Make in India – An Appraisal and the Way Forward in Defence Sector
Soon after Prime Minister Modi took over the reins of the Government of India in May 2014, he announced from the ramparts of the Red Fort in his Independence Day speech in Aug 2014, his vision for Make in India. His focus was not just self-reliance in manufacturing but also to encourage foreign manufacturers to set up their base in India, which would benefit them to make use of favourable economic and labour conditions as well as committed infrastructure to be created for them to meet local requirements and also to export their products out of India. He was extending an open invitation to them and implicit in this invitation was his keenness to create a facilitating regulatory environment so that a potential investor would be able to obtain a decent Return on Investment (ROI). It is no one’s case that efforts to manufacture indigenously had not been made earlier. Indeed strides had been made but the system was mainly in the Public sector and mired in bureaucratic inefficiencies. An all round and concerted Policy thrust including opening up the avenues for foreign participation has been given now.
Whilst his vision is across the entire spectrum of manufacturing, the focus of this paper is on the critical defence sector. India was the second largest importer of defence equipment during the period 2015-2019 as per Stockholm International Peace Research Institute (SIPRI), a reputed think tank. Even during the period, 2004-14 imports were made despite the fact that the UPA led Government did little to attend to the urgent need to modernize the equipment of the three armed forces. It is only after the change of the helm at the centre in 2014, urgent steps were taken to re-invigorate pending defence projects. The contract for 36 Rafale aircraft in fly-away condition at a cost of US $ 7.8 Bn signed in Sep 2016 and the IGA between Russia and India signed in Oct 2016 for the US $ 5.2 Bn addressed the situation to a large extent. India imports nearly 55% of its defence needs.
But herein lies the dilemma. No nation can sustain its defence on imports alone. In the WW II, after initial reverses, the Soviet Union was able to, not only halt the German advance but, ultimately defeat the Third Reich, because it was able to feed its war machine with domestic manufacturing of weapon systems. The Contracts indicated above reinforce the requirement to have a healthy indigenous defence industry. No nation can sustain its defence preparedness on imports alone. The converse is also equally true that no nation can make everything required for its defence indigenously as it is just not economically viable. It has to focus on critical areas. At the same time enabling foreign manufacturers to set up their shop in India makes eminent sense. It is in this backdrop that we will examine this critical issue.
Outlines of the “Make in India” policy
Aim. The principal aim of the ‘Make in India’ policy is as follows:
a) Job Creation.
b) Skill Enhancement.
c) Facilitate Investment.
d) Foster innovation.
e) Protect Intellectual Property Rights (IPR).
f) Establish high class manufacturing base.
Principal Directions. There are four principal directions envisaged encompassing the policy as follows:
a) New Processes
b) New Infrastructure.
c) New Sectors.
d) New Mindset.
There are in all 25 sectors envisaged in the Policy framework but the discussion in this paper will be restricted to the Defence Sector.
Main Factors Impacting ‘Make in India’. The following main factors impact the Policy:
a) Ease of Doing Business.
b) Regulatory Framework.
c) Environmental Clearances.
d) Democratic tradition.
Ease of Doing Business. India has made a dramatic jump in the ease of doing business ranked by the World Bank. From a position of 142 out of 19 countries in 2013, it has leapfrogged to 63 in 2020, moving up progressively in the intervening years by 79 rungs, making it one of the top 10 most improved countries for the third successive time. This is a very positive factor for a foreign investor who would consider moving his manufacturing base and conduct business in India. However, this is not enough and more measures are needed to further improve this ranking.
a) Over the last six years, in particular, many policy initiatives have been taken ever since the NDA Government assumed the helm of the country, many policy initiatives have been taken to facilitate Foreign Direct Investment (FDI) in India. The limit via direct automatic route has been recently raised to 74% from the existing 49% for capital projects in May 2020. Automatic route means no Foreign Investment Promotion Board (FIPB) clearance is needed. In the service, maintenance & repairs organizations (MROs) the limit is 100%. These decisions are a major step forward. Till last year when the limit via automatic route being 49% did little to attract foreign investors mainly from the management control aspect and in protecting the IPR in cases where Transfer of Technology (TOT) was involved. By enhancing the limit to 74%, the foreign investor will be able to have management control and have greater freedom in directing the affairs of the concern. The Indian side will still have a say with 26% of the equity. Since this decision to raise the limit to 74% was taken only in May this year, the effects are not yet visible due to the disruptions caused by the COVID-19 pandemic, however, in due course, it will have a significant impact.
b) The other factor to manage in the regulatory framework is to reduce the process to a single window clearance as soon as is possible. This has not yet been achieved. This is more significant in certain reserved spheres even in the defence sector, where the automatic route is not available. Easing the procedure for land acquisition is also a critical step and defence projects have been given a leeway.
Environmental Clearance. The environment Protection Act of 2006 is very stringent and put fetters round one’s own feet. Due to the plethora of requirements to be met, it also became an instrument of rent seeking and corruption. With the NDA dispensation, steps have been taken progressively to ease the procedures and the recent notification of Aug 2020 restricts the number of projects where the Environmental Impact Assessment is necessary prior to clearance for the project. Naturally, this has raised the hackles of activists but a balance has to be struck between the environmental impact and the criticality of the investment for development. Till 2014, 40% of the Projects were stuck on account of such clearance. This was clearly an unacceptable situation. However, much headway has been made subsequently. In case of defence projects, there is a move to further ease the conditions for the environmental clearance particularly in strategic areas such as ‘Border roads’. No one is making a case for a complete exemption but for ‘Make in India’ to succeed this aspect needs serious and judicious consideration.
Categories of Acquisition. As per the revised Defence Procurement Procedure (DPP) 2020, the acquisitions are categorized as follows:
a) Buy (Indian-IDDM) Indian designed, developed and manufacture.
b) Buy (Indian).
c) Buy & Make (India).
d) Buy and Make.
e) Buy (Global-Manufacture in India).
f) Buy (Global).
The indigenous content in each of the above category has also been specified as follows:
b) Indigenous design min 40% otherwise a Min. of 60%.
c) Min. 50% of ‘Make’.
d) Buy and Min. 50% of make.
e) Min. of 50%.
f) Min. 30% (Offloaded to Indian Vendors).
These numbers are rather ambitious particularly in respect of ‘Buy-Global’. By the time one is able to absorb the technology, it often becomes obsolete. Therefore the aim should be to indigenise only in those areas, which are susceptible to incremental changes. In areas where the technology changes are revolutionary, efforts must be made to develop them in-house to sustain the changes as they occur in the long run. Here too, the focus should be in critical spheres wherein the foreign vendors do not part with the TOT, to attain optimal economic benefits in the investments needed.
Sectors of Manufacturing
In defence production, there are three main sources/sectors for manufacturing;
a) Public Sector Undertakings (PSUs)
b) Defence Research and Development Organisation (DRDO) units
c) Private Sector.
Till the year 2000, when the Policy regarding the participation of the Private Sector in defence production was allowed, the PSUs enjoyed a total monopoly. Further, their Contracts would be in ‘Cost Plus’ category, which meant that they were assured of a profit of 7% over and above the cost of the Project irrespective of time overruns. This bred inefficiencies in the system, as there was no incentive to complete the project on time. The unionisation of labour added to the problem. Delayed project completion became ‘Par’ for the course. Prime examples are the Projects for the Main Battle Tank ‘Arjun’, the Light Combat Aircraft (LCA)-Tejas, Light Combat Helicopter (LCH), Construction of Aircraft Carrier (IAC 1) etc. One, however, needs to also concede that ever-changing Qualitative Requirements (QRs) by Service Headquarters (SHQ) also contributed to the delays. However, since the gestation periods were stretched so long, it was inescapable for SHQs to revise the QRs to remain contemporary. Thus one landed up in a ‘Catch 22’ situation.
a) Among the three services, the Navy has been more progressive and clearly ahead mainly because it kept the design bureaus in-house and organized the Project Management Teams in better coordination with the implementing organization. As a result, today the Navy is fully capable to design its own warships, which can compare with the best in the world. As far as submarines are concerned the gains expected out of Project 75 (Scorpene Design Submarines) should address the issue of indigenous design and production. Even in electronics and weapon systems, the Navy has been ahead with Weapon Systems and Electronics Engineering (WESEE) playing an important role. The Navy is also leading in having a long-term plan for indigenization. There have been delays in Naval Projects too but that has been mainly in the implementation phase due to labour issues in the PSUs. In the aviation sphere, the track record of Hindustan Aeronauticals Ltd (HAL) has not been one, which inspires confidence. Despite producing aircraft under licence, mainly of Russian origin, since the middle of 1960s, they have not been able to innovate and evolve in design. Similar is the story of the manufacturing units under the Ordnance Factory Board as regards weapon systems for the Army. We have to-date not been able to produce a reliable automatic modern rifle for the infantry. The INSAS has not lived up to the expectations and its failure rate has been high. Recently, a joint Indo-Russian venture for manufacturing Kalashnikovs (AK 47 & AK 203) has been set up at Amethi. It will, however, take time for it to reach the production scales needed to arm the infantry. Till then we are still resorting to import of such weapons. Licence production of T90 tanks by HVF at Awadi is ongoing but assemblies and components are still being sourced from the OEM in Russia. We have not succeeded in making even the track links for the tanks despite all these years of production. Efforts to make the same with private sector participation are now underway.
b) In the sphere of production of platform equipments, sensors and weapons there are some PSUs, which have been profit making but that has been at the expense of the user service HQ’s budgets, as they have taken advantage of ‘Screw driver’ technology. This means importing the equipment, removing the markings of the Original Equipment Manufacturer (OEM) and replacing the same with their own markings to show home production and charging a 7% mark up on the costs. Bharat Electronics Ltd (BEL) is a classic practitioner in this field. However, in production of naval sonars they have done good work as the production agency, mainly because of the positive Research and Development work done by the Naval Physical and Oceanographic Laboratory (NPOL). This story is repeated across most of the defence PSUs. Recent steps being undertaken to bring greater accountability by the Government are in the right direction.
Defence Research And Development Organisation.
The DRDO has research laboratories as well as production units within its organizational ambit. The performance of the DRDO has been a mixed bag. To be fair to it, immediately after independence, the research in the defence sector had to be in the hands of the Government, as the private sector did not have either the economic or the infrastructural wherewithal to undertake the same. In the initial years the DRDO and the ordnance factories did yeoman service, but stagnation crept in as entrenched interests and unionization gripped the organization. The specific cases of the MBT, LCA, LCH etc. have already been referred.
Laboratory to Production. The biggest problem in DRDO’s legacy so far has been its inability to operationalise research into mass production. Except for a few oases in production of ship/submarine based sonars, Towed array sonars, submarine launched ballistic missiles, it has been mostly a desert. DRDO is a champion in producing technology demonstrators but has not crowned itself with glory when it comes to mass production and marketing of such systems. I have known many DRDO projects, which have been closed soon after the technology demonstrator stage and fresh budgets sought for new/similar project with declared advanced features. This has been their modus operandi. Accountability has been a casualty at the altar of newer projects. There have been, however, exceptions which are illustrated below:
a) Advanced Technological Vessel (ATV) Programme. This programme has been in operation for quite some time and is charged with the indigenous development and construction of strategic submarines. Despite delays, which are only to be expected in such an endeavor-Only the P5 countries of the UN Security Council have this capability- the Programme acquired a momentum of its own and is now fully on the rails. It delivered the first boat Arihant in 2014 and is soon to deliver the second in the series. The Project has been a classic case of public-private sector participation. The Blueprint for the organization and implementation was put into place by Dr APJ Abdul Kalam (Initially as the Chief Controller R&D and later as SA to RM) with the ATH HQ as the nodal point with numerous other sub-organizations, both in the public and private sectors, following a consortium approach, which was able to deliver and put in place India’s triad of strategic deterrence.
b) Integrated Guided Missile Programme (IGMP). This Programme was set up in 1982 to indigenously develop five types of missiles systems; Prithvi, Agni, Aakash, Nag and Trishul. It has delivered on all the systems except for Trishul, which was closed in 1999. This Programme too had the footprints of Dr Abdul Kalam for which he got the Nom-de-Guerre of ‘Missile Man’.
c) The Submarine Launched Ballistic Missile. This programme under DRDO has been a spectacular success in developing very critical sub-surface launch capability possessed by only a handful of nations.
Incidentally, all these programmes had the footprints and the guiding hand of one man; Dr APJ Abdul Kalam. What does it say? The driving force in any project or programme matters greatly in its success. A real life anecdote will emphasise this point. During WWII, the Soviet Union suffered severe reverses and loss of both men and territory. The German Panzers and the Weirmach were proving unstoppable. At this point, Joseph Stalin summoned the famous tank designer Mikhail Koshkin and asked him to produce a counter to the German Panzers in the shortest possible time. The latter asked for 6 months to a year. He was given that and told “Either it is the tank or your head’. The result was the famous T34 tank, the prototype of which rolled out in a little over 6 months. The designer boasted that the tank’s armour shield could withstand the impact of a 105mm artillery from a distance of 2 km. Stalin asked him to get into the tank and ordered the artillery to fire at the tank from that distance. The designer is reported to have said: “I may have died a thousand deaths in that short period, but my tank withstood the shot”. The moot point here is one has to have the commitment, honesty of purpose and fear the consequences of failure (In the positive sense). In our system, such accountability is missing. It is about time that the DRDO driven projects improve drastically in their quotient of delivery for ‘Make in India’ to really succeed.
Prior to the year 2000, the direct participation of the Private sector in defence manufacturing was virtually nil, because as a policy it was kept out of the loop. There was participation only as sub contractors. However, despite the policy change, not much enthusiasm was forthcoming mainly because of the following reasons:
a) Economies of scale.
b) Return on Investment (ROI)
c) Technological aspects viz-a-viz military specifications and sharing of classified technology.
Economy of Scales. For any private player to participate and be economically viable, he needs a minimum order quantity (MOQ) of the equipment/assembly. The individual armed service was not always able to support on a sustained basis. With the growth of the strength of each armed service and a philosophy change to programme based planning and budgeting, this aspect can now be addressed. Just to give an example, when the 30 year indigenous submarine building plan was formulated, it spoke of building 24 submarines which amply addressed the question of economy of scale thereby evincing the interest of a private player. I was a Member-Secy of a MOD team that travelled extensively across the country to explore the existing capabilities and strengths of the private sector and I could sense their interest in participation in the programme because it offered the numbers.
Return on Investment (ROI). A private sector player is not there for charity and expects a certain ROI to sustain in the business. For any defence project, capital investment has to be made to create specific to type infrastructure. Unless he is able to recover his investment in a reasonably quick time after catering to the cost of borrowing, he would not venture into the fray. This factor is linked to the previous one. In my ‘Bharat Darshan’ as mentioned in the previous Para, major private players such as Godrej, L&T, Mahindras with who we had interacted were all willing to contribute to the cause of national security with minimum profits which would sustain their investments.
Technological Aspects. Acquisition of technology, specific to military specifications (Milspecs), imposes additional costs, which have to be recovered from the user. This increase in costs mostly, in the initial stages till amortised in numbers, exceeds the cost of the import option and usually, the mandarins in the finance do not take a benign view of this increased price and are tempted to favour the import option. However, this is the price a nation has to pay to create the capability for production at home. The second factor is the aspect of sharing classified and sensitive technology with private players and attendant adherence to IPR. It calls for more secure protocols and contractual guarantees to ensure this aspect. The bureaucracy is risk averse and normally opts for the path of least resistance and tends to stick with the public sector. A certain amount of maturity and reposition of faith in the private sector is needed to solicit its participation. This requires a change in mindset, which is listed as one of the directional principles in the ‘Make in India’ policy, is needed. One is yet to see a shift in the rigid mindset and outdated attitude in the bureaucracy and the service HQs. The increased interaction between the SHQs and the private sector under the aegis of Confederation of Indian Industry (CII) and the Federation of Indian Chamber of Commerce and Industry (FICCI), it is hoped, will usher in this change sooner than later. It is encouraging to, witness regular seminars being held to facilitate this dialogue and forging partnerships. The third factor relates to the use of Commercially Off the Shelf (COTS) equipment particularly in electronics for military use. Such equipment gives the same performance with a slight degradation in Milspecs (Relating to damage control features). However, the price advantage that accrues far outweighs the slight degradation. More and more usage of COTS is seen in military systems and hardware.
Strategic Partner Initiative (SPI)
In DPP 2016, the concept of SPI was included for the first time to encourage and facilitate private sector participation in defence production. The basic concept envisages selection of a private sector player who would meet the user’s QRs for a specific discipline, say the building of a ship/submarine. Once selected the SP would be for a period of 20 years during which the Government would support him with his order book. In such a scenario, the private player would be willing to invest in the creation of specific infrastructure and enhanced skill sets assured of an order book so that his financial viability is taken care of. The selection of the SP would be based on the audit of the following factors:
b) Existing skill sets.
c) Financial strength.
d) Technological capability.
e) R & D Capability.
Each discipline would have only one SP and cross-fertilization would not be permitted. Thus a SP selected for submarine building would be restricted to only that activity. Similarly the SP selected for making Tanks would be restricted to that sphere. Thus, SPs would be selected for each major sphere; Aircraft production, warship building, submarine construction, Tank manufacture, weapons systems. Such an arrangement would enable creation of centres of excellence in each sphere of activity. This would ensure focused performance as also sequencing of his assembly line to deliver the product on time and within the allocated budget. This the practice followed all over the world. To illustrate with an example; in Russian federation, the conventional submarines are built by Admiralty Shipyard at St Petersburg, Major warship building is by Yantar Shipyard in Kaliningrad. Minor warships are built by Baltic shipyard at St Petersburg, ‘nuclear powered’ submarines are built by Sevmash at Severdovinsk, submarine repairs are undertaken only by Zvesdochka Shipyard at Severdovinsk etc. Similarly in France separate sections make warships, submarines at Cherbourg under independent entities under the overall umbrella of DCN. It makes eminent sense economically, technically, and from the point of infrastructure in creating centres of excellence and optimal utilisation of expertise and resources.
In the implementation of the concept of the SPI, at the instance of the MOD(Fin), the selection has been made on competitive bidding among the shortlisted private players. This defeats the very purpose of a SP. If there is a competitive bidding process, where is the question of a SP? Further, the recommendation for keeping a SP for 20 years has not been implemented instead the SP will be for the duration of the Project in question and a review would be taken on completion of the Project. To my mind, this defeats the concept of an SPI. If the Sp were to even execute two successive projects, the second project would be cheaper as he would have amortised his sunk costs in the execution of the first programme. However, a beginning has been made and it is hoped that the policy implemented as at present is revisited to be in line with the original thought. The first major project to be implemented under SPI is Project 75(I) under which six conventional submarines are to be constructed. Two potential yards have been shortlisted; L&T and MDL. Let us see how it pans out.
Transfer of Technology (TOT)
A significant aim of the ‘Make in India’ initiative is to obtain a base for contemporary and future technologies in India. In almost all ‘Buy (Global) or ‘Buy and Make (Global)’ projects, TOT is to form an integral part of the Contract. TOT can be obtained by two main routes either through licence production or a total purchase of the same. The latter is a costlier option but is a one-time payment, which can be amortised over a large number of platforms/equipment. The former is a cheaper option but is limited in time or by the number of items produced. During the currency of the licence, with the absorption of technology, one could graduate to an improved product, which will be free of any encumbrance. This is a crucial aspect. India has had success in this respect in the automobile sector and needs to be replicated in defence production. The track record so far has not been very encouraging. Despite having produced under licence, MIG aircraft since the 1960s and T-90 tanks since the 90s, we have not been able to graduate to our own improved products.
Absorption of technology is the most important aspect, so that during the course of time, our design agencies are able to generate an indigenous design to graduate to the next generation of the equipment. This has not happened so far. Commitment and honesty of purpose is the need of the hour to remedy this lacunae. So far research and development was limited to DRDO labs but it is time that IITs and other private sector agencies are involved in this endeavour. A beginning in this direction has been made and needs to be expanded in scope and effort.
There is another factor, which needs attention. In the TOT arrangements so far, the focus has been to acquire ‘Know How’ which the collaborator may part with but the ‘know why’ component is rarely transferred as it is considered an IPR. It is for this reason that the ambit and spread of our research canvas is widened. In the contemporary world of computer aided design and simulations and Artificial Intelligence (AI) it would not be a difficult goal to be achieved. At the expense of repetition, I must say that commitment and honesty of purpose are a key to success.
Indigenisation of Components and Maintenance & Repair Organisations (MROs)
To increase the indigenous content in defence production as stated in the goals for different categories of acquisitions, on major platforms like ships, submarines, aircrafts, armoured vehicles and weapon systems, it is vital to create an eco-system of medium and small scale enterprises (MSME) dedicated to defence production. The best way to do it is to make selected MSMEs shake hands with OEMs and set up a cluster of joint ventures/joint production arrangements. In the initial stages, tax incentives and assurance of orders without competitive biddings must be offered so that the units are incentivized to make the necessary investments and get into advantageous partnerships with OEMs. It is understood that such a policy initiative has already been initiated under the direct aegis of Secretary, Defence Production and the progress is monitored during the Inter-Governmental Commission meetings. An IGA was concluded between Russia and India during the summit meeting between Prime Minister Modi and President Putin last September in Vladivostok. Such a movement should in due course lead to setting up of ancilliary parks, which should be nurtured.
Earlier our efforts were mainly focused on indigenise components like fasteners, O rings, gaskets, different types of sealings, valves etc. This was an erroneous approach and did not yield worthwhile results. The aim should be to indigenise complete assemblies/sub-assemblies such as pumps, compressors, power distribution boards/panels etc. In such a case the components will be automatically taken care of.
Maintenance Repair Organisations. No amount of success in ‘Make in India’ will be complete unless the maintenance, both planned and breakdown, is taken care of. Towards this end, MROs need to be set up in places of interest contiguous to the user’s premises, in collaboration with the OEMs. In the initial stages, concessional land and generous tax incentives will need to be given. This has been a crying need in our defence sector and the participation of private players is vital to the success. To augment the MROs excess capacity in defence PSUs should be made available to private players on ‘Government Owned Contractor Operated’ (GOCO) basis on suitable leasing arrangements.
Dedicated Defence Corridors (DDC). So far, we have examined the existing structures, their up-gradation along with new policy initiatives in order to give a fillip to the ‘Make in India’ drive. One of the new initiatives, that is already under implementation is the concept of establishing DDCs. So far, setting up of only two such corridors, have been initiated. One in Tamil Nadu ‘Chennai to Mahabalipuram’ belt and one in Uttar Pradesh From Lucknow to Bundelkhand belt. The primary aim in these corridors is to promote IDDM component in defence design and production. This is a nascent initiative and will take several years to start functioning. It is a noble and good initiative and needs support from all the stake-holders. However, one should refrain from re-discovering the wheel instead focus their energies in incremental changes. The technology is changing so rapidly that one is always in a ‘Catch-up’ mode. Therefore, to my mind it would be worth the while to let some international manufacturers set up shop in these DDCs. Alongside these ancillaries will come up so that the manufacturers would be able to source their requirements locally and the finished products will carry the certification of quality from the OEMs. Major players such as Lockheed Martin, General Dynamics and such MNCs should be encouraged to open units in these DDCs.
Quality Control. The Defence Ministry has a well-established organization for quality control under the charge of Directorate General of Quality Assurance (DGQA). However, their cadre strength so far is to cover the production units of PSUs. With the likely proliferation of production units of MSMEs and other private players, a review of the cadre of DGQA may be needed. Further, such QA units should be co-located with the production units to ease the logistical requirements and yet save in terms of time consideration.
Defence Exports and FDI Inflows
FDI Inflows. In the period April 2014- March 2019, which coincides with the period from the launch of ‘Make in India’ policy initiative, a total of FDI inflow has been to the tune of US $ 286 Bn. This constitutes a 49.94% of the total FDI inflow into the country since April 2000. (US $ 592.08 Bn). So far in 2020 despite the disruptions caused by Covid 19 pandemic there has already been an inflow of US $ 49.17 Bn. Approximating a similar ratio this would mean $ 25 Bn would be towards ‘Make in India’ By any count, these are impressive numbers but we should be aiming for much more to realize the true potential for such a policy initiative.
Defence Exports. There has been a 5 times increase in India’s defence exports since the 2016-17. The figures are given below speak for themselves:
a) 2016-17 – Rs 1521.86 Cr.
b) 2017-18 – Rs 4682.36 Cr.
c) 2018-19 – Rs 8320.09 Cr.
d) 2019-20- 8620.59 Cr.
e) 2020-21 (so far) – 632.05 Cr.
So far the exports have been at the lower end of the spectrum such as Personal Protective gears, Offshore Patrol Vessels (OPVs), ALH, Coastal surveillance systems etc. Export of Brahmos missile system is an attractive option and with the ‘Go ahead’ given by our partners in co-production Russia, we should see avenues for export of such systems. Many nations have already evinced interest. In the coming decades, we should be easily able to export warships as the ‘Make in India’ gathers more steam.
India now exports defence equipment to 42 countries. Some of the major countries that we export to are Finland, France, Germany, Israel, South Africa, Sweden and US (Live Mint 07 Feb 2020). Exports of armour plates were made to the US and Netherlands, radar components and bulletproof vests to Singapore, self armour panels to Germany etc. The exports are steadily growing and the target set is Rs 35,000/- Cr by 2025. Given the past trend, it seems achievable, disruption due to Covid 19 pandemic notwithstanding. The challenge is to graduate to the higher end of the spectrum in coming decades wherein we should be exporting warships, weapon systems etc.
Conclusion and Way Forward
We have examined the contours of the ‘Make in India’ policy initiative. However, this paper also covered the historical perspective as related to the indigenous manufacture of defence equipment even prior to the announcement of the new policy in 2014, in order to evaluate in a continuum. The acquisition categories were also analysed with a focus on Buy (Global) and Buy and Make (Global) and their implications. The various sectors of defence production were also studied, both in the public and private sectors. Their strengths and weaknesses were analysed. It was evident that the public sector needed to be more efficient. It was also seen that the Navy has been a far more progressive service in project management and steering mainly due to their in-house design capability both in the mechanical, electronics and the shipbuilding spheres. Regulatory framework necessary for the implementation of the Policy was also looked into in order to attract the FDI in the capital and service sectors of defence production. Optimisation to absorb the TOT using Computer and Artificial Intelligence aided methods were explored. The necessity of change in mindset in doing business and to have greater risk-taking ability, and to introduce more accountability in decision-making as well as in project management were critically examined. The track record on FDI inflows in the last six years was also noted. Defence exports and their future perspective looked promising. The summary of our examination leads to the conclusion that there are areas of inefficiency particularly in the PSUs, which need to be addressed to bring them in line with best international practices so that they become competitive. There is a great promise in the private sector participation, which needs to be harnessed. New infrastructure needs to effectively operationalise the policy emerged.
Accordingly, taking into account the salient features as enumerated above, the way forward should be :
a) New Infrastructure.
i) Setting up of DDCs should be expedited and operationalised
ii) Setting up of MSME & ancilliary parks.
Iii) Ensure connectivity by rail/road to centres of production.
iv) Ramp up QA organization to meet enhanced requirements under the new policy.
b) New processes.
i) Perspective planning should be based on the Programme Based Budgeting (PBB).
ii) Improve efficiency of PSUs and make them professionally managed.
iii) Consortium approach to be adopted in management of large value projects involving multi agency participation.
iv) Corporatization of OFBs.
v) Excess capacity in PSU MROs to be offered on ‘GOCO’ basis.
vi) Involve IITs and other R&D agencies to supplement the DRDO effort.
vii) Tax and other incentives be given to encourage MSMEs and FDI investments.
viii) Regulatory framework should enhance ease of doing business.
ix) Contours of the SPI should be revisited to bring them in tune with the original concept.
c) New Mindset.
i) Greater accountability needs to be embedded in project management teams.
ii) Risk aversion should be shunned and discouraged.
iii) Avoid path of least resistance and encourage innovation and bold initiative.
iv) For a new mindset to become a reality, immunity from post retirement prosecution is a must. Otherwise this will remain a pipedream.
d) New sectors.
i) Cloud computing with adequate security protocols.
ii) Computer simulated solutions.
iii) Virtual reality modeling.
iv) Artificial intelligence.
The ‘Make in India’ policy initiative has most certainly given a positive direction and impetus to defence production in India. The figures for FDI inflow and defence exports in the preceding six years clearly show that he policy has made an impact. New avenues in though, processes, sectors and infrastructure are works in progress and must be implemented with commitment and honesty of purpose, which is the key mantra to success. India is at a cusp of opportunity like never before and it must be seized.
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