Addressing the nation on May 12, 2020, Prime Minister Narendra Modi announced a special economic package for Atmanirbhar Bharat Abhiyan - the movement to make India self-reliant. Though the announcement was triggered by the compulsion to repair the pandemic-ravaged economy, it brought the ‘Make in India’ call given by him on the Independence Day in 2014 back into focus. Making range of goods in India is essential for achieving self-reliance and, in the process, reviving economic growth. In the defence sector, however, self-reliance is of immense strategic importance.

Past Efforts at Becoming Self-Reliant in Defence

In 1990s a committee headed by late Dr. APJ Abdul Kalam, who later became the President of India, had recommended a roadmap to increase the share of indigenous content in the total expenditure on defence procurement from 30 per cent in 1992-93 to 70 per cent within ten years. This was intended as much to promote local manufacturing to achieve strategic autonomy through self-reliance in defence production. Fifteen years later, the then Defence Minister, Manohar Parrikar was to lament that the situation had remained stagnant. He, however, expressed the hope that indigenous content would increase to 60 per cent by 2019.

As of today, no authentic information is available on the current level of indigenisation which is seen as an indication of self-reliance. While there may have been some improvement in the past few years, the fact remains that India continues to be heavily dependent on import of modern weapons, state-of-the-art military platforms, and myriad force-multiplying cutting-edge technologies. To put it in perspective, over a period of five years from 2014 to 2019, India was the second-largest arms importer in the world, next only to Saudi Arabia. Such dependence on imports enfeebles India’s aspirations of becoming a global power, undermines its strategic autonomy, and deprives Indian industry of the opportunity to make deep inroads in the industry.  

India’s Defence Industrial Base

India’s persistent dependence on imports is ironical as India has a reasonably big defence industrial base with a history of defence production which goes back to 1801 when the Gun Carriage Agency (now known as Gun and Shell Factory) was set up at Cossipore in Kolkata. Currently, a network of 41 ordnance factories managed by the Ordnance Factory Board (OFB) and 9 Defence Public Sector Undertakings (DPSUs), including four shipyards, constitute the backbone of the defence industry. Since 2001, when the defence production was opened to the private sector, several big and small companies, apart from 6000+ MSMEs (Micro, Small and Medium Enterprises) and start-ups, have entered the sector.

These units manufacture wide range of products including arms and ammunition, tanks and other armoured vehicles, heavy and specialist vehicles, fighter aircraft and helicopters, warships and submarines, missiles and torpedoes, electronic and earth moving equipment, special alloys and special purpose steels. While the value of stores issued by the ordnance factories to the armed forces has not increased much over the last five years, the value of production by the DPSUs has increased from Rs 39,729 crore in 2015-16 to Rs 45,011 crore in 2018-19 (provisional). It is possible that the value of production of the DPSUs and the ordnance factories would have been much higher but for the financial constraints faced by the armed forces which are the primary buyers of the defence products.

Defence Research & Development

Unlike the defence manufacturing sector in which significant inroads have been made by the private sector, defence research and development (R&D) continues to be an almost exclusive preserve of the Defence Research & Development Organisation (DRDO) of the Ministry of Defence (MoD). Beginning with ten laboratories in 1958, it has developed into a vast network of 52 laboratories, working in such diverse disciplines as aeronautics, armaments, combat vehicles, combat engineering, electronics, missiles, life sciences, materials, and naval systems.  DRDO also provides scientific and technological advice to MoD to support the National Cyber Security Architecture, which covers testing capabilities, security solutions, testing hardware, indigenous NW systems, Defence tools, support operations. The technologies developed by the DRDO are regularly shared by it with the industry, including the private sector entities, for manufacturing equipment using those technologies. Between January 2017 and December 2019, DRDO entered into 322 Licensing Agreements for Transfer of Technology (LATOT) with the industry.

Defence Exports

The combined effort of the OFB, DPSUs, DRDO and the private industry has led to a noteworthy improvement in authorisations for export. From Rs 1,521 crore in 2016- 17, export authorisations jumped up to Rs 10,746 crore in 2018-19. Thanks to the defence offset policies and individual initiatives, Indian companies are increasingly getting integrated with the global supply chain. The government has also taken several steps to facilitate export, notably the creation of an end-to-end online portal for receiving and processing authorisation permissions. This has reduced the time taken for authorisation to less than 50 per cent of the time taken in 2017-18. The major items of export include Personal Protective Items, Turbo Chargers and Batteries, Electronic Systems, Light Engineering Mechanical Parts etc. and the countries to which these are exported include Kenya, Bhutan, Ethiopia, Israel, Taiwan, UK, Nepal, Belgium, Vietnam, and the Philippines.

MoD has set up an Export Promotion Cell to facilitate exports by disseminating enquiries received from various countries to the industry. India’s Defence Attaches posted abroad are mandated to promote and facilitate defence exports. As a matter of policy, the DPSUs and the OFB are under instructions to export at least 25 per cent of their total sales every year. An Export Booklet has also been published by MoD which gives out the details of the products made by the DPSUs, OFB and the private companies. Backed by all these measures, the export target of Rs 35,000 crore for 2025, set by the MoD, does not look too ambitious.

Paradox of Continued Dependence on Imports

Considering the long history of defence production in India, existence of a fairly capable industrial base spread over the public and private sector, the domestic market for defence materiel, export potential, R&D infrastructure, and the steps taken by the government, it is rather paradoxical that India’s march towards self-reliance through rapid indigenisation of defence production has been slow and it continues to be dependent on imports. That between 2015-16 and 2018-19, out of 210 contracts, as many as 75 contracts worth about Rs 1,67,898 crore were awarded to foreign vendors from the USA, Russia, Israel, France etc. for procurement of helicopters, aircraft, missiles, rifles, artillery guns, simulators, and ammunition, is a good indicator of our critical dependence on import.

Import is not with reference to manufactured platforms only. The Indian industry is dependent on foreign sources even for raw material and other critical assemblies/components, to considerable extent. This is best illustrated by the extent of import-dependence (by value) in some major platforms currently manufactured by Hindustan Aeronautics Limited (HAL): 40% each in Sukhoi Su-30 MKI and Light Combat Aircraft (LCA) Tejas; 46% in Advanced Light Helicopter (ALH) Dhruv; and, 60% in Dornier DO-228 which HAL has been manufacturing for more than three decades. Besides, many major weapon systems and platforms are being manufactured in India with technology transfer and under license from the original equipment manufacturers (OEMs), stymieing the growth of indigenous design and development of cutting-edge technologies.

Hastening Self-Reliance in Defence

Apart from the budgetary constraints and procedural complexities, the main factor that is holding back the Indian industry from coming into its own is the lack of adequate focus on defence research, design, and development of technologies. India’s expenditure on defence R&D is less than one per cent of the Gross Domestic Product (GDP) due to the overall financial constraints. The government has taken/is taking several steps to address these problems. The 15th Finance Commission has been asked to address the issue of inadequate allocation of funds for defence. In a bid to streamline the procurement procedure, MoD has come up with a draft Defence Procurement Procedure 2020 with several new features. A brief glimpse of how policies and procedures are being reshaped to promote indigenous research, design, development, and manufacturing of defence equipment, is given below.

Visibility of Demand

Technology Perspective and Capability Roadmap (TPCR): The first TPCR was released in the public domain in 2013, giving an overview of the technologies and capabilities required by the armed forces over the ensuing fifteen years. This was done to facilitate a long-term business strategy planning by the industry to meet the requirement, and when the procurement action was initiated by the MoD.

The latest TPCR was released in 2018, giving a broad idea about the specifications of the equipment required by the armed forces and details of the Points of Contact for each procurement programme. The details are clubbed under 19 equipment/platform systems: Armoured fighting vehicle, ships/crafts, fixed-wing aircraft, remotely piloted aircraft, submarines, weapons, missiles, ammunition, support and small arms, sensors, combat engineering, CBRN and firefighting, electronic warfare and communications, simulators, specialised vehicles, practice targets, infrastructure, materials and paints, and some miscellaneous capabilities.

Defence Procurement Procedure (DPP):

The draft DPP 2020 released by the MoD earlier this year, gives an indication of the areas of interest to the armed forces. These include artificial intelligence, high-end military materials and special alloys, indigenous software, aero engines, and silicon wafers. It also includes a list of 32 critical defence technologies and test facilities DRDO wants to acquire from the foreign OEMs by way of offsets. This list includes items like seeker and stealth technologies, modules for high-performance drones, nanotechnology-based sensors and displays, and supercapacitors. It provides an opportunity as well a challenge to the Indian companies to meet the requirement through local initiative.

Infrastructure

Defence Industrial Corridors: Following the budget announcement (2018-19), a Defence Industrial Corridor is being set up in Uttar Pradesh with six nodes at Agra, Aligarh, Chitrakoot, Jhansi, Kanpur, and Lucknow.  Another corridor in Tamil Nadu will have five nodes: Chennai, Coimbatore, Hosur, Salem and Tiruchirappalli. Detailed Project Reports have been prepared to activate these corridors. The industrial units located along these corridors stand to benefit immensely once these projects get going.

Initiative by States: Some states like Uttar Pradesh, Rajasthan, Haryana, and Punjab are taking keen interest in incentivising investment by the defence industry in their states. One of the first states to recognise the potential, Rajasthan decided several years back to offer tax and other incentives in the form of availability of land and power, to those investing in the defence sector. Similar fiscal and non-fiscal incentives are being offered by the Punjab government too. The Haryana government has decided to develop an Integrated Aviation Hub at Hisar, located just about 170 km from Delhi. This is intended to promote local Maintenance, Repair and Overhauling of aircraft, for which there is a huge market in India.

Funding

Defence Technology Fund (TDF): Administered by the DRDO, it aims at involving public/ private industries, especially MSMEs, in development of cutting-edge technologies and building prototypes for defence application, typically within a two-years, through:

• Significant up-gradation/improvements/developments in the existing products /process / application, etc.
• Technology readiness level up-gradation from TRL3 onwards to realization of products as per Tri-Services requirements.
• Development of futuristic technologies/innovative products which can be useful for defence applications.
• Import substitution of components whose technologies do not exist with the Indian industry.

The scheme envisages funding through the provision of grants to an industry that may work in collaboration with the academia or research institutions to carry out innovation, research, and development. Incidentally, DRDO has a long-standing tradition of collaborating with the academia and institutions of excellence. Between 2012 and 2017, as many as 680 projects costing Rs 490 crore (approximately), were given to various universities and academic institutions, and similarly 417 research projects between April 2017 and March 2020.

Innovations for Defence Excellence (iDEX): This scheme promoted by the Department of Defence Production is intended to create an ecosystem of innovation and technology development in defence and aerospace by involving the industry. These include MSMEs, individual innovators, R&D institutes, academia, and entrepreneurs and providing them grant / funding and other support to carry out R&D in areas which have the potential for adoption by the armed forces in future. Basically, they will be expected to deliver technologically advanced solutions for modernisation of the armed forces. The scheme is to be managed by a functionally autonomous Defence Innovation Organisation – a ‘not for profit’ company formed under Section 8 of the Companies Act, 2013. 

Make II Projects: This programme intends to promote design and development of defence equipment/ system/platform or up-grades thereof, as also components, parts, materials and assembly/sub-assembly by the Indian industry, R&D organisations, academic institutions or their combination. The scheme envisages funding of the cost of development of the prototype to the extent of 90 per cent by the MoD. It also provides that if the commercial request for proposal for the equipment, for which prototype has been successfully developed, is not issued within two years from the date of successful development of the prototype, the balance 10 per cent is also to be reimbursed. Projects covered by this scheme with an estimated cost of prototype development not exceeding Rs 10 crore and cost of subsequent procurement not exceeding Rs 50 crore per year, are required to be earmarked for MSMEs but can be opened to all if at least two MSMEs do not express interest. 

Preference to Indian Companies:  

All capital procurement for the armed forces is done under five procurement categories which are arranged in descending order of priority. Only the Indian companies can participate in the first three of these five categories: ‘Buy (Indian – Indian designed, Developed and Manufactured)’, ‘Buy (Indian)’ and ‘Buy and Make (Indian)’, but the products offered by them have to meet the prescribed minimum indigenous content requirement – 40% in ‘Buy (Indian)’ and 50% in ‘Buy and Make (Indian)’. To incentivise design and development, Indian companies participating in ‘Buy (Indian – Indian designed, Developed and Manufactured)’ tenders are required to have only 40 per cent indigenous content in the equipment offered by them if their design is indigenous, while those who offer equipment that is not designed indigenously are required to have at least 60 per cent indigenous content in their product.

The fourth category (‘Buy and Make’) allows Indian companies as the recipient of technology from the foreign OEMs for licensed production of the equipment. The last category – ‘Buy (Global)’ - is meant for outright purchase of equipment from foreign vendors, but Indian companies can participate in the tender if they are confident of meeting the requirement. Participating in the tender floated by the MoD under this global category, Indian company Larsen and Toubro won a contract in 2017, and by January 2020, it had supplied more than half of 100 K-9 self-propelled artillery guns that had been contracted for, ahead of the schedule.

Poised for Atmanirbharta in Defence?

The steps taken/being taken by the central and the state government, only some of which are mentioned here, inspire confidence that self-reliance in defence will not remain a pipe dream as has been the case so far. Though a more coordinated and synchronised approach could have produced better results. It is also important to be realistic about the outcome of all these measures. In today’s world, self-reliance cannot mean doing everything within the country. That cannot be a realistic goal. What self-reliance should lead to is a situation where our dependence on foreign sources for raw material, technologies and skills that are critical for local manufacturing of equipment, weapon systems and platforms is minimised so that sanctions and denial regimes do not impact our defence preparedness. 

Tags :

• Make in India: Global Hub?65

• Share on Social Media

• Follow us on Social Media