The currently ongoing Aero- india 2023 show in Bangluru has not only showcased the prowess of india in aero and aero- space domain but it has also given an opportunity to look at the defence manufacturing in India afresh. Defence minister’s conclave conducted on the sidelines of this event on 14 Feb 23 was attended by close to 80 countries through their representatives one way or the other. It is indicative of the fact that almost close to half of the world was represented. This is not only unusual but it is also indicative of the fact that the world has started believing in the Indian story of growth and development wherein the defence manufacturing has started taking the centre stage.
This approach has not developed overnight but has a distinctive history which needs to be looked into. In fact, this starts with the announcement of ‘Make In India’ on 25 Sep 2014 just within four months of current Prime Minister assuming office on 26 May 2014. Make in india has been a very ambitious project and focussed on development,manufacturing and assembling of all products in India opening a great opportunity to foreign manufacturers as well. It targeted 12-14 % of per annum growth in the manufacturing sector, millions of jobs and increasing the share in India’s GDP to 25% by the year 2022(Now revised to 2025). While none of these targets have been achieved by now but the country has made substantial progress in the field of manufacturing. In addition to these numerical targets, ‘Make In India’ also focussed on 25 specific sectors which included five sectors closely related to the defence manufacturing in India. These were Aviation, Defence manufacturing, Defence exports, electronic systems and Space & astronomy thus occupying 20% of sectoral coverage. Defence manufacturing did not progress in the desired manner with ‘Make In India’ as there was lack of skilled labour which was being experienced by the foreign as well as indian domestic defence manufacturers. The Government realised this skill deficiency and within less than a year of launch of ‘Make In India’ , launched ‘Skill India’ at the national level on 15 july 2015. While both ‘Make In India’ as well as ‘Skill India’ have to be given qualitative course correction from time to time, much higher and complex challenges impacted the nation when these changes were taking shape..
The new challenges included worldwide COVID-19 outbreak when the first case was reported in India in Jan 2020. This was followed by announcement of first lockdown on 25 Mar 20 which was followed by multiple lockdowns. Besides having devastating and unparallelled negative impacts the world over, India also suffered substantially with deaths,miseries , job losses and deprivation all over. As it was not enough, China made transgressions on the Line of Actual Control(LAC) in Eastern Ladakh in Apr- May 20 with stand off being reported in the first week of May 20. It was at this juncture wherein Indian Government formally announced the concept of ‘Atma Nirbhar Bharat’ on 12 May 2020 as it realised that it cannot handle the national challenges without being self reliant in all the domains. While supply chain disruptions catalysed the need for being self reliant in all the aspects, the Chinese transgressions necessitated the need of indigenization of the defence forces and propelling the defence manufacturing in India to a new level.
There have been notable changes in the ecosystemof defence manufacturing in India since then. Some of the notable changes are covered in brief as under:
- Ease of Doing Business- Regulatory mechanisms have been eased out. An attempt has been made for single window clearance to the extent possible. Licensing has been simplified besides these being issued for long tenures. There has been a substantial upward rise in the concerned index for India in the world.
- Defence Industrial Corridors- Two defence industrial corridors were announced (one in UP and the other in Tamilnadu) in the Budget 2018-19. Though the full operationalisation is yet to take place as close to two years of Covid -19 impacted the progress but these have gained momentum now to give the desired impetus to the defence manufacturing.
- Enhanced Allocation for Research and Development (R&D) – There has been increased allocation for the R & D budget year after year. In addition to this,the private sector is also being supported for this effort through IDEX(Innovations for Defence Excellence) and TDF(Technology Development Fund).
- Encouragement to the Private Sector- This is the biggest change wherein enhanced role is being given to the Private Sector which has resulted in large and big business houses to take a plunge in the defence manufacturing sector. All the major business houses are actively participating in the defence manufacturing be it land systems, ship building or aircraft/ helicopter manufacturing. In addition to being given equal playing field, multiple old barriers are being broken and trust deficit in the private sector has been removed which was a major barrier in the name of security for the defence manufacturing.
- Leveraging the Transfer of Technology (TOT) and Defence Facilities for Testing- There have been certain cases post Indepence where licensed production of certain imported defence equipment has been allowed in the country. In addition, TOTs have also been taken in some cases with notable increases in the last two years. These are being made available to the Private Sector though process simplification is needed. In addition testing facilities and range of the Defence forces are being made available to the private sector thus facilitating the defence manufacturing in india.
- Four Positive Indigenisation Lists – The Government of India (GOI) has taken out four positive indigenisation lists covering more than 400 items. While the first two lists cover the time span of four years each, third and fourth list cover the time span of five years and 10 years respectively. With this ban alone, an opportunity of over two lakh crores will come up in two years and four to five lakh crores in 4-5 years. This is a very big incentive for defence manufacturing in India.
- Priority procurement from Domestic Industries- It has been made incumbent to procure 68% item in terms of value from the domestic industry. Though its further upward was expected in the budget on 01 feb 23 but it was not changed. GOI is now changing it upwards to 75% without linking this with the budget. This will give a further boost to the domestic defence manufacturers besides MSME industries as well.
- Defence Export – In addition to indigenisation of the equipment for own defence forces, the country is focussing on the defence exports as well which will also act as a big catalyst for defence manufacturing. Year after year targets are largely being achieved with target of Rs 25000 Cr set for year 2025.
The above are some of the steps to make defence manufacturing in India as an attractive destination for foreign OEMs and best business avenue for the domestic industry. In addition to the above, GOI has taken multiple steps to make it further attractive but there are ‘miles to go’ before a fuly vibrant ecosystem takes shape. Some of the areas needing urgent attention are as under:
- Whitehall Filing System- Lord Whitehall had started this system for documenting the process of doing government activities. With the passage of time, GOI not only adopted this, it is following this to the hilt. In the implementation now, the ‘process’ has become more important than the ‘product’. It is due to this approach that Defence Acquisition Procedure (DAP) 2020 has become 681 pages which was less than its half of the size in its initial version. This should be changed and result in DAP in the form of guidelines alone wherein decision makers are vested with both- authority as well as responsibility.
- Collegium System of Decision Making – While this does exist to some extent but has to be a basic norm of defence procurement if unintended roadblocks have to be addressed.
- Translator for Positive Indigenisation Lists- While the PSU responsible for each item is mentioned in these lists but the specifications of each item to be indigenised are required to be attached. If it is not intended for security reasons or for any other considerations, at least the name of nodal officer and contact details need to be included in these lists even if it is repetitive in certain cases.it will assist the manufacturers to contact, get details and get going. More support is needed in the executive domain for the defence manufacturers.
- Multiplicity in Vendor Registration- This needs to be simplified. A single registration on GEM (Government E-Marketplace) portal should suffice the need for all the vendors for meeting vendor registration requirements for all the buyers. GEM registration and requisite data fields can be modified accordingly.
- Singular Portal- While the Government is making all out efforts to popularise GEM, it should be the single platform for all processes related to the procurement. All tenders must be open tenders even if they have to be responded to in the ‘limited’ or ‘single’ tender format.
- Long Term Contracts- Unlike FMCG and other products, defence products are always invariably purchased by the government agencies. The government has to balance its need with a nurturing role for the domestic defence industry wherein long term contracts have to be awarded. These could be for five, 10 years or till the entire life cycle of the equipment. This is most critical for the MSME sector else it will not be possible for them to sustain as they cannot afford higher sunk costs. Long term contracts are being adopted by the USA more so now due to supply chain and logistical disruptions and India should also focus on this aspect.
- Leveraging the Defence Veterans- There are a large number of defence veterans with high skill sets which can give substantial value to the domestic as well as foreign defence manufacturers in India and abroad. They can bring in user needs as well as technical skill sets.This needs to be institutionalised as against being left as an individual option.
- Leveraging the Defence Attaches/ Embassies- While some work has been done in this field, a lot more needs to be done. Defence attaches should be posted in every country in the world. They should be given the clear mandate as to how they can enhance defence export in the countries to which they are posted. They should extend this support to PSUs as well as private sector alike. While there has been substantial increase in the defence business in SE asian nations, our success is limited and needs to be further improved.
- India as MRO Hub: Maintain in India- Its high time that ‘Maintain In India’ is formally declared as a complementary effort to ‘Make In India’. India has huge potential in this field and it can make substantial contribution in the Comprehensive National Power (CNP) of the country being the low hanging fruit.
The above are some of the suggestions just to illustrate the issue but there are many more. The writing is there on the ‘wall’. In case we wish to change defence manufacturing in India , we need to do things differently including changing the current method of defence audits as well as quality accreditations . Third party quality audit and Indian standards in each field are long overdue. Process simplification and out of box approach need to be adopted and to be adopted fast.
This article by me was first published in Sunday Guardian.
