According to a recent report by Stockholm-based Sipri, India’s import of arms decreased by 33% between 2011-15 and 2016-20. The reason for the decline has been a combination of a convoluted procurement process and an aggressive attempt by the Government of India to reduce its dependence on Russian arms. While India’s defence import bill appears to have come down significantly, on the contrary India is planning large-scale arms imports in the coming years from several suppliers.
India will soon be placing an order for 30 armed MQ-9B SkyGuardian/SeaGuardian class drones for keeping an eye on China, Pakistan and the Indian Ocean. The drones are going to add a significant persistent surveillance and deterrence capability to the Indian military and at the same time kill or make redundant the domestic DRDO Rustom program? No end-user would want the Rustom when the SkyGuardian/SeaGuardian or an upgraded Heron is available.. Consequently the private sector companies will have little room to operate in the development of higher classes of UAV in the near future?
Time and again we see the Ministry of Defence usher in policies with the sole aim of import substitution by promoting indigenous defence manufacturing. Yet our military planners end up placing gargantuan orders that result in leveling out the very process of import substitution.
The second negative import arms list, which is likely to be out by the year end, should include an import ban on UAVs up to the tactical class to leave some room for the vibrant private sector UAV companies engaged in innovation and R&D, that would like to move up the weight class. The ban should extend to unmanned systems in water and land as well. AI based unmanned systems are the future of warfare and diluting this space via imports will not be justified. The private sector will not burn cash on developing local technologies in the absence of a level-playing field.
Last month, Prime Minister Narendra Modi and Defence Minister Rajnath Singh in an event organised by CII and the Society of Indian Defence Manufacturers (SIDM) assured the nation that India will soon become a major exporter of defence equipment. To this effect the Government of India has been aggressively pursuing procurement of defence items from local industry and to this effect the Ministry of Defence has assured a revised list of items that cannot be procured from foreign manufacturers. Nearly Rs 70,000 crore will be reserved for capital procurement from domestic industries. This is perhaps the single most defining moment for the local aerospace and defence (A&D) industry as it gives a clear path to procurement in money terms.
On March 9, 2021, Minister of State for Defence Shripad Naik in a written reply to a question in the Rajya Sabha said, “So far, FDI inflows of about Rs 4,191 crore have been reported by companies operating in defence and aerospace sector in the country.” This is although a far cry from the billions of dollars in FDI inflow envisaged in the A&D sector, but FDI inflow has certainly come a long way from a meagre $5 million over the last decade.
As on date, FDI approvals have been given to 44 companies including DPSUs, for joint ventures or co-production of various defence items. While there has been a huge push by the government for local procurement, the FDI limit has also been raised from 49% to 74% making it easier for foreign OEMs to either set up shop or invest into Indian companies. It is for the first time in over a decade, since the privatization of the Indian defence sector, it seems as though the policy for local procurement is not just about providing lip service in events, but has become a diligent policy imperative.
One has to remember that there is a significant difference between local procurement and real indigenisation. In house research, design and development of products by the defence sector industry is still a work in progress. The development and the induction of the LCA and now the LCH are two of the most significant achievements of the Indian defence industry in terms of putting out relevant indigenous high quality products.
The Indian defence industry is yet to reach a tipping point where it is able to design and develop combat systems in a given time frame. There is enough brouhaha generated when a company puts out defence products as a result of a joint venture or co-production arrangement. While the deal pays for employment and a feel good factor of ‘make in India’, it does very little in terms of technology gain or being able to manufacture a similar product once the license reaches its expiry date.
R&D activity in the defence sector is controlled and literally owned by the DRDO. Private sector for the present stays miles away from real R&D work due to its low risk and higher profit mentality. R&D work is generally time-consuming and a cash burning exercise. Core R&D technologies never become a part of technology transfer as time and again claimed by OEMs who entice our MoD bureaucrats while pitching their products. In most cases, core R&D work is done and owned by a plethora of large, mid-and small-size companies in a particular country, which in turn are protected by their local laws. No government can claim a complete transfer of technology (ToT) on their behalf while negotiating a government-to-government (G2G) deal etc.
Large Indian companies that have the funds and resources tend to go in for JVs or a co-production arrangement with OEMs, essentially where the scope for R&D work is nil. As for the MSMEs, some of whom are engaged in the R&D of core technologies, they find it hard to survive in a culture of JV and licensed productions as it is cheaper for the systems integrator to acquire technology via this route. In fact, large private sector groups even shy away from adopting products developed in-house by the likes of NAL (National Aerospace Laboratories) as it would entail setting up R&D houses to bring the product up to their higher technology readiness levels.
To its credit, the Ministry of Defence has been engaged in a series of policy initiatives to make life easier for the Indian defence sector companies, but the time has come to evaluate policies and set time limits for ineffective policy measures to be done away with. The failure of the Indian defence offset policy is a case in point that in spite of multiple iterations, failed to generate compliance from OEMs that were legally bound to discharge the offset obligations. R&D objectives and policies should not be any different.
Ongoing DRDO projects stand at $ 7.3 billion. An organisation that is endowed with this level of public money and trust must put in place mechanisms that closely monitor the successes and failure of its R&D objectives. The demands of the warfighter are based on what the enemy has or is expected to have. This gap in demand and expectation has led to the huge surge in imports of defence equipment.
India can learn a lesson or two from the likes of Turkey, China and the UAE, all recent entrants in the defence sector and are now exporting high quality weapons systems across the globe. The MoD must evolve a mechanism to measure the impact of its policies initiatives and whether its programs are delivering the right activities for the desired outcomes. Its monitoring and evaluation framework can be based on the “Theory of Change”, where the impact can be measured in terms of a real drop in import of defence equipment and greater participation of domestic industries. If the impact is not producing the right results then in that case either the inputs in programs have to change or the policies have to be tweaked or discarded. If India has to be a true strategic power, it has to focus on weapons platforms that are ‘made in India’ for which it will have to find its own success model in R&D.
–The writer is Chief Business Officer of the Andhra Pradesh Aerospace and Defence Electronics Park, a mentor at the Atal Incubation Centre and Strategic Advisor to Kadet Defence Systems
