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Way Forward for Self Reliance

India at present still meets its defence requirements through imports which accounts for 60 percent of the total procurement while rest is met by ingenious manufacturing. Need of the hour is revering this ratio via developing a strong Defence Industrial Base (DIB) so that India becomes self reliant.

In a recently issued data by SIPRI for the last five years, it is seen that from the period between 2014-18, India accounted for 9.5 percent of the global total emerging as the world’s second largest importer of major arms. Though a decrease in imports by 24 percent was witnessed between 2009–13 and 2014–18, but this was partly because of delays in deliveries of fighter jets and submarines produced under licence from Russian and French original equipment manufacturers.

India despite being the sixth largest defence spender in the world procures around 60 percent of its weapon system and technologies via imports and rest by ingenious manufacturing (primarily done by government players into the domain - OFBs/ Defence Public Sector Undertakings (DPSUs) & its Laboratories; even when defence products are manufactured domestically, there is a large import component in them.

Procurement Trend

Implications - Arm Imports

Presently, major defence equipment including radars, rockets, artillery guns, rifles, aircraft, helicopters, laser designation pods, pods for aircrafts, missiles, weapons, simulator and ammunition are all being imported. India remains dependent on weapons technology from many willing suppliers, including Russia, US, France, Israel and South Korea and thus has failed to acquire self reliance in defence production till date which indicates that the import trend will not change.

During the last ten years India has spent over US $100 billion on arms imports and is likely to spend $250 Billion in next ten to fifteen years on high technology military hardware, drones, precision weapons, radars, guns, sensors and aircraft. Refer Table-1.

In addition of the purchasing cost there is the life cycle cost that is being considered which is the cost associated with installations, training manpower, and operating and integrating new acquisitions with existing weapons systems which a country has to pay in long term when buying through foreign OEMs. The maintenance cost is equally high if not more in the case of defence equipment. The longer one keeps equipment the greater its maintenance cost, whereas its effectiveness will remain constant or reduces. This is often further compounded by the non-availability of spares and components, a situation which gets particularly worse when the supplier happens to be an integrator of various systems of different companies. Maintenance, substitution or upgradation, all become almost impossible. Under such circumstances, the equipment itself becomes the problem. India has encountered many problems of this nature in numerous foreign procurements.

For India the continuing dependence on imports would mean a certain vulnerability to the technology denial and getting technical know-how coupled with a variety of compulsions that would leave the imported hardware unserviceable. Also, India’s continuance to remain on top in the global arms imports underline the persisting failure in building a strong indigenous Defence Industrial Base (DIB), which can make the country strategically vulnerable if supplies are obstructed in times of war/conflict. This is so in spite of transfers of technology, license production, etc. as a part of import agreements.

Further, foreign procurements also results in maintenance problems of the defence product procured. Also seen that the DPSUs and OFBs are only assembling the system when ToT's are sought from OEM on built to print basis resultantly due to lack of spares and maintenance there has been number of accidents like fighter planes (Su 30KI) getting crashed.

Reasons for Dependency

The main reason for the defence imports is a capacity and capability gap. India's defence production base - a vast network of 41 OFBs, DRDO & its 47 laboratories & establishments and 9 DPSUs and shipyards - is unable to meet the requirements and annual targets of the Defence Forces. This gap is bridged by off-the-shelf imports, which in turn do not result in technology gains for Indian industry. Some of the other reasons for dependency on foreign procurements include:

Limited Involvement of Private Sector

Given the fact that the Indian Defence industry being a monopsony and a monopoly as at the same time-the government is the single largest manufacturer as well as the only buyer; the government attempted to reduce its monopoly by introducing private players into defence since 2001, but its commitment to a level-playing field falls flat in the absence of orders to private sector. Further, the defence market seems to be unreliable for the private sector given the fact that the creation of a manufacturing base is very capital and technology intensive and has a long gestation period and thus such an investment without Government support is not possible which is still not there from Government’s end. Further, a factory unit to reach optimum levels of capacity utilization, it could take anywhere between 5 to 15 years, where a large part of the infrastructure may already exist. By the time a unit commences productionthere could be changes in the threat assessment/strategy involving a complete change in priorities of the Armed Forces.

 Delay and Quality Related Issues

Delays by the OFBs/DRDO happen so often that the Armed Forces have to resort to emergency imports. For ex. India's Defence Ministry resorted to off-the-shelf import of weaponries worth approx. $3 billion from Russia and Israel after the surgical strikes last year. Another problem is the issue of quality of products manufactured by them as these are at times found to be inferior to the required or international standard. The Services needs are urgent, hence they often take recourse to imports rather than wait for DRDO to improvise the product or programme to get fructify.

Planning Issues

When the Armed Forces draw up long and medium term acquisition priorities, the priorities are not always linked to availability of funds; however each time there is a budgetary restrain the priorities go haywire because meeting committed liabilities, in the case of international contracts/foreign procurement, takes preference over continuing orders for indigenous production.

Lack of R&D Investment

Poor investment in Research and Development (R&D) is one of the reasons for imports as there is no innovative or new product/technology development so the User resorts for imports. The OFB, for instance, invests only 0.7 percent of its budget in R&D against a requirement of at least 3 percent, thus making the dependence permanent. A Comptroller and Auditor General (CAG) report of 2012 found that the OFB had a poor record of indigenization in two such examples - it managed only 59 of 78 codes for the main assemblies of T-90 tanks and could indigenize just 47 per cent of 84mm rocket launchers imported from Sweden.

Lack of Communication between Buyer & Seller

The lack of proper interface and relationship between the R&D establishment, production agencies and the end user is extremely weak and the producer is in no position ever to keep pace with technological improvements offered by foreign suppliers even if the production is under a Technology Transfer agreement. The producer is unable to respond to customer needs because it does not have requisite R&D support even for making marginal improvements in performance or adding features or making other user-specific alterations.

Dependence of DPSUs on Foreign Components

DPSUs till date are critically dependent on imported components to make indigenous platforms. For ex. over the past five years, HAL imported about 90 percent of aircraft parts, components and raw materials.

Way Forward

 Encouraging Private Industry

Though defence manufacturing has been open to private sector participation for well over a decade, private companies have pointed to the lack of a level playing field compared to DPSUs and OFBs, which continue to enjoy commanding role based on various forms of governmental support over the past decades, including long-term purchase arrangements. Thus, Government should adopt innovative methods of encouraging private industry to invest in R&D. It is acknowledged that in the Indian private sector currently there is limited experience in defence manufacturing and even lesser in respect of final integration of complex defence systems and sub-systems; thus Government should provide necessary support which may include providing tax exemption and providing infrastructural and technical support.

The Government’s Initiatives

The Government’s initiative - Make in India (I & II) - is easily the most comprehensive effort thus far to reverse foreign procurements. Also, in the past few years, the government has unveiled a slew of measures on this count, from opening up the defence sector to FDI of 49 per cent (and above in certain cases), introduction of an Indigenously Designed, Developed and Manufactured (IDDM) category, 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 defence components without licensesand the recent one Strategic Partnership (SP) to promote indigenous manufacture. These policies when implemented will help reducing current dependence on imports and gradually ensuring greater self-reliance and dependability of supplies and share of import redcuing and Private sector contributing significantly as shown in Fig below.

Growth Potential for Private Sector

Transforming of DPSUs/OFBs

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 transformed/overhauled to make them more accountable for their functioning. Measures could include corporatizing them and giving them more financial autonomy, encouraging them to form JVs with private sector, boosting R&D spend and laying out a roadmap to progressively reduce their dependence on imports.

 Reverse Engineering

India should take the path of reverse engineering which will help in reducing foreign procurements as happened in the case of China. Possibly one of the least noticed thing about defence self reliance is that technologies developed for defence hardware have a variety of civilian purpose as well. Both DRDO and ISRO have a programme to develop the spin offs by transferring the technologies to industrial enterprises for commercial purpose. Here the recipient industries should be asked to improve the scope and performance of the products through constant research and feedback.

Integrating with Global Supply Chain

To be sure, most of these deals signed with foreign OEMs come along with offset obligations under which foreign defence manufacturers have to source about 30% of the value of the contract from India whenever India buys a defence product or ToT. Once the offset obligation is over, the real test of the facility will start. Private sector like Reliance, L&T, TATA, like others, will then have to compete with others in the global supply chain. This will make indigenous DIB stronger thereby reducing imports in future.

The way ahead of reducing the dependency on foreign procurements seems to be lying in the premise of strengthening the indigenous Defence Industrial Base (DIB). And this can be done only if the Government implements its policies in a fast paced manner which will ensure involvement of private sector coupled with supporting their R&D to develop products and technologies rather than overburdening the Public Sector which any which way is facing cost runs and time runs in various defence programmes.

 

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