Wednesday, 19 February 2020

Indigenous Defence Production A farsighted Initiative

By Lt Gen Abhay Krishna, retd Former Army Commander
Updated: February 12, 2020 11:47 am

The emerging very significant fundamental changes as witnessed during the last few years especially, related to India’s Defence Industry indicates a major shift towards harnessing global resources, increasing involvement of corporate and heading towards product specialisation. The defence industry in India actually made a beginning over 200 years ago with establishment of Gun and Shell factory at Cossipore. The Britishers emphasised on ship building and metallurgy. The defence industry thereafter, slowly expanded the production base to include land, maritime and air systems. Post-independence the arms and ammunition industry were placed with public sector and thus the ordnance factories became the strategic and dedicated production base for both lethal and non-lethal defence stores.

After 1962 conflict with China, the Department of Defence Production was created to strengthen the indigenous defence production capability with the sole aim of timely equipping the Indian Armed Forces with a wide range of quality products at competitive prices. The 1965 conflict with Pakistan added a new dimension when India was left with no choice but to enter into a long-term defence ties with the Soviet Russia mainly due to embargo imposed by USA on arms sale to India.

 

Import Conundrum

Post-independence and experience gained with 1962 & 65 conflicts, India developed a large network of factories belonging to Ordnance Factory Board and Defence Public Sector undertakings with the sole objective of producing reliable, impressive, high tech state of art military equipment to reduce dependency on imports and instead be seen as an instrument of global competitiveness. This infrastructure accounted for huge investments, creation of several laboratories, R&D centres and other related facilities leading to mammoth running expenditure. But, still despite having 41 Ordnance factories under Ordnance Factory Board and nine Defence Public Sector Undertakings in addition to 50 laboratories of DRDO, India continued to remain the third largest military spender in the world and world’s one of the largest importers of major weapons. So, what went wrong?

Though India got access to certain advanced weaponries through direct purchase as also assembling under licence at home, however, this turned into comfort leading to lack of activity and growth in indigenous research and development. Further lack of growth in economy over decades led to lack of funds for R&D in the public sector, absence of Foreign Direct Investment (FDI ) as also absence of involvement of private sector- all together stunted the growth of India’s capability of indigenous defence production. India, therefore, had no choice but to bank on the import of advance weaponries from both Eastern and Western Blocs on their terms and conditions. However, notwithstanding, especially during last half a decade a perceptible boost towards indigenous defence production has been witnessed and especially so when, ‘Make in India’ initiative came in.

 

The Neighbourhood

While India aspires to be a regional power, China- often referred as India’s ‘Northern Front Threat’, has begun to demonstrate a more assertive posture. Improving China’s defence sect has been a priority of Xi Ping with emphasis on developing advanced weapon system and transforming China’s economic structure to high end manufacturing. With a sustained focussed approach China’s defence industry has already made significant strides and today eight of the Chinese State-Owned Enterprises connected with defence production have already found a place in the top twenty of the world’s most profitable defence firms. The ways of modern war are changing rapidly with technological development. Some of the advanced military system such as hypersonic weapons compress the decision space of the defenders by striking deep in areas earlier deemed safe and out of range. China’s military modernisation speed of development is striving to modernise PLA by 2035 and create a world class force by 2049. Currently while China’s Air Force continues to improve its capacity for tactical air combat, Naval ship building is focussing on building capability of long-distance operations with heightened operational tempo.

 

Liberalisation of the Sector

Harbouring a dream of possessing technologically advanced and self-reliant defence industry as a boost to becoming a regional power, Govt of India had opened the sector to private and foreign investment in 2001. But somehow, India’s Defence Industry remained saddled with bloated structure and non-competitive defence industry producing very limited type as also technologically inferior military equipment. However, under the Defence Production Policy 2018 the Govt of India now eyes at $5 billion export by 2025. Addressing a business seminar ‘India Rising’ organised by Indian Chamber of Commerce at the Defence and Security Exhibition 2019, Shri Rajnath Singh our Honourable Raksha Mantri, while exhorting defence manufacturing companies to join the ‘Make in India’ initiative , said that India was committed to achieve $26 billion defence industry by 2025 and further highlighted Govt of India’s resolve to promote self-reliance in defence through the five I’s – Identification, Incubation, Innovation, Integration and Indigenisation .

The Indian aerospace and defence market presents an attractive and significant opportunity for Indian and foreign companies across the supply chain.  India is one of the largest importers of conventional defence equipment and spends about 30% of its total defence budget on capital acquisitions. About 70% of its defence requirements are met through imports. Presently much of India’s tactical combat fleet is ageing and needs urgent replacement. Another problem of the Indian Air Force is that the strength of its tactical combat aircraft squadron remains well below target. In the case of a two front war both rivals are seen re-equipping their fleets. While China is recapitalising its combat, aircraft fleets and connected weapons inventories, it also remains the main source of Pakistan’s combat inventory. Similarly, Indian Navy too has lagged behind with numerous problems and delays in achieving its ambitious naval expansion plans. India has a big geographical advantage of extending deep into the Indian Ocean through which passes the major world trade route and especially that of China. Undoubtedly with a strong Navy and Air Force India will not only protect its own trade and energy interests but effectively dominate the strategic sea life line of major wold powers on own terms.

By opening this sector to private and foreign investment, Govt of India has sought to build a domestic industrial base and has set itself a challenging target of achieving 70% indigenisation. The Government has made transparent global bidding guidelines in the Defence Procurement Procedure (DPP), which is revised annually. The DPP also lays out the Defence Offset Policy. The original equipment manufacturers and their suppliers will ,therefore, now leverage India’s competitive advantages in manufacturing and information technology by setting up units in India. A large number of Indian private companies and publicly funded research laboratories are looking for international partners. The Defence Ministry has already committed to fund 250 start Ups, 16 personal initiatives and five Defence Innovation Hubs through the Defence Innovation Organisation in next five years. “A new transfer of technology (ToT) policy is being developed to simplify the way of transferring technology by DRDO to the industry. More than 900 ToT licensing agreements have been signed with industries. It’s a major step towards making the defence manufacturing sector self-sufficient,” said Shri Rajnath Singh our Honourable Raksha Mantri, while addressing the business seminar as mentioned earlier.   A liberal special economic zone (SEZ) policy creates a competitive eco-system for exports by providing attractive fiscal incentives. Such a strategy will allow companies to fully participate in the Indian market, using India’s competitive advantages to create a low-cost regional or global manufacturing hub.

Steps Towards Self Reliance

While a Defence Innovation Hub is already functioning at Coimbatore, the Govt of India has planned to build two defence corridors, one in Tamil Nadu and the other one in UP. The Chief Minister UP has chosen Bundelkhand Expressway for building six hubs, one each at Jhansi, Agra, Aligarh, Chitrakoot, Kanpur and Lucknow forming the complete Defence Corridor.   The entire region is set to benefit from employment opportunities generated due to spurt of industrial activity which will contribute immensely towards growth of regional economy. IIT Kanpur and IIT BHU have joined hands to establish Centres of Excellence for Defence Industrial Corridor with the aim to bridge the technology access and skill gaps in the country. India is expected to emerge as an export hub to international market due to its location advantage. The Defence Expo is being held at Lucknow from 6 to 8 Feb 2020.

With India now relaxing its defence sub sector FDI rules, entering into

its aerospace and defence market is now easier for foreign investors. The US and European Aerospace and Defence Sector Companies are increasing their focus on international growth opportunities in markets such as India, China and the Middle East. It’s been observed during the past decade that the  primary sector for Aerospace and Defence joint venture dealing across the globe remained commercial aerospace except for India which recorded the majority in the military space sector. In the last couple of years, to quote a few examples of joint ventures which have come up are: –

(a) Boeing and Tata Advanced Systems joint venture company- Tata Boeing Aerospace (TBAL) as the sole global producer of fuselages for AH-64 Apache helicopter delivered by Boeing to its global customers including the U.S. Army.  TBAL is Boeing’s first equity joint venture in India.

(b)   In August 2018, to make anti-tank guided missiles, Kalyani Rafael  Advanced Systems (KRAS), a joint venture between Kalyani Strategic    Systems Ltd. and Rafael Advanced Défense Systems Ltd of Israel, inaugurated their state-of-the-art facility in Hyderabad.

(c)  Rafael Advanced Défense Systems has a joint venture with Astra  Microwave Products Limited in Hyderabad to make software-defined  radios.

(d)  In October 2017, Dassault Aviation and Anil D. Ambani’s Reliance  Group laid the foundation stone of the Dassault Reliance Aerospace  Limited (DRAL) manufacturing facility in Mihan, Nagpur. They will  manufacture components of the offset obligation connected to the            purchase of 36 Rafale Fighters from France, signed between the two  Governments in September 2016.

A Job & Growth Opportunity

Undoubtedly, the push towards indigenous defence production and India becoming a major arms exporter, will provide job opportunities to our youth which will help in curtailing brain drain. Incentive to industries for defence production will provide umpteen opportunities to our younger generation to initiate various start ups and open up avenues for innovative minds to contribute towards National growth. As our Honourable Raksha Mantri Shri Rajnath Singh has once said,” Human mind is most powerful and creative laboratory, which tests millions of ideas on a daily basis and when ideas are given the wings of freedom and the flight of imagination, new and innovative solutions are created, ” the time is, therefore, ripe to reach out to younger generation and connect them with this mammoth initiative taken by the Govt of India towards enhancing defence production . Our youth of today need to know the changes going on at the global level impacting our security in particular. This connect will help them to interpret, critically assess events, pattern and structure of politics, defence strategies, government approach and generate observation of relevance. We need to encourage our younger generation to connect with the initiative taken to achieve self-reliance in defence sector and move towards self-sustainability in research and development of technology and weaponry.

The Indian Defence Industry is diversifying and developing significant competencies with modern plant and machinery in collaboration with major business houses from across the globe. It is, therefore, now poised to adopt a more aggressive approach which is proactive about exports. With the advantage of global outsourcing the Indian Defence Industry will be in a position to provide a win – win situation by offering at competitive prices.

 

Collective Effort

Undoubtedly, the change in policy and approach, positions the world’s biggest defence equipment importer to become a key aerospace and defence manufacturing hub. Notwithstanding the same, to achieve the much talked about and publicised set goal on becoming self-reliant and a major arms exporter, a lot will depend upon how the aspects of management, accountability, politicised unions, strikes and slow and cumbersome bureaucratic process are handled. Current push by the Govt of India towards indigenous defence production and self-sustainable technological advancement and economic growth must be taken forward by participation of every Indian citizen.

 

By Lt Gen Abhay Krishna, retd Former Army Commander

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