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BUY (INDIAN-IDDM) : NEED OF THE HOUR

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Our country is heavily dependent on imports to meet the critical technology requirements of the Defence Forces & this imposes a huge burden on our exchequer. The newly introduced category, 'Buy (Indian-IDDM)' seems to be a good intent in the overall national interest but it needs to be partially nurture by all concerned stakeholders.

The Defence Procurement Procedure (DDP) 2016 has  further enhanced the scope of Procurement by introducing a new category called 'Buy (Indian-IDDM)' or 'Indigenously Designed, Developed and Manufactured'. It has been listed on top among the five categories in the order of preference for procurement of stores for the Defence Services. This is also in consonance with the 'Make in India' approach being adopted by Department of Defence Production over the years but without much success.

'Buy (Indian-IDDM)' category refers to the procurement of products from an Indian vendor meeting one of the two conditions: products that have been indigenously designed, developed and manufactured with a minimum of 40% Indigenous Content (IC) on cost basis of the total contract value; OR, products having 60% IC on cost basis of the total contract value, which may not have been designed and developed indigenously. Apart from overall IC as detailed above, the same percentage of IC will also be required in (a) Basic Cost of Equipment; (b) Cost of Manufacturers' Recommended List of Spares (MRLS); and (c) Cost of Special Maintenance Tools (SMT) and Special Test Equipment (STE), taken together at all stages, including FET stage.

Most of the majors systems required by our defence forces are still being imported.  The focus is now shifting to the Private Sector which is being provided a level playing field; however, they will take time to get into shape to undertake any meaningful Design and Development activity. Under the circumstances the 'Buy (Indian-IDDM)' is a good intent in the overall national interest and needs to be patiently nurtured by all concerned stakeholders.

Background

Indigenous design, development & production have always been the preferred and desired option with the Defence planners for its inherent benefits. The efforts made in this direction by DRDO Laboratories have contributed in development of various weapon systems & subsystems which have been taken up for production through OFB/Defence PSUs. Some of the items inducted in the recent past or in pipeline are rifle (INSAS 5.56mm), MBT Arjun, Dhruv ALH etc. Certain projects of our indigenous missile Programme which have met with considerable success are BRAHMOS, AKASH & AD Interceptor missile. Besides this, our Strategic Missile Programme comprising Agni & Prithvi missiles are mostly indigenous and provides us with a formidable Nuclear weapon delivery system. Conversely, it is also true that many projects had to be shelved and some other (project NAG & ASTRA etc.) continue to be under prolonged cycle of development. User concerns in certain areas do exist in terms of performance and reliability and these surely need to be addressed.

The country is heavily dependent on imports to meet the critical technology  requirements of our Services & this imposes a huge burden on our exchequer. The scope for Private sector participation was limited to low technology items in 'non sensitive' areas and as such, the defence sector remained the domain of DRDO, Ordnance Factories and Defence PSUs. There was hardly any competition to the Public Sector and this caused inertia & lack of urgency.  Quite a few Private firms, both medium & small scale were registered for design, development & production by Directorate General of Quality Assurance (DGQA) but this was restricted to low technology and low value items.  Privatisation in general was strongly resisted by vested political interests. Security concerns also kept the private industry largely out of defence production & it continued for too long to be the monopoly of public sector.

Now this window is open to the private sector which is showing the interest & inclination to take up this challenge. However, with the present state of our industry, any tangible results are not expected in the near future. The challenges which our Defence industry may face are mainly as under:-

  • No assured orders in the face of global competition.
  • Enhanced investment in R&D which is lacking at present.
  • Restrictive practices/embargoes imposed by other countries for export of critical technologies.
  • Development of major infrastructure for Assembly and Integration, Test Beds etc.
  • Long cycle of development involving Preliminary Design Reviews, Critical Design Reviews, Prototype Development & User Trials/Evaluation.
  • High level of product ruggedness to meet all weather all terrain requirements peculiar to defence stores.
  • Compliance to international material, manufacturing & quality standards.
  • Very high quality & reliability.
  • Obsolescence of Technology developed before product realisation.
  • Availability of skilled manpower.

Financial Implication

For 'Buy (Indian-IDDM)' category, in the first case, a minimum of 40% of indigenous content on cost basis of total contract value is required .This may not be a difficult preposition for the vendor to achieve even if critical subsystems are obtained from foreign OEMs. The 40% limit could be attributed to the following:-

  • Cost of manpower- Skilled manpower is available.
  • Software development- In house expertise is available due to a strong IT Base. As such this will add to the indigenous content.
  • Assembly & Integration will be undertaken locally- This shall also entail considerable expenditure.
  • Shortfalls- If any could be met through indigenously developed subsystems since our industry has matured to that extent.

Thus, the option appears to be reasonable may be except in the case of aerospace items. As the industry grows, this limit can be further raised. Any rationalist view would project up to 70-80% indigenous content in many areas of defence manufacturing within a span of 10 years provided the focus remains on IDDM.

The other alternative condition in the 'Buy (Indian-IDDM)' category stipulates 60% Indigenous content for items which may not have been designed & developed indigenously. It is really not understood how this provision has been included in the IDDM category, which has no stipulation for undertaking any design & development activity. It can only be surmised that the lower level of IC i.e - 40% for the indigenous (designed & developed) items as against 60% for the non indigenous (designed & developed) is to incentivise indigenous design & development. There is lack of clarity and therefore the intended purpose may not be served at all. This issue needs to be reviewed. On no account, the primacy of the Indigenous designed & developed product should be compromised.

Design (Indigenous Content Verification)

 As per DDP-2016, the onus of proving that the equipment design is indigenous rests with the vendor while the final say would be that of the government. To examine the industry's claim, a committee comprising scientists from the Defence Research and Development Organisation (DRDO) and members of the concerned Service Headquarters would be constituted. The guidelines, on the basis of which the Committee would verify the claims, would be promulgated later by the MoD. The process of formulation of guidelines should be transparent & carried out, in consultation with private industry.  These should be thoroughly deliberated before finalisation/implementation.

No meaningful verification by the committee can be undertaken in the absence of complete & approved documents being made available. Documentation is an integral part of any design & development activity and will form the basis for any objective assessment of design & its indigenous content. Besides evaluation of financial transactions, the following category of technical documents could broadly be accessed by the committee to draw their conclusions:-

  • System Design Definition Dossier.
  • Sub System Level Detailed Design Review (DDR) documents.
  • System/Sub system Specifications.
  • Quality Assurance Plans & Test Results.
  • Configuration Control Document.
  • Applicable Engineering & Production Drawings.
  • Final Assembly & Integration Documents/Drawings.

Role of DRDO / OFB / Defence PSUs

With the active participation of private sector in defence production, the monopoly currently enjoyed by DRDO, OFB & Defence PSUs will surely get affected. In the projected scenario of procurement, DRDO with its vast network of R&D Labs could support the private industry through partnership, technical tie ups & consultancy. The primary focus of DRDO however should be towards research in core & critical technologies. Both DRDO & Private industry should explore the possibilities and work out partnership models to the advancement of technologies & not view each other as adversaries. Surely there will be competition but it should remain healthy & in the mutual/overall national interest.

Most of the major weapon systems have been acquired for our Defence Forces through the ToT route earlier. Defence PSUs & Ordnance Factories had well adapted to this mechanism. Indigenous Design & Development therefore took a back seat, however with the facilities & infrastructure available to them along with experienced manpower, the Public Sector is still better placed than the Private sector to actively engage in design, development & production. With a changed outlook and reorientation of the work force in the face of competition, the Public sector can continue to be a strong contender in this field. One of the important considerations will be the cost of production which can be managed through judicious use of their resources. We have all witnessed how some Public Sector banks & Postal Department have adapted themselves successfully in the face of competition and continue to grow.

Major Gains

'Buy (Indian-IDDM)' is a long term commitment and need of the hour. There may be very little to gain in the short term.  But it has the potential to transform the Indian defence industry to a much higher level in the long run. Some major gains which would accrue through indigenous design & development in the long run could be as under:-

  • Creation of defence industrial base with indigenous technologies. This would reduce our reliance on foreign OEMs & also result in saving of precious foreign exchange.
  • Provide our academia & technologists enough opportunities to take up research work. For too long we have persisted with lack of R&D culture even in our reputed technology Institutes.
  • Development of Ancillary industry for automated test beds, other materials & components.
  • Generate international market for our defence products since some of our companies can become defence OEMs of International repute. Our products have low export potential since our items are not world class and based on imported technologies. Even conduct of DEFEXPO & Air Shows within the country has not helped much.
  • It will also provide platform for development of dual use technologies like high resolution imagery, use of super alloys for medical purposes etc.
  • Better availability of maintenance spares/maintenance support.
  • Reduced foreign visits for equipment evaluation, PDIs etc.
  • Ease of design modifications & upgradations in case of indigenous design. The basis for this is complete familiarity with the design & availability of all paper particulars. This may not be the case with imported technologies.
  • With full access to technology, meaningful defects & failure analysis can be undertaken.

Conclusion

Overall the manufacturing sector in India has still not reached its full potential despite the availability of highly skilled manpower. China has developed a strong manufacturing base and has been able to exploit the International market to its economic advantage.

The new category 'Buy (Indian-IDDM)' is the need of the hour. This can be a game changer for Indian defence industry. But for this to become a reality there is enormous effort required on part of all stakeholders.

The author is Ex-Additional Director General (Strategic Systems Quality Assurance Group); DGAQA, Department of Defence Production.

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