State of Indian Defence Industry – An Introspection

http://www.indiandefencereview.com/news/state-of-indian-defence-industry-an-introspection/

ByMaj Gen Rajesh Singh

IssueNet Edition| Date : 26 Mar , 2014

India’s lack of a strong and a robust defence industry is a matter of grave concern as it makes India dependent on imports from foreign countries for about 70% of her defence equipment requirements. The SIPRI Year Book 2013 lists India as the world’s largest arms importer accounting for 12% of the import share during the period 2008-12. Even prior to this period India had been listed as one of the world’s top three arms importers. The recent biennial Defexpo for exhibition of Land, Naval and Homeland Security Systems held from 06-09 February 2014 in New Delhi which saw participation of 567 arms companies from 32 countries is also indicative of India as a large arms market on account of the dismal state of the Indian Defence Industry and it calls for a serious introspection. The ramifications that such a high level of India’s import dependence for defence equipment will be having on the country’s national security are very obvious and thus need no reiteration.

…it is absolutely necessary in the national interest to be self reliant in defence equipment and for that it is an imperative that the Indian Defence Industry be developed at all costs.

The fact that India is a long way off in achieving its goal of being self reliant in defence equipment , does have a direct bearing on the operational preparedness, as also, on the operational efficacy of the Indian Armed Forces. The aspect of import dependency for defence equipment in the case of India becomes all the more worrisome and a matter of very serious concern because of the operational commitment of the Indian Armed Forces in manning the disputed borders with two of her adversaries, as also, employment in counter insurgency operations in the State of Jammu & Kashmir and the North East. Furthermore, it needs to be appreciated that having the third largest Armed Forces in the world with the Indian Army being the world’s second largest Army, it is absolutely necessary in the national interest to be self reliant in defence equipment and for that it is an imperative that the Indian Defence Industry be developed at all costs .

Current State of Indian Defence Industry

The Indian Defence Industry as late as 2000 basically consisted of the public sector entities of the Ministry of Defence (MoD), namely, 39 Ordnance Factories, nine Defence Public Sector Undertakings (DPSUs) and the Defence Research and Development Organisation (DRDO). The defence industry got opened to the private sector only in 2001 and presently the major private players are the TATA Group, Mahindra Defence, L&T, Bharat Forge of Kalyani Group, Kirloskars and Ashok Leyland. The performance of the Ordnance Factories and the DPSUs in-spite of having a large manufacturing base and liberal govt funding has been extremely poor because of govt’s protective policies, having a captive clientele in the Armed Forces, not keeping pace with modernisation and overall inefficiency which is inherent in public sector enterprises.

The Ordnance Factories and the DPSUs have the monopoly on their product range which requires placement of orders on them only thereby making them complacent and denying opportunity to the private sector. The issue that merits attention is that of armaments and ammunition as these items are not open to private sector and since the public sector does not have the required capacity in these items, the shortfall has perforce to be made up through import. Thus of the 30% indigenously produced defence equipment the share of public sector is 21% and of the private sector 9%. The DRDO having a large establishment of 50 laboratories has also mostly not been able to live up to the expectations in providing the required technology with many of its important projects having large time and cost over runs.

The Govt needs to facilitate and assist the Indian private sector in acquiring technology from the foreign OEMs in whatever way possible…

A few illustrative examples in this regard are the projects for LCA (Tejas), MBT (Arjun), ATGM (Nag) and the Future Infantry Combat Vehicle (FICV) that have had or are seeing very large time over runs. The other issue of concern is that the indigenous development projects of DRDO are having a fairly large import content ie 40% in LCA (Tejas), 55% in MBT(Arjun), 30% in ATGM (Nag), 67% in Airborne Early Warning & Control System and 60% in Long Range Surface to Air Missile project to name a few. However, at the same time we also need to be fair to the DRDO by giving it it’s rightful due in the successful development of strategic weapon systems (Prithvi / Agni SSMs), ATV Project (Arihant Nuclear Submarine) and the Pinaka Multi Barrel Rocket System.

Issues Concerning Development of Indian Defence Industry

The issues concerning the development of the Indian Defence Industry at the macro level that need consideration are discussed below.

Research & Development (R & D). The R & D is the most essential and important pre requisite for the development of a nation’s defence industry. The DRDO which has been entrusted with the responsibility of defence R & D needs to focus on the critical and cutting edge technology. The centres of excellence like the Indian Institute of Science, Indian Space and Research Organisation, Bhaba Atomic Research Centre, Indian Institutes of Technology and the universities need to be coopted. Furthermore, the private industry must be integrated and liberal govt funding and incentives given. Presently the allocation to DRDO is just 6% of the Defence Budget which is too inadequate and needs to be substantially enhanced.

As a comparison US has 12 % and China 20 % of their respective defence budgets for R & D and Israel has an annual allocation of $ 5 bn . The Govt needs to take a holistic view of the scientific and technology related research funding at the national level. The present research allocations are minuscule in comparison to other developed countries. Another area of major concern for the DRDO is the talent induction and its retention, as the DRDO is neither able to attract the best talent in the country nor retain the trained and experienced manpower which eventually gets picked up by the corporate world. Therefore, it is of utmost necessity for DRDO to have a strong base of scientific and engineering talent by having attractive financial packages and career incentives. The user interface of DRDO which is again a very important requisite is far too inadequate and even the secondment/ deputation of the Armed Forces Officers who form a vital source for user input is also too inadequate and even a large number of the sanctioned appointments lie vacant.

The preferred options should be the joint ventures, co production or co development and tie ups should be permitted between the foreign OEMs, private sector and the public sector. 

Technology Access. There are no two opinions on the issue that availability of the latest technology is crucial and a must for developing a modern, strong and robust defence industry. The type of technology that is available is not of the desired standards and is generally dated. The technology access, besides that developed by DRDO, has mostly been in the form of transfer of technology (ToT) by the foreign original equipment manufacturers (OEMs). However, it needs to be understood that, for technology access, ToT is not the best option as it has its own inherent limitations like not being upgraded to the next generation and the hard reality being that no OEM come what may will ever part with the complete technology and will keep back the critical part so as to ensure future dependency. It has also been experienced that the Ordnance Factories and the DPSUs have in majority of the cases not been able to either absorb the ToT satisfactorily or draw the intended pay offs; in a few cases the ToT based manufacturing had to be stopped due to recurring defects and the product imported from the OEM (the recent example being of 23 mm air defence ammunition) and in another case ie of 155mm Bofors Gun the ToT which was paid for and obtained from the OEM lapsed in 2001 without even being utilised by the Ordnance Factories.

The preferred options should be the joint ventures, co production or co development and tie ups should be permitted between the foreign OEMs, private sector and the public sector. The Govt needs to facilitate and assist the Indian private sector in acquiring technology from the foreign OEMs in whatever way possible, as the private sector companies are finding problems in allotment of field firing and proof ranges for undertaking test firing of the weapon systems developed by them as part of joint ventures with foreign OEMs. The case in point is of Bharat Forge which has set up a 155mm Artillery Gun manufacturing plant of German origin but has not been able to test fire its gun as yet for want of proof ranges which are under the control of DRDO and DGQA (Directorate General of Quality Assurance).

The TATA Group after a lot of delay and efforts has only recently got the allotment of proof ranges for the test firing of the 155mm Artillery Gun manufactured by them. Besides proof ranges, the other problem being faced is the availability of ammunition as it is extremely difficult, as also, not being cost effective to import ammunition just for test firing. The required quantity of ammunition should be made available from the existing stocks of the Armed Forces. India needs to aggressively make all out efforts in accessing technology like the way it has been done by China. In the case of China it is worth noting that China which till 2010 was the world’s largest arms importer has now become the 5th largest arms exporter in the world accounting for 6% share. China with the aim of achieving self reliance relentlessly pursued her efforts to acquire technology globally, undertook reverse engineering, went about hiring foreign talent/expertise irrespective of the high costs involved and ensuring large scale funding for the defence R & D.

A recent example of how China went about achieving air craft carrier building capability was by way of acquiring a decommissioned air craft carrier from Ukraine, refurbishing it in its shipbuilding yard in Dalian by employing Ukrainian Engineers and inducting it in the PLA-Navy as Liaoning and further embarking upon construction of five more air craft carriers.

India should leverage in establishing manufacturing hubs in India for reasons that these would be of great help in the development and modernisation of the Indian defence industry…

Opening up of the Defence Sector. The defence sector needs to be further opened up. The existing cap of 26% on the FDI should be raised to 74% so as to attract large foreign investment which has not been encouraging at all with the existing limit. The private sector, notwithstanding the Indian Explosives Act 1884, as a strategic consideration needs to be accorded dispensation so as to be permitted in the areas of ammunition and armaments manufacturing with a view to enhance the capacity, improve quality and expedite indigenous development in these areas which have serious criticality and have a direct bearing on the operational preparedness of the Armed Forces to take to war at short notice. The permission to the private sector in the manufacturing of armaments and ammunition is a dire necessity in view of the large shortfall in the capacity of Ordnance Factories and the DPSUs and it is not possible for these entities to enhance their capacities to the desired level. The Indian Explosives Act 1884 which is of a very old vintage and pre independence era needs to be amended and the required checks and balances can be built in to take care of the security concerns.

Leveraging the Dynamics of Defence Market. The Indian defence market is the largest in the world on account of India having the world’s third largest Armed Forces, operational commitments on its unresolved borders with two of its adversaries, being the world’s largest arms importer with 12% share and having the purchasing power with a four trillion dollar plus economy on PPP basis. Therefore, the Indian defence market is the most sought after by the global arms companies and the recent biennial Indian Defexpo the 8th edition of which was held from 06-09 February 2014 in New Delhi reflects the same with the participation of a large number of global arms companies and the numbers of which have been increasing substantially in every edition.

The aspect that is worth noting is that most of the global arms companies are major revenue earners for their national economies, have their respective states patronage and form part of a state umbrella organisation like Rosonboro Export (ROE) of Russia, STE of Ukraine, Beltech of Belarus, Boomar of Poland; Israel has abnormally a very large number of arms companies and all of which enjoy state patronage, have a very aggressive marketing strategy and are major revenue earners. The European and the US companies again follow aggressive marketing strategies. Russia accounts for about 70-75% of arms exports to India and the aspect to note is that India ends up paying the design and development costs in case of quite a few new generation weapon systems since Russia’s requirements post Cold War have reduced drastically and it is India which is a buyer for most of such weapon systems.

India has to create a strong defence R & D base for eventually developing technology on its own which is must for the development and sustenance of the Indian defence industry.

Two examples being Smerch Multi Barrel Rocket System and MBT T-90. The Smerch regiments with Russia are just two whereas India would eventually be having six to seven regiments. MBT T-90 regiments with Russia are six whereas India in due course would be having 22-25 regiments. Thus it can be seen that India is in an excellent position to leverage the dynamics of its defence market. India needs to learn from the way China was able to effectively leverage in accessing modern technology for its defence industry and thereby being able to transform from being the world’s largest arms importer to becoming the world’s 5th largest arms exporter. India needs to leverage in a way that the foreign OEMs are made to enter into joint ventures or co development agreements especially for projects related to the cutting edge and the latest generation technologies like the 5th Generation night vision devices which is the latest in the world and available with the US and France. Further, India should leverage in establishing manufacturing hubs in India for reasons that these would be of great help in the development and modernisation of the Indian defence industry, be more cost effective because of low manufacturing costs in India vis-à-vis the arms exporting countries and eventually achieving self reliance quickly.

Structural Reforms in Public Sector. Since Ordnance Factories and DPSUs form the main defence industrial base it is but logical to consider them as assets and make the optimum use of these entities by undertaking structural reforms to make them efficient and enable them to compete in a level playing field with the private sector. The Ordnance Factories have a very large and varied spectrum ranging from armaments, ammunition, vehicles, general stores and clothing. The Ordnance Factories should focus on having core competency in armaments, ammunition and combat platforms (tanks, ICVs and specialised vehicles). Other vehicles, general stores and clothing must be outsourced to the private sector. Modernisation of Ordnance Factories is a dire necessity and must be taken up on emergent basis. Certain DPSUs like BEML have diversified into multiple fields thereby diluting their core competencies. This trend needs to be stopped and instead the DPSUs must improve their core competencies. The Ordnance Factories and the DPSUs must be made to adopt the culture and the practices of the Corporate World and there must be accountability at all levels. The Govt must corporatize these entities, do away with the protectionist polices and make them generate their own revenue to sustain themselves.

Conclusion

The Indian Defence Industry needs to be developed into a modern, strong and a robust industry with the aim of achieving self reliance. This must be taken as a national commitment and considered as a vital national interest as it would be in conformity with the regional power status of India and her aspirations for a global power status by 2020-25. The key issue in the development of the Indian defence industry is the acquiring of the latest and cutting edge technology. The technology acquisition to be through the foreign OEMs irrespective of the cost and by enhanced funding of the country’s defence R & D and also overall scientific and technology related research activities. India has to create a strong defence R & D base for eventually developing technology on its own which is must for the development and sustenance of the Indian defence industry.