Reducing Import through Make in India Defence

The recent report of SIPRI placing India as the world's second largest importer of Arms, after having been on the top slot for last 8 years, is not the case to claim to Make in India defence manufacturing initiative is beginning to show results. A lot needs be done on policy front….

The recent report of Stockholm International Peace Research Institute (SIPRI) placing India as the world's second largest importer of Arms, after having been on the top slot for last 8 years, came as some relief. This is not the case to claim to Make in India defence manufacturing initiative is beginning to show results, as the report is based on supply deliveries and not the orders placed in the last few years. Hence it is not really reflective of ground realities it is based on an order placed in the past, and there is a significant time lag between order placed and deliveries. There are number of big tickets deals that have been signed recently, and a lot is yet to be signed. In reality, budget constraints and delays in new acquisition have meant a reduction in imports.

The fact of the matter is that the requirement of defense equipment has only grown over the years. It is no secret that the defense services are in dire need of a wide range of equipment and other platforms. Fast track procurement of some of the not very expensive Small Arms is the case example. The defense services also need capital intensive platforms such as medium multi-role fighter aircraft, utility and multirole helicopters, and submarines. The decline in the dubious status is not due to any outcome due to Make in India effort or the policy initiatives taken by the government to bring down imports, but mainly attributable to flip flop in decision making in procurement.

Most of the production-related policy initiatives taken so far such as Make-I, Make-II, Strategic Partnership, Indigenous Design and Development and Manufacturing (IDDM), manufacture of ammunition by Private sector, Start-up India initiative, Defence Innovation Fund (DIF), Technology Development Fund (TDF) are still mostly on paper only. There is no tangible progress, and as usual, these are being stalled by vested interests.

India’s defence industrial base continues to be overwhelmingly dominated by the three under MoD controlled Defence Public Sector Undertakings (DPSUs), Ordnance Factories (OFs) and the Defence Research and Development Organisation (DRDO). Their dominance has been associated with inefficiency and lack of accountability on delivery, productivity, and quality, etc. These facts are known to the policy makers since long. Still, the competitive environment has not been created in defense development and manufacturing, which is pre-requisite for reducing import.

India a country with a fifth of humanity and the $2.5 trillion economy, which is expected to grow to $10 trillion, need to be strategically secure and self-reliant in major defence equipment by developing the technological capability in house. Indeed, there is displeasure over the fact that India should be dependent on a substantial volume of import of defence hardware, to guard our national sovereignty.

Taking the Challenge

There is undoubtedly some change in mind-sets in treating private Industry as part of National endeavour by the MoD, however still a long way to go to create true trust-based relationships. MoD’s approach needs to transform to one of partnership with Industry to build indigenous capability. Gradual and systemic reduction of import dependence must be achieved by involving all stakeholders of our country. Although there are some of the visible signs of momentum in the Indian defence industry with six companies getting FDI of about Rs. 237 crores and Defence exports have grown from Rs 1,150 crore in 2013-14 to an expected Rs. 8,000 crore in 2018-19.

“Make in India” programme has leapfrogged in some areas such as Missiles, but it is struggling with basics in many others such as an evident neglect in others such as Small Arms, the primary weapons have no explanation.

 Procurement on Fair Competitive Basis

There is tremendous scope for improvement in the pace of acquisition through a definite shift from nomination to competitive procurement by providing level playing field. With the allocation of Projects on nomination basis to DPSU, the Make in India is turning as (Assembled in India) through import as on an average, government-owned defence units undertake less than 15% of real value addition on projects they are awarded, with the rest being imports. Indian industry leaders are capable of building ‘system of systems’ say, for instance, a submarine, a ship, a complete communication solution, an FICV and a whole variety of weapon turrets.  Some of the specific examples of private sector demonstrated capability being Arty Guns K-9 Vajra and M-777 ULH in partnership with OEMs and Pinaka development by Tata Power SED and Larsen & Toubro and ATAG 155 mm Gun in a partnership of Private sector with DRDO.

Decision Making

The delay in decision making is affecting the credibility of Indian industries with OEMs. Improved decision-making and adhering to timelines in capital acquisition programmes, with adequate allocation of funds, could accelerate self-reliance. A sustained increase in the defence capital budget allocation is imperative with steady growth in GDP.

Promote Exports

Besides institutionalized export promotion, there is a need to extend Defence specific allocation in Line of Credit to friendly nations to boost export of defence systems and subsystems.

Indigenous Development

Most of the DRDO programs have come up with little to no result besides cost and time overrun. It is time to involve Industry in R&D in Defence sector with proper incentive on a long-term basis.

Public and Private Partnership

Synergizing public and private sector is a must for creating robust indigenous defence industrial capabilities. It is time that the defence manufacturing units under the Department of Defense Production (DDP) be empowered to take their decisions.  DDP should not have any say in the procurement process. The Private industry is also a stakeholder in defence production, and the Government should chalk out a strategy in consultation with Industry organisations to promote indigenous design, development, and manufacture.

Technology Transfer

Technology acquired, so far has stagnated at the rudimentary level and not matured as envisaged to leapfrog technological generations. To boost domestic defense manufacturing, Indian industry would need concrete action on a partnership for transfer of technology from Foreign OEM. Technology transfer needs to be carried out in the true spirit where both the supplier and the recipient are competent organizations. The local industry should be able to absorb and further develop the technology thereby leapfrogging existing technology lag.

A certain class of Defence technologies are strategic by nature. Having invested over decades, sovereign nations would not like to share critical technologies, without commensurate benefits and controls. G2G relationships would still play a decisive role in such cases wherein Make in India would be a prudent step for the Government rather than resort to imports.

Focus on Co-production

Defence trade must look beyond the buyer-seller relationship to co-production and, eventually, high-technology joint research and development so that technology is ultimately transferred to India. Though India may be a late starter, with own domestic market advantage we should be able to get the updated and most modern technologies with midlife upgrade capability, mainly as these systems would be used for a number of years.

Today India needs to involve capability enhancement and development, increasing know-how, design and system integration, rather than having numerical targets. By enhancing the participation of domestic players in the defence space, the share of imports is projected to drop by 20 to 25 percent in the next four to five years, which will reduce the outflow of Foreign exchange and create jobs. If we could raise the percentage of domestic procurement from 40 percent to 70 percent in the next five years, we would double the output in our defence industry. The recent draft defence production policy talks about self-reliance in critical technologies by 2025 and sets a target of Rs 1,70,000 crore turnover in defence goods and services involving an additional investment of nearly Rs 70,000 crore. It looks at achieving exports of Rs 35,000 crore by 2025, putting India among the top five countries in the aerospace and defence industry. It is time to be realistic rather than making tall projections and take bold decisions. Indian industry will benefit if adequate policy measures are taken for instance by offering incentives and strengthening overall supply chain from component manufacturers to system integrators.

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