‘Growth and Synergy most important for DPSUs’

Indigenous industry has a big opportunity for participation in defence production sector, thanks to dynamic decision and policy making of this government.  Country’s defence budget is 6.5 per cent of country’s GDP, and there has been an increase of 13 per cent in last one year.  Today, the players of defence production in India are 9 DPSUs, 41 ordinance factory boards, 50 DRDO labs and 150 private players among them eminent ones are Mahindra, L &T, Reliance, Tata etc. Out of them 50 are parts of global supply chain.  Today, these companies are emerging, as they meet global standards and quality expectations. When one looks at total opportunity space in next 10 to 15 years, it appears that it is an opportunity equivalent to 4 hundred 50 billion US dollar. When we talk about aerospace — LUH, LCH, LCA, SVT 40, for Naval system — Nuclear submarines, MCMBs, NMRH brigades, IACs and Army is looking for Main Battery tanks, guns, FICVs and tactical communication systems and of course they are looking for lot of offset opportunities to the tune of 12-13 billion US dollars, in term of projects that are executed like MMRCA, Apache, Chinu and others project which are in the pipeline. So there is lot of opportunity for the Indian industry. Therefore, role of industry bodies like Assocham become very important. There are two key words for defence today, one is growth and another is synergy. If there is a competition between private and public sector then possibly no one grows. If there is a conflict then both will suffer. It is time of synergy, where both sectors need to come and grow together. There are 7 areas which is important for policy makers.

Historically, private sector is asking for a level playing field, so they said that excise and custom duties should be levied on public sectors too. In last budget, it was levied both on public as well as private sector. PSUs are very happy that without doing anything their revenues have increased 30 per cent. As a result, the CAPEX budget which was available to industry about 12 billion US dollars reduced by 30 per cent. The budget available for the Indian industry reduces to 30 per cent. Increasing Defence budget may have international scrutiny, so the best way to make the defence budget effective is to make the supply to defence without excise and custom duties. So there will be more funds for the projects.

MSMEs are very important. Look at internationally, companies like Boeing and Air Bus; one will find that they work of system integrators and don’t integrate more than 20 per cent, rest 80 per cent is out sourced and among them most are MSMEs. The role of MSMEs in India is now increased to 20 per cent, but it is not enough. It must be increased from 20 per cent to at least 50 per cent, for this plan needs to be made in time bound manner. Role of MSME also needs to be  improved.

We archived the IOC of Light Combat Aircraft (LCA) in December 2013, and in just 14 month, we ended with first series production of Air Craft for Indian air force in January 2015. HAL has capacity to make 8 Aircraft for annum.  We need to replace 200 mixes that means HAL is busy for next 24 years in making these LCA. Ministry of Defence  (MoD) has come out with a plan that 1300 crore will be given to DPSUs to start the second line of LCAs. In my opinion this 1300 crores should be given to industry. A joint venture should form between HAL and BHEL, where they have 40 per cent of equity, and rest is with private sector which is already contributing on LAC programme actively. If it will happen then production will be doubled, it also brings efficiency and cost comparisons.

Recently, US President-elect Donald Trump spoke about F 35 programme, he said that the programme is out of control and timeline.  It also happens with our major defence projects. If you look at the IJT, LUH, LCH, Development of submarines, 155 mm guns etc. projects are time over run. Therefore, we need a national steering team, who will look after — above 500 crore rupees projects, where defence preparedness is involved.

Defence and civil aviation can’t live in isolation. Over the world, technology is developed in defence aero-space then applied in civil. We can’t say that both will grow in different isolation. Thanks to the dynamic initiative of the government in last two years, today we  have emerged as 9th largest user of civil aviation, and will emerge as a third largest by year 2020. We, today, handle 100 passengers and it is an industry of 16 billion US dollar.  We are going to invest 225 billion US dollar for acquisition of aircraft from other countries. And as one of the leading manufacturers claimed in a conference that I will develop one aircraft every week for next 10 years, this is the potential of our private sector. We can spend 200 billion US dollar on acquisitions; at least 1 per cent should be given to Indian industry where all the DPSUs and private sectors company will jointly to develop the first regional civil aircraft of the country. I have talked to many policy makers who used to say that we have already developed so much technology that we cannot even think about producing civil aviation aircraft. I remember in 1969, Neil Armstrong landed on moon and somebody had given proposal for creation of the ISRO Many policymakers said what  would India do with ISRO, when others have already landed on moon. But one decision maker did not listen to them, same is happening today. So time has come to work to develop indigenous civil aviation aircraft.

The remodeling in thinking works in defence production sector. Few days back, one Chetak pter faced an accident. From 2006, 60 aircrafts, helicopters are lost due to accidents.   Today, we need 1200 pters readily for defence forces. For it, we need an investment of   1.5 lakh crores. We are tendering or retendering from last ten years but it is now time for remodeling our thinking. Three years back China had  only 180 pters; they invited leading pter companies to come and establish their factories.   In the period of three years, now, they have acquired 600 hundred pters, in next three years they will easily cross the mark of 18 hundred.  By bringing international manufacturers, we can make changes to our existing capabilities.

Finally, creative destruction is a process, through which something new brings about the demise of whatever existed before it, like creation of Niti Aayog. We have DRDO with 3 billion budget and 10000 man power, which have made very significant contribution. Defense Advanced Research Projects Agency (DARPA) is a similar organization with 125 people from last 60 years. They are the people who will decide — what kind of technology will be used, who will develop what, what will be done.  Every year they invite people from industry, who come there for five years, and develop projects, where the industry take the ownership of the projects not the government, like MROs. In India today, Maintenance, repair and operation (MRO) industry is a 3, 000 crores industry which is controlled by DPSUs. We need to take a decision in a shot,  that this MRO business will be done by private industry. They will have longevity, visibility and they will able to plan the technology better. At last UAV — USA has UAV plans for 2035. If tomorrow,  there  is a war,  three things will be important — UAV, drones and cyber warfare. Today 97 countries have the capabilities to develop the drones. Today, AIR Force, Army, HAL and so many companies are working on UAVs in India, but,  problem is  that they seldom talk to each other. Now it is time to create a national body that is going to guide all the agencies that who will do what and when.

(Excerpts from speech delivered at National Conference on Defence  Production-Self Reliance and Beyond)

(The author is former Chairman, HAL)

by R.K. Tyagi