19 Apr , 2014
LCA Tejas
A National Aerospace Policy, that caters to the interests of all stakeholders, duly synchronised where necessary, is the need of the hour along with an Aeronautics Commission and a dedicated Department of Aerospace with other supporting organisations. The Commission, Department and other supporting bodies should be tasked with designing and realising scientific, technological and industrial targets. This proposal was first placed for a decision in 1994, and later modified and re-submitted in 2004. It is still gathering dust tied up in red tape and ignorance.
The bureaucracy insists upon determining what the Indian Armed Forces need or do not need…
India has been a casualty of self-imposed arms control that has placed significant constraints on its policy of deploying military power as an instrument of furthering its national objectives in a rapidly evolving geo-political milieu. There are many reasons that have contributed to this sorry state of affairs which have led to a stunted capability not corresponding to its status as a regional power and its aspirations of becoming a global power.
Many factors can identify a nation’s military, in the list of which its capacity for economic growth occupies the top ranking. Since independence, Indians have been trying to convince themselves and their neighbours that they are a peace-loving nation committed to the principle of ahimsa (non-violence), as propagated by the Father of the Nation. This has been reflected in maintaining the defence budget around a measly two per cent, always unenthusiastically granted, ever since independence. Having been increased briefly, it is now being threatened to be reduced once again, citing economic difficulties. As a result, the defence industrial wherewithal to provide the military the resources to protect the integrity of the nation, has also been found wanting, leading to dependence on imports from foreign nations rather than a march towards self-reliance.
The ideological mindset on defence and security issues, which has been viewing the so-called militarisation and the active role of the private sector in India’s defence production, is another factor for our reliance on imports. In India, the topic of defence is considered as a ‘holy cow’, to be spoken of in hushed tones and in total secrecy. The reason for such an attitude is probably the lack of strategic culture in the political class, or a forfeit of knowledge in defence matters, or a misplaced notion of security.
In addition, the bureaucracy, which exercises ‘civilian control’ over the defence forces by proxy, insists upon determining what the Indian Armed Forces need or do not need and where to buy the equipment from, going to the extent, at times, of even overruling the recommendations of experts from the military. This policy has led to a continued dependence on foreign suppliers while projecting an inflated indigenous capability of the defence related public sector industry.
India’s defence production sector, especially in the aerospace segment, leaves much to be desired…
Our first Prime Minister, Pandit Nehru, had visions of a socialist pattern of society in which public sector enterprises were expected to be the prime movers of the economy. This was applicable to defence production too. Whatever little production of military equipment that took place in the country was, therefore, entrusted to the Defence Public Sector Undertakings (DPSUs) and the Directorate General of Ordnance Factories (DGOF). In a conscious decision taken due to security paranoia, the private sector was kept out of defence production. The defence aerospace sector was no exception.
As it stands today, India’s defence production sector, especially in the aerospace segment, leaves much to be desired. The Indian aerospace industry, whatever we have, has been driven predominantly by military requirements with a smattering of small agricultural aircraft manufactured for a short period. The Hindustan Aeronautics Limited (HAL) has been the giant of the aviation industry in India, with a turnover of over of about $3 billion and with about 30 license production and a few indigenous aircraft to its credit. As per Shri S.K Mittal, General Manager, Business Development, HAL, the company has developed more than 2,000 tier-3 suppliers but not any in the tier-1 or 2 categories (SP’s Aviation, Issue 11, p29). Yet, with such figures, it has not been able to meet the requirements of the IAF, or else, the Air Force would not be having a public spat with it over the basic trainer, or the Air Force would not have ignored HAL capabilities and go shopping to foreign vendors for the new replacement for the Avro aircraft. The enduring love-hate relationship between IAF and HAL never seems to die!
Today HAL is the largest of aerospace companies in Asia, with the IAF as its ‘captured’ customer. Rather than move ahead with IAF, holding each other’s hand and promoting mutual support, the two agencies are forever locked in conflict. Rather than adding the Air Officer in charge Maintenance (AOM) from Air HQ, on its Board of Directors, it has removed the Deputy Chief of Air Staff, a long-standing member of the Board, and relegated him to the position of a permanent invitee! Notwithstanding its size, the HAL has not accomplished very much, though the Chairman may have different statistics to present (SP’s Aviation, Issue 10, p34). No aerospace company in the world today, worth its reputation, attempts to cover all aspects of aerospace activity, as HAL does. The technologies in the aerospace industry are so spread over a broad spectrum, that it is almost impossible for any company to be self-contained, irrespective of its size, it has to have cross-linkages to be vibrant, proficient and economical. Yet HAL attempts to do just the opposite.
Indian aerospace industry (read HAL) has been stuck in the comfort zone of ‘licence production’…
India saw some major contributions of science and technology in the three to four decades after independence; organisations, such as the CSIR, DRDO and ISRO, bolstered the march towards nation building. Notwithstanding the contributions, the Indian Armed Forces continued to depend on foreign countries to meet their needs for military hardware. Even after 66 years of gaining independence, the situation has not changed much; the Indian Army is now wanting to replace the indigenous INSAS rifle with one from a foreign vendor while the Air Force is looking to augment its operational and strategic capability with the purchase of aircraft from abroad.
The DPSU-bureaucratic combine has flourished since independence, so has the Indian demand and consequent dependence on foreign supply. The local industry’s capacity for arms production is limited to only 30 per cent of the demand. While the call for indigenisation has been getting stronger over the years, Indian aerospace industry (read HAL) has been stuck in the comfort zone of ‘licence production’ with the bureaucracy supporting it with the insistence of a clause of ‘Transfer of Technology’ (ToT) in almost every contract. Little does the bureaucracy realise that a ToT gets us only modern production techniques but does not help us in getting modern technology to assist in design and development. There is, therefore, a need for a change of policy to arrive at correct assessments and decisions across the spectrum of political leaders, bureaucrats and technocrats.
Direct import is the simplest and quickest way of meeting the requirements of the military. Such imports also keep the military perpetually tied down to the foreign supplier for a continuous supply of spares and upgrades. The Government of India (GoI) has been increasingly becoming aware of the bullying by the foreign governments and manufacturers; the disintegration of the Soviet Union brought home the lesson, when the military, especially the Air Force, equipped with Soviet-era hardware, up to 70 per cent, faced the problem of procuring spares for the maintenance of the equipment.
The only promising start in the aerospace sector is the Mahindra Group, which produces 30 aircraft each year…
Due to the continued inconsistent performance of the public sector, nurtured with protectionist policies, the GoI now wants to leverage the private sector’s technical expertise towards achieving self-sufficiency. The Science and Technology Policy, promulgated in 2001, aimed to refocus on administrative and management structures in the various departments; a relook of the policy in 2003 once again placed the emphasis on self-reliance, with an added focus on sustainable development and knowledge-based development. The mere acquisition of modern technology, however, without the appropriate levels of knowledge, could prove detrimental to genuine indigenous capabilities.
In an effort to prove its commitment to achieving self-reliance in defence production, both for strategic and economic reasons, the GoI unveiled its first ever Defence Production Policy in January 2011. The policy seeks to achieve self-reliance in the design, development and production of weapon systems and platforms by creating conducive conditions for the private industry as well as broadening the defence R & D base within the country. The salient features of the policy are:
Preferences will be accorded to indigenous production. Import will be the second option. In case of import, the urgency of procurement will be considered against the time that will be taken in local development and production.
Weapons and platforms required ten years or more down the line, will be developed in the country. Subsystems, however, may be imported.
Indigenisation will be promoted through consortiums, joint ventures and public-private partnerships.
The “Make” category in the DPP will be simplified. The option to “Buy” shall be for the initial necessary numbers only.
Remaining constantly on the receiving end and with a view to promote indigenisation, the GoI opened up its defence industry in 2001, up to 100 per cent for the private sector and up to 26 per cent through Foreign Direct Investment (FDI), but both subject to licensing. The decision to permit the private sector in the exclusive domain of the state-controlled DPSUs was considered as a major breakthrough, with expectations of ushering the indigenous industry into an era of high technology. The excitement and enthusiasm in the boardrooms of many a corporate house has since diminished in the ensuing thirteen years, primarily due to the slow pace of development on FDI.
Aerospace industry is a high-technology and high-risk industry, which translates in to high costs…
The infusion of modern technologies has not occurred as the foreign companies are hardly enthused by the limit of 26 per cent. The private industry has been insisting on an increase in the FDI limit to at least 49 per cent, if not more, with other incentives, but the GoI continues to be wary about it. The Minister for Defence Equipment, Support and Technology, UK, Mr Phillip Dunne, has even gone on record to say, “a higher FDI limit would certainly encourage investment….a genuine joint venture is 50:50 and joint ventures are good ways of doing business.” (Force, Oct 2013, p56)
With defence production gradually opening up to the private enterprises, many large corporate houses such as the Tata Group, the Mahindra Group, the Kirloskar Brothers Ltd, Larsen and Toubro Ltd and a few others, have evinced interest. The private sector is no longer content with its role as supplier of raw material or semi-finished products. Today, it aspires for greater participation in defence production. The private entrepreneurs, however, also expect a steady stream of orders and a production policy with no ambiguities or conjectures, and nothing to be read between the lines. They are looking for a level playing field in comparison to the DPSUs, but the prolonged period for which the private sector has been kept out has impacted its ability to start operating at a competitive level.
The only promising start in the aerospace sector is the Mahindra Group, which produces 30 aircraft each year at its manufacturing facility in Australia; Mahindra Aerospace acquired an Australian aircraft making company and another spare parts manufacturing company. The Group currently sells only one type – an eight-seater aircraft – and is now looking forward to market its five, ten and 18-seater aircraft in another three years. The production rate is expected to rise to 40-50 aircraft once the new aircraft start rolling out; it has another assembling unit in USA that assembles ten aircraft per year.
While India boasts of the largest aerospace industry in Asia, it has no vision or strategy to lead it.
Compare this with the progress of the new transport aircraft that HAL is supposed to be building from scratch, in collaboration with the Russians. This writer has no knowledge if the aircraft is off the drawing board, even after HAL singing its own praises for the last decade. On the other hand, the Defence Minister has asked for a ‘relook’ at the terms and conditions of the Request for Proposal (RFP) for the replacement of the IAF’s fleet of Avro aircraft and delayed the submission for the proposals by three months. This has been done on receipt of a letter from another Minister probably because HAL felt slighted at not being included in the list of vendors for the RFP and is now trying for a back-door entry.
As per SIPRI, India has the dubious distinction of being the largest importer of weapons in the world in 2012. It has also estimated that in the next ten years, India would be spending over $100 billion for import of military hardware. No small wonder as the private sector currently contributes only nine per cent of the total 30 per cent of the indigenous production.
So how does India energise indigenous production in the defence sector, especially energising the aerospace industry to cater to its civil and military needs? Aerospace industry is a high-technology and high-risk industry, which translates in to high costs. The GoI has to change its mindset and go about providing the private players with a level playing field. It is not just sufficient to give the permits; it has to be followed up with concrete action.
The DPSUs have held a monopoly in aerospace equipment manufacture for years, charging exorbitant rates for poor quality. Today the time has arrived to take the private sector as a partner with similar generous financial and technical support, for leaving them entirely on its own will be detrimental to the entire aerospace industry and the nation. The management and organisation of the entire aerospace industry needs a relook.
The current economic gloom cannot obscure the enduring growth trend of India’s economy…
A National Aerospace Policy, that caters to the interests of all stakeholders, duly synchronised where necessary, is the need of the hour along with an Aeronautics Commission and a dedicated Department of Aerospace with other supporting organisations. The Commission, Department and other supporting bodies should be tasked with designing and realising scientific, technological and industrial targets. This proposal was first placed for a decision in 1994, and later modified and re-submitted in 2004. It is still gathering dust tied up in red tape and ignorance.
There is a debate within the country’s experts on future product directions; some believe in the achievement of full capability to design, develop and produce a platform, while others argue that the aerospace industry should concentrate only on certain niche areas in collaboration with foreign expertise. Considering that our nation has been deprived of state-of-the-art technology, for whatever reasons, Joint Ventures (JVs) and Public-Private Partnerships (PPP) seem to be the path to be taken. The GoI should encourage this path and not place obstacles with riders such as, “within the Government approved framework”. One acknowledges the continued dependence on imports and foreign technology for some time, but hopefully the path to autonomy and self-reliance would have opened.
While India boasts of the largest aerospace industry in Asia, it has no vision or strategy to lead it. The industry (read HAL) seems content with the existing low technology and claiming credit points for license manufactures. International companies are also quite content with such a situation in India, as any development of the aerospace industry would be a competitor to them. Permitting a foreign vendor to choose a partner in the private or public sector for a joint venture, is all very well, but we need to be sure-footed and capable ourselves with a clear national vision and an aerospace policy before we try such departures as mentioned in the DPP of 2013.
The reason for being chary is the dependence on procedures, rather than on a policy, has its pitfalls. Procedures are mere actions and processes to execute policies and can easily be modified to suit whims and fancies. Policies, on the other hand, are based on vision, and have long-term objectives, hence the need for a National Aerospace Strategy.
The aerospace sector, military and civil, has bright prospects as the demand for air travel…
The latest version of the DPP, issued in April 2013, contains clauses to promote indigenisation and push back foreign procurements in a bid to curb corruption through the lobbying by foreign vendors and their agents. While the intention is noble, it needs to be understood that indigenisation in the aerospace industry cannot be pushed with just this desire to rein in bribery and dishonesty. What it needs is dynamism and a well-calibrated strategy. The challenge is not unique to India, but is a global phenomenon; there is the need for a distinctive structure for doing business in this sensitive sector, fine-tuned between free markets on the one hand and State control on the other.
The current economic gloom cannot obscure the enduring growth trend of India’s economy. The GoI, the aerospace industry and all those connected with defence procurement and production, need to have a long-term vision. Globally, India represents the most vibrant defence business environment due to the urgency to modernise its Armed Forces. Notwithstanding the reforms announced over the years, indigenisation in the aerospace industry is suffering because of the lack of modern technology. The restriction of 26 per cent in FDI needs to be increased to 49 per cent, if not more, to ensure the infusion of state-of-the-art technologies. The private sector should be encouraged with the necessary incentives and handholding by the GoI, to participate in JVs and PPP; Mahindra Aerospace has shown the way, the others need to follow. The vast existing infrastructure of R&D with the DRDO should be made available to the private sector; consultations with the scientific community and the academicians are also a part of technology absorption. Non-performing DPSUs should be corporatised, either in totality or partially. Performing DPSUs should be made to understand the benefits of collaborating with the private sector, rather than always be in competition to it.
The aerospace sector, military and civil, has bright prospects as the demand for air travel and military aircraft will not dwindle but only increase in the coming decades. The industry – defence and civil – needs to be energised with a combination of new technology, new policies and no riders. Changes have been introduced; they should be followed without fear of failure – or else we are doomed to a lifetime of dependence on imports.
Air Marshal Dhiraj Kukreja, former Air Officer Commanding in Chief of Training Command
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