Indigenous defence procurement CENJOWS 19 May 2020

Indigenous defence procurement CENJOWS 19 May 2020

https://cenjows.gov.in/article-detail?id=285

Indigenous defence procurement 19 May 2020

          Last weekend, the finance minister announced sweeping reforms in defence manufacture and procurement. She enhanced FDI in defence manufacturing from 49 to 74%. She laid emphasis on introduction of indigenous production, rather than imports. She stated the department of military affairs headed by the Chief of Defence Staff (CDS) would release an annual negative list of weapons. She also announced the government’s intention to speed up the procurement process by bringing in mechanisms to make realistic General Staff Qualitative Requirements (GSQRs). In addition, was corporatisation of the Ordnance Factory Board (OFB).

The CDS, General Bipin Rawat, had made two similar announcements recently. He stated that Indian armed forces need to make major defence components in India, and ‘we should boost ‘Make in India’ by hand-holding our domestic industry even if they deliver weapons with only 70% of the GSQRs in the beginning…given the opportunity, they will eventually deliver cutting-edge technology.’ Subsequently he stated, ‘the Indian Air Force is switching to the LCA,’ adding that ‘the IAF is saying, I would rather take the indigenous fighter, it is good.’

          This came alongside the Prime Minister emphasizing the need for self-reliance. A major lesson which flowed from the Coronavirus pandemic was that nations need to be self-reliant in critical technologies. As the virus spread globally, nations went into self-isolation, closed doors and denied essential medical products to those who lacked the same. Industries shut down leading to delays in supply of equipment for which orders had already been placed.

India is currently the world’s second largest importer of defence equipment. Unless it is largely self-reliant in defence procurement, it could face shortfalls as nations faced in critical times during the current pandemic. Its dependence on global suppliers opens it to being blackmailed during crisis situations. Further, India needs to spend inhouse, rather than transfer foreign exchange globally. 

The announcement by the finance minister had major implications. An increase in FDI would attract international manufacturing companies, seeking to enter the Indian defence market. This would enhance the Indian technological base. Her mention of issuing an import ban list and a separate allocation for India manufactured hardware implied that Indian manufacturers and the armed forces could work together on specific projects within the desired timeframe. Corporatizing the OFB has been pending for some time. This should enhance their efficiency and productivity as they would now need to compete with private manufacturers.

          The Indian defence industry has risen since the government permitted the private sector into defence production. The army has begun inducting indigenous designed and developed artillery guns and radars, the air force has begun looking at the Tejas as a long-term platform along with Indian manufactured radars, while the navy has most production being done in its own dockyards. However, realistically not all are success stories.

          As per a statement in parliament, the Tejas currently has about 60% indigenous content by value and 75.5% by numbers. This may sound impressive, but the reality is that major components are still imported. The aircraft employs the US General Electric (GE) manufactured engine and Israeli armaments. The same could be the case with some major defence equipment also. These are the critical components which need to be developed locally.

          Indigenization has been impacted due to multiple internal flaws in the current system. The first is the Defence Procurement Procedure where companies given contracts, are expected to invest in offsets within India. Offset implies a foreign supplier of equipment agrees to manufacture a given percent of his product (in terms of value) in India. This was intended to ‘foster development of internationally competitive enterprises, augmenting capacity for R and D related to defence products and services as also encouraging development of synergistic sectors like civil aerospace and internal security.’

          Instead of seeking investment, the government should have demanded transfer of key technologies or collaboration in developing critical components. The reasons why government hesitates on this is the capability of the DRDO to absorb such technologies and allocating private companies which should be the recipients of such technology, while remaining politically correct, avoiding accusations of favouritism. Thus, foreign companies invested in Indian industry, without enhancing technology levels. It may be argued that companies would hesitate to transfer key technologies, however Indian procurements are too lucrative to be ignored.

As an example, Dassault offered to help develop the indigenous Kaveri fighter jet engine as part of its Rafale offsets deal. The offer collapsed as India found the pricing to be prohibitive. DRDO’s heavy investment in developing the Kaveri engine, can now be considered as sunk and the Tejas will continue flying on GE engines for eternity. Possibly short sightedness.

          The second involves GSQRs for new equipment as stated by the FM. GSQRs determine equipment capabilities and basic parameters. Currently, these are created based on equipment just introduced into service in developed nations or under development. Evidently it is beyond the current capability of the DRDO. Linked to this is that the army requires the equipment to function equally satisfactorily in terrain spread from Siachen to deserts.

Very few manufacturers can produce equipment capable of functioning in such varying conditions. With under 1% of the force deployed in extreme high-altitude areas in the North and East, procuring specialist equipment capable of operating there should be the norm rather than commonality of equipment. This will now be rectified.  

Our private defence assembling, and manufacturing industry have their own string of problems.

Plants established for assembly of defence equipment face closure once orders are fulfilled. The K9 Vajra Plant, established by L and T, in Hazira Gujarat, would have finished its production of 100 Guns in a few months and unless fresh orders are received the plant would close. The Kalyani group displayed two additional 155mm Guns, Bharat 52 and Garuda V2 in the Lucknow defence expo this year. These were yet to be fire tested. India displayed no interest as it is already in the process of inducting multiple artillery systems, mostly locally manufactured or assembled. These guns would undergo trials in Saudi Arabia, which has envisaged an interest in them. Investment by Kalyani would only bear fruit if it is granted permission to export. There are multiple other instances.

          If India is to become self-reliant in defence production, then emphasis must shift from DRDO, Defence PSUs and OFB to the private sector. Currently, Indian private defence manufacturers hesitate to invest in R and D as there is neither guarantee of success nor of acceptance even if they meet majority of the parameters. Private defence industry will remain assembling units unless backed by the defence ministry, which are its sole purchasers.

The government had laid down a strategic partnership policy to boost private defence production leading to creating a horde of MSMEs supporting the main production unit. However, funding has been a roadblock.  

          If India is to seek to bridge the technological gap with the west, the ideal route is backing, financing and pushing the private sector. The DRDO must be critically restructured. Apart from technologies which it has mastered, other sectors need to be closed and dependence increased on the private sector, through the public-private partnership, overseen by service HQs. Specific funds need to be earmarked for the same.

          In a seminar in Oct last year, General Naravane, then vice chief, had stated to private defence manufacturers, ‘If we don’t invest in R&D, we will always depend on imports… In the ‘Make’ process, we will do all the hand holding. We will not ask you unreasonable demands.’ During the defence Expo this year, all service chiefs devoted maximum time visiting private sector stalls. The private sector is the future which needs concentration and funding, if India is to shift focus from imports to indigenization.

Recent comments by the PM, FM and the CDS were not off the cuff but in sync with the thoughts of the current service chiefs. It is time for the armed forces to work towards supporting domestic manufacturers in the right earnest. We may not have the latest technology, but if we back the private sector, reduce dependence on DRDO, we will reach the right technology levels faster. India would then be on the path of being a net exporter, rather than importer of defence equipment.