it is imperative to improve their performance and make them more accountable for their functioning. The public sector has its own constraints and they need to be freed from those constraints

Manufacturing

Sensing this, the Defence Ministry recently has taken a number of initiatives towards improving the performance of OFB. This includes efforts to operate OFB on a corporate model with a commercial accounting system. The procurement manual has also been revised keeping in view the 'Make in India' plan to facilitate long term procurement. Quality Audit of eight factories will be undertaken by a globally reputed firm to improve upon the existing processes and attain Zero Defect production system. OFB's new role will encompass design, development, bulk production and life cycle sustenance equipment. Although, such recommendations and facilitation have not shown favourable outcome, but the need of the hour is to create competition and make them compete with Private sector.

Research and Development

Recently Parliamentary panel expressed "deep concern" over the "wasteful expenditure" incurred by DRDO in closing major projects like the ones for Airborne Surveillance Platform, Cargo Ammunition, GPS-based system as alternative to Fire Detection Radar, development of 30mm Fair Weather Towed AD gun system, Light towed AD Gun system and 30mm Light towed Gun System after getting these projects sanctioned. We need to provide a level-playing field to private players who may be allowed to tie up with foreign manufacturers to develop certain equipments based on the requirement of users, create environment where the public and private sector can work together and call for a "complete revamp" and re-orientation of DRDO to allow active participation of the private sector in R&D. The Government is also looking towards a major overhaul of the DRDO and defence production units.

Treat Private Sector at Par

In past, the major projects have been awarded and undertaken by various state-owned enterprises with transfer of technology from foreign counties. Time has come to involve the private sector companies in all future defence programmes. The private sector entities have proved its mettle and international competitiveness in the past decade, and some companies like TATA, L&T, Mahindra, Kirloskar etc have already been working in high technology space and missile manufacturing for decades.

The Indian defence private sector now has the technological capabilities to undertake manufacturing required for the sector and they somewhat have proved their capabilities in the past especially if we consider the Naval segment where the country has successfully achieved higher degree of indigenization. The best example that substantiates the role of Indian private industries, is in developing the artillery gun systems on their own and that too without any assurance of an order from the Government. The opportunity has encouraged Indian defence companies such as TPSED, Bharat Forge and L&T to develop with JV and collaboration. All of these systems under development are NATO design and can use our indigenous ammunition. The cost of Gun developed indigenously is likely to be almost 50% Cheaper than the import cost.

Basically, the private companies face hurdles due to the high capital cost involved, low volumes, no commitments and long gestation period of projects. The Government should thus enforce 'Make' or 'Buy and Make (Indian)' classification for all key defence contracts and mandate that the prime contractor be an Indian entity. This decision is critical to provide Indian manufacturers with the scale and exposure that is required for the industry to move forward. To ensure that technology gaps are overcome, this entity can be a JV between a local firm and appropriate global vendors. The Government should take initiative in boosting the private sector by encouraging them to participate in future acquisition programmes and ensure a fair competition in tendering and selection process.

Technology infusion is more sustainable in the backdrop of privatization. Private sector employs technology to overcome competition by lowering production cost simultaneously improving product quality and service levels. Keeping this in mind, thus, bringing the defence programmes under 'Buy and Make (Indian)' and 'Make' categories will prove to be beneficial for the Indian vendors and in turn for the development of a robust Indian indigenous defence industry. Under the 'Make (Indian)' category, for instance, only domestic companies will compete and subsequently design and develop equipment for which the Defence Ministry will fund 80 per cent of the development costs, so the companies would not feel burdened with regard to huge investments in developing a system. To promote private sector participation in indigenous production of defence equipment, various steps have been taken including revision in list of defence products for the purpose of industrial licensing.

Skill Absorption

One of the main challenges that pose growth to the Indian defence industry is the shortage of a skilled workforce. For long, the defence industry has looked forward to hiring technically sound, skilled and industry-ready personnel. The need of the hour is better training, infrastructure & skill development as these are critical for achieving self-reliance in defence production. The development of skills in the defence industry needs a guided and wholesome approach between the Government, Industry and academia intuitions to integrate their objectives together and develop an organized framework. Need to look at pool of trained ex-servicemen retiring from the defence services every year.

Conclusion

India is anticipated to spend around $130-$150 billion on defence modernization in the coming decade. While this makes India one of the largest and lucrative defence markets in the world, but, the focal point should be that the opportunity that it offers should be fully exploited for the benefit of local defence industrial base of the country. This will not only improve India's self-reliance and indigenization in defence production but will have a multiplier effect by way of helping in saving the much required foreign exchange, building technological capacity, creating employment and building of new skills. Further, the indigenously developed equipment/product can be looked forward for exporting which further will help in generation of the vital foreign exchange. At present, indigenization is being limited to absorption of ToT under licensing arrangements or assembling and also indigenizing a few components, spares and assemblies by the public sector entities. This is definitely is not the apt answer to overcome the increasing import dependency of the country. The government must ensure that the local industry is geared up and they are given enough incentives so that they rise up to the expectations and make the government's 'Make in India' initiative a success story. The public sector entities should be made more accountable and efficient along with involving the private sector in large scale and giving them chance for fair competition. Subjecting to competition with the private sector would yield the desired results and make public sector more efficient. Creation of JVs with global defence players will also help in development the growth of this sector. Further, adopting a collaborative approach involving the public and private sectors in the Public-Private Partnership (PPP) mode will also likely to prove more beneficial in developing indigenous technologies. All these factors will go long way to achieve desired level of self reliance.

 Kavita Nagpal

Kavita Nagpal

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