The last three years have seen considerable push being given to indigenous production by the government with some bold policy initiatives, the foremost of which was the phased embargo on the import of more than 400 categories of defence equipment or components. Earmarking funds in the defence budget for procurement from domestic manufacturers was another significant step towards revving up self-reliant defence manufacturing. The embargo must have been based on the level of confidence or overconfidence of the DRDO – the major developer of defence technology in the country – or the manufacturing capability in the public or private sector.
Recent press reports on the CAG’s audit of the DRDO projects are disturbing and points to the risks involved in putting all the eggs in the DRDO basket. The CAG has brought to light inordinate delays in completing projects and ‘productionising’ new proto types leading to time and cost overruns. Such underperformance by the nation’s premier R&D agency should remind the government that the assumptions underlying the embargo could go wrong and that the country’s transition to self-reliance cannot be entirely left to the DRDO. The private sector has to be an equal partner in R&D to accelerate product development. The government’s decision to earmark 25% of defence research funds for the private sector could not have come too soon. On the other hand, in the current security environment, there is a strong case for increasing this share to 50% to bridge technology gaps and catalyse domestic production. The government needs to take a cue from the CAG’s findings and evaluate the impact of the embargo on defence production in the private sector before introducing further embargoes.
The same logic applies to production too. There is absolutely no doubt that the defence public sector undertakings (DPSUs) have been the main beneficiaries of the new thrust on domestic production. Many of them are becoming blue chips in the share market. This is hardly surprising given the ready preference of the defence bureaucracy for the DPSUs. But there are still no apparent signs of the private sector making breakthroughs in manufacturing in key technology areas. One exception is the Tata Airbus project for manufacturing the C-295 light transport aircraft. While this could be termed a success in locating a technology-intensive aerospace production unit within the country, its impact on technology transfer is uncertain. It is more than possible that the line replacement units (LRUs) and other key components of this equipment are likely to be sourced from the existing suppliers of the OEM for the assembly of the aircraft. Unless the OEM decides to source critical components from the domestic market, the project’s impact may not be significant. For this to happen, the government will have to support this project with long-term orders, which could spur product development and large-scale indigenisation of the components.
One such project alone cannot bring about the manufacturing revolution we are looking forward to. We need several projects of this kind to impart sufficient momentum to creating the MSME ecosystem. This cannot be achieved by companies simply shifting their manufacturing plants to India. There must be strategic partnerships between the private sector and the OEMs for all major defence platforms leading to the horizontal expansion of the production base. Defence manufacturing has to attain some critical mass to attract the MSMEs, which alone can create the ecosystem that catalyses innovation and R&D. The good progress of Innovation for Defence Excellence (iDEX) under the Defence Innovation Organisation (DIO) of the Ministry of Defence (MoD) demonstrates the great potential that lies underutilised within the country for lack of a vibrant ecosystem.
What is disappointing is the failure of many planned projects to take off. The MoU between India and Russia for manufacturing the Kamov 226T helicopter has failed to materialise because of the lack of flexibility on both sides in negotiating technology transfer. This project originally envisaged a partnership between Russian companies and the private sector as the second line of helicopter production to be an alternative to HAL. The three services need utility helicopters in hundreds. The phasing out of the Cheetah and Chetak helicopters will worsen the situation. India’s defence partnership with Russia was entirely through the public sector, but the indigenisation of the equipment through the private sector was utterly neglected. Hundreds of aero engines were manufactured, but we were not resourceful enough to reverse-engineer one. Our current struggle to make headway in developing an indigenous aero engine could be easily attributed to the failure of our R&D and sheer lack of vision. The DPSUs’ failure was Russia’s gain because the country became heavily dependent on Russia for critical components, leading to the poor serviceability of equipment. Russian companies would rather have a cosy relationship with the DPSUs than get into partnership with the private sector in India. This was the main reason for Russia’s preference for HAL as its partner in the Ka-226 project. HAL, well on the way to developing its own utility helicopter, had no reason to be enthusiastic to make this project a success. The shortage of utility helicopters will not be made good any sooner, even after HAL’s product has entered the production phase. HAL’s ability to ramp up production substantially to increase the speed of delivery needs to be demonstrated.
The strategic partnership (SP) policy meant for productive partnerships between the private sector and the OEMs also seems to face rough weather, as evident from recent experience. Such partnerships are essential for the gradual transition to self-reliance, given the failure of the offset policy to make any significant impact and the sputtering R&D machinery of the country. The policy was a determined effort to make technology transfer possible in an environment where OEMs are hesitant to transfer defence technology. They are unwilling to hand over complete control to their private sector partner and be simultaneously responsible for the quality of the manufactured product. Recently, the Swedish defence company SAAB ended its partnership with the Adani Group perhaps to seek a 74% stake if their aircraft Gripen E wins the IAF project for 114 fighter aircraft. Adopting a rigid approach is not going to deliver results. The MoD has to be imaginative and pragmatic in nurturing such projects. The policy must be reviewed thoroughly and amended suitably to make it work. The failure of the SP policy will only encourage shortcuts like inviting OEMs to manufacture in India on their own. Such a provision has already found its way into the Defence Acquisition Policy. Similarly, the laudable decision to fund defence R&D in the private sector will falter if the acquisition procedures are not streamlined to facilitate the ‘productising’ of the technologies and procuring them from the private sector manufacturer. It is also necessary to lay down robust IPR agreements to safeguard government interests while funding the private sector.
Therefore, the MoD has to make both the P75I submarine and the fighter aircraft projects work not by abandoning the SP policy for shortcuts but by tweaking it sufficiently to make the projects happen. Strong Indian partners, as in the C-295 project, could make a difference even if they have a minority stake because such projects are bound to unleash tremendous entrepreneurial energy and innovation in the long run.
–The writer is a former Defence Secretary. The views expressed are of the writer and do not necessarily reflect the views of Raksha Anirveda