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Cover Feature

Published on: Aug. 24, 2020, 2:40 p.m.
Gunning for self-reliance
  • A Brahmos launcher at the Republic day parade. Source: PIB

By Rakesh Joshi. Executive Editor, Business India

Among the most recognisable firearms in the world are the Uzi submachine gun and the AK-47 assault rifle. Exported to countries all over the world and used by diverse militaries and law enforcement agencies, not to forget criminal gangs, these weapons are identified with Israeli and Soviet capabilities in defence manufacturing.

In fact, the export of Uzi to almost 90 countries is said to have fuelled the growth of the Israeli arms industry once. As for the AK-47s, it has been estimated that some 100 million may have been produced – fully half of them outside Russia, and many of those under expired Soviet-era licences or no licence at all. Similarly, the United States and other western countries have their own iconic firearms and killer weapon systems to boast of. These find a ready market anywhere in the world.

Yet India, despite its size and capabilities, has little to talk about as a quality manufacturer, much less exporter, of arms.

The recent decision by the ministry of defence (MoD) to push an import embargo for 101 military items to boost indigenisation of defence production appears to have enthused our private sector and stock markets. The government claims to have a roadmap ready to boost exports on indigenously-manufactured weapon systems. “We are already working on a second negative list, while inviting the Indian industry to invest and explore opportunities in the sector,” says Raj Kumar, secretary, defence production, promising a mechanism for “the handholding of domestic industry” to ensure that the embargoed items are produced at home. Moreover, the new draft defence production and export promotion policy (DPEPP) sets an ambitious Rs35,000 crore ($5 billion) in aerospace and defence goods and services by 2025.

  • The import embargo, according to defence minister Rajnath Singh, would be progressively implemented between 2020 and 2024

Considering that India was the second-largest importer of arms after Saudi Arabia in 2015-19, according to International Peace Research Institute, a Stockholm-based think-tank, this is big news. The push to indigenous defence manufacturing is in tune with Prime Minister Narendra Modi’s call for an ‘Atmanirbhar Bharat’ (Self-Reliant India). So it has for all practical purposes “blessings from the top”. However, as similar targets have been set by this government before and remained unmet, the question being asked is: will the bang again end in a whimper? Or, will India have its Uzi moment now?
The Rs5 trillion outgo

The import embargo, according to defence minister Rajnath Singh, would be progressively implemented between 2020 and 2024 for a vast array of weapon systems like Artillery Guns, Assault Rifles, Corvettes, Light Combat Helicopters, Transport Aircraft, Radars & Sonars, amongst others. In the last five years, according to one estimate, India spent Rs3.5 trillion on import of these items.

Under the new scheme of things, these weapon systems would henceforth be bought from Indian private sector players or the nine Defence Public Sector Undertakings (DPSUs). Officials say that while strengthening domestic defence industries, these moves will help in creating a seamless demand-supply mechanism free of the usual procurement snafus and delays. Yet the sad irony is that this is the same government which had in the 2019-2020 budget given a customs duty waiver for arms import.

In the past, India’s defence capabilities have been hobbled by an inefficient defence procurement system marked by wild cost escalations and a state-owned military industrial complex where slipped project schedules and missed performance parameters in development are the norm. It took more than 40 years of plodding by Hindustan Aeronautics Limited for the Light Combat Aircraft to get airborne. (Even now the LCA Tejas does not have an indigenous engine and depends on General Electric for one.)

  • Kumar: ‘working on a second negative list’

    Kumar: ‘working on a second negative list’

The failure of the INSAS (Indian small arms system) rifle, once the standard weapon of our armed forces produced by our ordnance factories, is the stuff of which only nightmares are made. Nobody credits India as a nation capable of producing weapons with cutting edge technology. Perhaps, the only notable exception is in the area of missiles. The result is that not one Indian defence manufacturing company figures in the list of the top ten global defence companies. Hindustan Aeronautics Limited is 35th on the top 100 list.

As for our defence procurement from abroad, a major procurement scheme takes three to five years to reach the contracting stage after its initiation. Foreign Military Sales of the US and other forms of government-to-government deals take much less time to fructify, but even these are difficult to conclude within a span of one year. As a result, even well-intentioned plans to modernise get undermined.

Then there is the bureaucratic foot-dragging. India recently celebrated the successful test-firing of Pinaka rockets fully manufactured for the first time by a private sector company, Economic Explosives Ltd, signalling the end of single-source dependency on ordnance factory board (OFB). The rockets were manufactured under a technology transfer arrangement with Defence Research and Development Organisation (DRDO).

The Pinaka multi-barrel rocket technology was transferred five years ago, with a decision taken to split further orders evenly with OFB. The army has a large requirement for rockets of this class, which is pegged at over 1,000 units annually. However, the shocking part is that an order for supplying launchers for the rockets to be made by L&T and Tata Aerospace and Defence has been “under process” since 2017.

So will the new order change anything? Private players, worried at the prospect of emergency procurements from abroad even after they have made capital investments, now want concrete assurances from the government before they step up to the challenge so that they are not left high and dry. “A five-year procurement plan should be clearly defined,” suggests Vipin Sondhi, MD, Ashok Leyland, one of the largest providers of logistics vehicles to the armed forces.

  • India recently celebrated the successful test-firing of Pinaka rockets fully manufactured for the first time by a private sector company, Economic Explosives

Government officials say that a seeming paradox of present state of defence manufacturing in India is that the private sector is doing well when it comes to exports and badly when it comes to catering to domestic military demand. V.L. Kantha Rao, additional secretary, Department of Defence Production, speaking at the Lockheed Martin – Society of Indian Defence Manufacturers’ suppliers conference recently, revealed, “Government companies did $100 million exports last year; the private sector 10 times, over a $1 billion, last year.” However, when it came to overall defence manufacturing, the major share was with the public sector, which accounted for about $8 billion. The private sector did around $2 billion.

The increase in exports by the private sector is a result of major defence companies like Lockheed Martin, Boeing, Thales and Dassault Aviation increasingly sourcing components from India for their global supply chains. For instance, all C-130 transport aircraft manufactured by Lockheed Martin have components sourced from their joint venture with Tata group in Hyderabad.

Should one rejoice? The development only underlines that private defence manufacturing in India is largely sub-contracting. One can’t really apportion blame to the private sector for that. If private players haven’t done well at home, it is because their avenues were effectively blocked all along. If our DPSUs cannot rise to standards set by foreign buyers, then surely there is something wrong with them.
Reliance on foreign

India’s abject reliance on foreign suppliers got highlighted recently when the ministry of home affairs under Amit Shah called a meeting with private companies to locally manufacture the small arms used by Central Armed Police Forces. These arms were earlier imported from foreign arms manufacturers. Seventeen Indian companies which were called for discussions, including Kalyani Strategic, L&T and Godrej, had licences to manufacture small arms. “It is only now that the security forces have been asked to provide their requirement and to cut down on the import of arms and ammunitions which can be easily developed with the help of local manufacturers,” a home ministry official disclosed.

  • Mazagon Docks and L&T are capable of building Scorpene class submarines. Photo courtesy: BCCL, Economic Times

Seventy-three years after independence, India’s defence manufacturing is still stuck in the nascent stage, thanks to the monopoly of the public sector. Post-independence, the government led by Jawaharlal Nehru restricted entry of private players in strategic sectors like defence equipment manufacturing, and the meagre resources went to the DPSUs, the DRDO, and OFBs which struggled to get major technology breakthroughs.

In terms of technology acquisition, Pakistan and China have been a step ahead of India. Pakistan initially had the benefit of British technology because it was a member of CENTO (Central Treaty Organisation, set up in 1955-79 to prevent Communist incursions in the Middle East) and later American largesse, thanks to the Soviet occupation of Afghanistan and later the war against terror. The United States gave Pakistan the first high performance jet aircraft, including F-86 Sabres and 12 F-104 interceptors and hundreds of World War I and Korean War vintage tanks. China, on the other hand, has relentlessly used its reverse-engineering skills to become a force to reckon with. Pakistan now imports a major chunk of its arms from China.

So, India had no go but turn to the erstwhile Communist Soviet Union. The dismemberment of the Soviet Union forced India to look elsewhere. Though the imports continued from Russia, private corporations in the United States, the United Kingdom, France and later Israel got into the act. As new demands from the forces surfaced, the imports got further diversified to include a welter of systems – Scanter-6000 radars from Denmark, Embraer ERJ-145 jets for a home-grown airborne early warning and control system from Brazil, ACTAS sonar systems from Germany, Super Rapid 76mm naval guns from Italy and K-9 Thunder 155mm artillery guns from South Korea.

India has a huge so-called R&D setup in defence with the DRDO running 52 laboratories but it has nothing spectacular to show. The plain-speaking General V.P. Malik, retired army chief, is not totally off the mark when he says that the armed forces are always blamed for supporting imports, but they have no other alternative. There is a move now to corporatise the OFBs and make them more responsive to emerging technologies, though experts feel that outright privatisation would have been a better idea.

  • In terms of technology acquisition, Pakistan and China have been a step ahead of India

Successive governments did try to open the door for the private sector in defence production because of growing frustration with the lacklustre performances of our DRDO labs and DPSUs – but with little success. The first major push came in 2002 when the government led by Atal Bihari Vajpayee allowed 100 per cent private equity and 26 per cent foreign direct investment in the sector. While Modi included defence in his Make in India programme and raised FDI to 49 per cent, with the objective of increasing the participation of private companies in big-ticket production of submarines, helicopters, and aircraft, the process also did not take off. The FDI limit is now being raised to 74 per cent.

Emergency purchases

The strategy did not really take off because for immediate operational needs, imports became necessary as was evident recently in the dramatic purchase of Rafale aircraft in April 2015. The Rafale deal, announced by Modi during a visit to France, put paid to the strategic partnership (SP) model being thought of in manufacturing 110 fighter aircraft locally in collaboration with a foreign original equipment manufacturer (OEM) to be shortlisted from the likes of Boeing, Lockheed Martin, Dassault, Saab and Eurofighter consortium.

The SP model, conceptualised by Manohar Parrikar as defence minister, aimed at capacity creation in the private sector over and above the capacity and infrastructure that exists in the DPSUs. Save for one SP project, none of the major six “Make in India” defence initiatives, collectively worth over Rs3.5 lakh crore, have moved during the last six years. The six projects involved, apart from fighter jets, new-generation stealth submarines, minesweepers, light utility helicopters, infantry combat vehicles and transport aircraft.

  • Tejas: the indigenous fighter, with an American engine, is now deployed in the Ladakh region

If the fighter aircraft project fell through because of Modi’s penchant for doing something different, the light utility helicopter project has hit a wall because the Navy, its first user, is not happy with the prototype being offered by the Hindustan Aeronautics Limited because of certain technical parameters. Apparently, the government is keen on HAL getting a piece of the cake. HAL in fact, submitted two bids in response to the Expressions of Interest, one by itself and another through its joint venture with Russian Helicopters to produce Kamov, a Russian utility chopper. Private companies bidding for the project like Mahindra, Tata, Reliance, Adani, Bharat Forge and Coimbatore-based Lakshmi Machine Works are left wondering how HAL can submit two bids, unless it is already the preferred candidate.

The only SP model project which is now showing some signs of life is the one for manufacturing six new-generation stealth submarines locally with foreign collaboration. There are reports of the MoD getting ready to issue a request for proposal (RFP) soon. Once that happens, the two Indian shipyards (or SPs) will submit their technical and commercial bids in response to the RFP after they tie up with their preferred OEM from the five short-listed by the MoD earlier. As of now, the frontrunner for the Rs45,000-crore project is the Mazagon Docks-L&T consortium. But there’s many a slip between the cup and lip. Indeed, this project will be a test of the government’s newfound resolve.
States take initiative

Another well-intentioned initiative launched by the government was the involvement of start-ups and individual innovators in defence production. The inspiration appears to have come from Israel, the land of start-ups. Known as the iDEX (innovations for defence excellence) programme, it seeks solutions for augmenting the Indian military’s operational and combat capabilities, and has identified technologies like soldier protection systems, secure hardware encryption devices, GPS anti-jam devices and unmanned surface and underwater vehicles. The government claims that a number of start-ups are currently engaged in finding solutions to “problem statements” under this programme. The big plan, however, was to fund over 250 start-ups over five years to achieve approximately 50 ‘tangible innovations’ for the defence sector. To make this into a reality, funding had been sought to the tune of Rs500 crore. That is yet to happen. Experts lament that it is because of all such reasons that India was never seen as a manufacturing hub for aerospace and defence, two vital economic segments.

  • There’s many a slip between the cup and lip. Indeed, this project will be a test of the government’s newfound resolve

Some state governments did make moves on their own. Following a cluster approach, Telangana set up a special economic zone for Aerospace and Precision Engineering near the Rajiv Gandhi International Airport, Hyderabad. Companies such as Lockheed Martin, Pratt and Whitney and Sikorsky (now part of Airbus Helicopters) and Indian entities such as Tata Advanced Systems Ltd, Motion Dynamics, Gagan Aerospace, Aeroc Space Tech, Hemmair, Apollo Aerospace, DSR Tech, Lokesh Machine Tools started operating from the SEZ.

Karnataka came up with a policy for development of aerospace industry, setting up an aerospace park of 1,000 acres near the Kempegowda International Airport, Bengaluru. The hub was developed in collaboration with the US Aerospace Supplier Development Mission to India in order to introduce US companies to Indian joint venture groups. Karnataka has the advantage of being home for many aerospace companies, so almost two-thirds of aerospace manufacturing in India happens here. Today, an SEZ which is part of the aerospace park comprises export-oriented industries and those that deal with maintenance, repair and overhaul. Of late, Uttar Pradesh and Tamil Nadu have announced plans to set up “defence industrial corridors”.

Till now, though one did come across stories of an L&T collaborating on the development of a nuclear submarine, a Mahindra facility making state-of-the-art defence vehicle or a Bharat Forge manufacturing a field gun, yet defence manufacturing did not actually go beyond sub-contracting. Aravind Melligeri, chairman and CEO of Aequs, who set up India’s SEZ for aerospace manufacturing in Belgavi, Karnataka, says that the aerospace and defence manufacturing abilities of a nation are often considered a yardstick to evaluate its industrial and technological prowess. “The reason for this is that a high level of scientific and engineering expertise, years of research and development and massive resources are required to manufacture aircraft and their components.” For that to happen, one of the requirements is an environment for entrepreneurship to thrive. The new moves have the potential of changing that.

So, on the face of it, a bonanza awaits the Indian manufacturers if the new moves get implemented. “One can expect the opportunities of Rs4 trillion in next 5 years,” claims Umesh Raut, Analyst - Institutional Equities, YES Securities. S.P. Shukla, chairman-Mahindra Defence and Mahindra Aerospace, and chair-Defence Committee, FICCI, is more circumspect. “The move will give a boost to local manufacturing, be a huge employment generator and check currency imbalances.”

But the windfall may not happen all of a sudden. This year, the separate budget head created for domestic capital procurement has an outlay of just Rs52,000 crore. Business India has learnt that one of the first orders that may go out to the private sector is for 200 Armoured Fighting Vehicles, worth Rs5,000 crore. Some business will also come the way of Indian manufacturers in the MSMEs sector because of the targets set to indigenise spares and sub-assemblies of imported military hardware. “We will try and do at least 900 items this year and we have a target of 5,000 items in five years,” says Kantha Rao of MoD.

  • None

    The main challenge today is a long lead approval process for any product and multiple points of contact. This process needs to be addressed

    Vipin Sondhi. MD, Ashok Leyland

While real revenues may take some time to come, the optics following the announcement have boosted the stock markets. A day after the announcement, stocks of defence-related firms rallied by as much as 14 per cent. Some analysts saw up to 40 per cent surge in select defence-related stocks going ahead. Experts are of the view that the news is positive for most of the companies in the defence sector.

“The policy aims to double India’s defence production over five years with focus on indigenisation of components in line with Atmanirbhar Bharat. This would provide significant thrust to defence manufacturing companies in scaling up their production capabilities in long term,” ICICIDirect said in a report authored by Chirag Shah, and Amit Anwani.
“In our coverage universe, companies like L&T, BEL and Cochin Shipyard having strong indigenous capabilities are likely to benefit from this policy in the long run. However, the intent on the paper is good but the execution on the ground in terms of rapid indigenisation, pick-up in ordering, allocation of funds to defence capital expenditure would be key monitorables to achieve the desired objectives of the policy,” the report said.
Long term opportunity

Global brokerage CLSA sees the import embargo on 101 defence items creating a visible long-term opportunity for capable domestic vendors such as L&T, Bharat Electronics, Hindustan Aeronautics Limited and Kalyani group. However, given budget constraints, the graded import ban across 2020-2024 and import commitments, it expects orders emerging in FY22. The defence outlay this year is Rs3.37 lakh crore, which does not amount to even a 2 per cent hike over the revised estimate of the last fiscal.

  • The time gap in placing orders and actual procurements from foreign vendors had steeled the government’s resolve to boost the indigenous industry

Established players are expected to grab a big chunk of the defence pie as and when things settle down. L&T, for instance, has a presence in over a third of the 101 items in the list, including some major items like submarines, ships, missile launchers, radar and artillery. “L&T has built capabilities and invested across the army and navy domains which offer a Rs2.6 lakh crore indigenisation opportunity. A 10-20 per cent success rate in its domains would multiply L&T’s current defence book 4-7x,” CLSA said.

Over the past three years, L&T’s defence segment has contributed just 3 per cent of revenue and its order book is only Rs8,600 crore. CLSA noted that 10-20 per cent of army and navy procurement would represent Rs27,000- Rs54,000 crore and would increase L&T’s order backlog 8-16 per cent.

The Tata group could also emerge as the big daddy of the defence business, as it already has a handsome order book. A process of consolidation among its defence and aerospace companies is already on. Tata Power is in the process of selling its defence business (Tata Power SED) to Tata Advanced Systems Ltd (TASL) through a scheme of arrangement. The transfer of the business to TASL is already approved by the National Company Law Tribunal and is expected to be completed once regulatory and other routine approvals are received.

The group has also tied up with foreign defence majors like Boeing to produce Apache helicopter fuselages, its subsidiaries have provided ground support equipment for the C-17 Globemaster III strategic airlifter. Another JV has been forged with General Electric for making aircraft engine components. The company has been in the news for bagging a deal to manufacture air-to-air refuelling equipment for British manufacturer Cobham.

  • None

    The only importer of defence equipment is the defence ministry. Any import embargo is really an embargo on oneself.

    P. Chidambaram

Kalyani Rafael Advanced Systems Ltd (KRAS) is a joint venture between Pune-based Kalyani group and Israel-based Rafael Advanced Defence Systems Ltd. Recently, it won its first order worth $100 million for manufacturing 1,000 Barak-8MRSAM missile kits from overseas partner Rafael for Indian Army and the IAF.The stock market optimism covers smaller players like Zen Technologies, Solar Industries, Centum Electronics, Apollo Micro Systems and Astra Microwave
What’s on offer?

So what exactly is the government offering? In a series of tweets, Rajnath Singh on 9 August announced that taking a cue from Prime Minister Modi’s clarion call for self-reliance (Atmanirbhar Bharat), the MoD has prepared a list of 101 items “for which there would be an embargo on the import beyond the timeline indicated against them”. The policy aims to reduce the need for imports and push ‘Make in India’ initiative through design and development. It focuses on support to MSMEs, FDI, investment promotion, R&D, export promotion, ease of doing business etc.

The defence ministry also said that the Indian Navy and Air Force will receive items worth almost Rs1,30,000 crore from the list of items and the Navy shall receive items worth almost Rs1,40,000 crore. Further, MoD says a capital procurement budget has been announced for the initiative. The capital procurement process is bifurcated between domestic and foreign capital procurement routes.

  • Any company linked with AgustaWestland was targeted, almost scuttling the idea of commissioning a brand new class of submarines

But is the optimism justified? For one thing, about 50 (of the 101) items are already covered by import restrictions as per Defence Production Policy (DPP) 2018. Of course, now more items have been added. The advantage is that newly added items are complete equipment that form a huge part of the defence budget, and (a ban on their import) will be a booster for local industry. But that will take some time.

Russian stranglehold

One of the main reasons why India’s military industrial complex did not develop to the extent it should have during the last 73 years was our dependence on first, Soviet and later, Russian weapon systems. The dependence continued because even after 2014, when the Bharatiya Janata Party came to power, though the imports are now being diversified. Still, more than 55 per cent of the defence imports are from Russia. A new Stimson Center working paper by Sameer Lalwani, author and senior fellow for Asia strategy, and others shows that 86 per cent of the equipment, weapons and platforms currently in military service in India are of Russian origin.

Asked to explain India’s plaintive and continued dependence on Russia, a senior MoD official said, “There are many reasons for this. One is legacy issues. India and Russia have a longstanding defence relationship and there is familiarity with each other’s processes and systems. The second is dependability. That is based on Russian track record in the past. Then the third factor is the kind of specialised equipment that Russia provides to us, which no one else will provide. The S-400 Triumf air defence system is the latest example. Then we also have the nuclear submarines leased to us and the aircraft carrier. That makes a difference,” the official said.

However, things are not exactly that hunky-dory. In operational terms, the problems facing Indian forces in servicing and maintenance of Russian military equipment translate to lower serviceability ratio of products. Since servicing of most equipment is due for longer duration, this impacts the war-fighting capabilities of the forces. For example, the availability ratio of India’s frontline fighter Su-30MKI is below 55 per cent. This means that for every 100 Sukhoi fighters in India’s stable, only less than 55 are available for operation at any given point of time. The Su-30MKIs, developed by Russia’s JSC Sukhoi Company and built under licence by HAL, are the backbone of the IAF. The availability ratio of our submarines and warships is only a little better.

  • The Brahmos, an Indo-Russian collaboration, can now have a range of 450km. Photo courtesy: DD News

Industry sources say that one of the reasons why privatisation helmed by Indian players has never taken off is because the Russians are too deeply entrenched in our defence system. Indeed, the Russians are masters of the game, offering weapon systems that can be co-produced with India and then holding back supply of kits and material which are integral to the project. Of course, the spares and kits come later – but at a cost. This Russian stranglehold in spare parts and components is a business running into several thousands of crores. Not all the critical technology is often transferred.

So a question being asked in defence industry circles is: will the Russians allow the growth of an indigenous defence industry in India which could effectively block their revenue streams? The Russians are now eyeing $12 billion worth of contracts which also include joint production of Kamov helicopters, AK-203 Kalashnikov rifles, Krivak-III frigates, Igla missiles and 12 Su-MKI fighter aircraft.

In his recent talks with Vladmir Putin, Modi had proposed combining Russia’s high technology with India’s low production cost to build weaponry more cheaply. The Russians had agreed to examine the proposal. Last year, in what was touted as a major breakthrough in Indo-Russian defence ties, it was agreed that India will start manufacturing spare parts and components for the Russian military equipment under transfer of technology and set up joint ventures. As a follow-up, a total of 14 MoUs were exchanged between the Russian Original Equipment Manufacturers (OEMs) and the Indian companies on the sidelines of the DefExpo-2020. One hopes that Modi can hold Putin to his word.

New policy

The government’s plan is predicated on the new Defence Production and Export Promotion Policy (DPEPP) 2020, meant to bolster local production of weapons and platforms by developing “a dynamic, robust and competitive” defence industry. The DPEPP 2020 aims to position India among the leading countries of the world in the aerospace & defence sector.

  • Much is said about the fighter aircraft Sukhoi Su-30 MKI or the T-90 tank being made in India. Both these systems are based on transfer of Russian technology

The draft policy, made public by the government, says the MoD will set up a technology assessment cell to assess the industry’s ability to design, develop, produce and re-engineer assembly lines to manufacture major systems such as armoured vehicles, submarines, fighter aircraft, helicopters and radars. “The DPEPP 2020 is envisaged as overarching guiding to provide a focused, structured and significant thrust to defence production capabilities of the country for self-reliance and exports,” the MoD said.

Among the proposed aims is $5 billion export of arms by 2025. This is a laudable goal. But it needs to be placed in perspective. Indigenisation of defence production has been India’s aim since 1947. Except for projected figures which keep changing, the end result remains more or less the same. In fact, even before the disastrous India-China war in 1962, then defence minister Krishna Menon was fond of speaking about self-reliance in defence. In keeping with this aim, the Modi government announced a similar draft policy just four months ago. In between, on 16 May, while unveiling the stimulus package to boost the Covid-afflicted economy, finance minister Nirmala Sitharaman underlined the need to be self-reliant in the defence sector. She said that henceforth high tech equipment can be imported but some of the weapons will be made in India. “Make in India and self-reliance in defence production have now become a partner,” she announced.

Officials underline the seriousness of the objective this time around. They point out that the government has taken a deep look at the binding constraints to realise the goal of indigenisation. Large parts of defence production are characterised by features that are not common to markets for most other products. The buyers are limited and orders are often customised, thereby making for long gaps between orders and delivery. For example, a small part of the Rafale aircraft order arrived last month around four years after it was placed. The full delivery will be completed towards the end of the next year.

  • A small batch of Rafales were imported last month. Picture credit: Wikipedia

These officials point out that the time gap in placing orders and actual procurements from foreign vendors had steeled the government’s resolve to boost the indigenous industry. But can the domestic military industrial complex rise to the occasion? Rajnath Singh’s tweets were preceded by Prime Minister Modi calling for detailed presentations from the DRDO and Department of Defence Production (DDP) to know about indigenous capabilities to produce military hardware, only after which the government issued the negative arms import list.
DPSUs galore

In India, defence production is still identified with DPSUs – Hindustan Aeronautics Limited in aeronautics; Mazagon Docks Limited, Garden Reach Shipbuilders & Engineers, Goa Shipyard Limited and Hindustan Shipyard Limited in naval; Bharat Dynamics Limited, BEML (previously Bharat Earth Movers Ltd.), Mishra Dhatu Nigam (MIDHANI) and Ordnance Factory Boards in land systems and Bharat Electronics Limited in electronics. The platforms touted by these DPSUs as being indigenously designed and produced include the Air Defence Missile System ‘Akash’, Light Combat Aircraft ‘Tejas’, Main Battle Tank ‘Arjun’, Ballistic Missiles like ‘Prithvi’, ‘Agni’, Multi Rocket Launcher System ‘Pinaka’ and Central Acquisition Radar.

Much is said about the fighter aircraft Sukhoi Su-30 MKI or the T-90 tank being made in India. Both these systems are based on transfer of Russian technology and assembled from imported kits. The T-90 is dogged with problems of heat and dust ingress. As for the supersonic cruise missile Brahmos, our so-called Brahma-astra, it is also jointly developed by DRDO and Russia’s NPO Mashinostroyeniya, its outer range would have been stuck at 290 km, had India not joined the Missile Technology Control Regime (MTCR). It is only now that the range has been increased to 450 km, and further development to 800 km is planned.

  • Some defence experts and analysts say the government’s moves disregard financial reality which is grimmer now than was the case in the past

The Scorpene submarine project at Mazagon Docks could have been touted as a shining example of our defence indigenisation. However, in an example of cutting off one’s nose to spite one’s face, the project for building French submarines in India took a major hit when the contract for its principal weapon it carries had to be cancelled. The corruption investigation into a 2010 contract for VIP helicopters from AgustaWestland scuttled several ongoing and planned contracts in India, but none as high-profile as the Scorpene torpedoes.

Any company linked with AgustaWestland was targeted, almost scuttling the idea of commissioning a brand new class of submarines with cutting-edge weaponry that was be provided by sister firm Whitehead Alenia Sistemi Subacquei (WASS). By a stroke of luck, the Scorpene class shares the same NATO standard torpedo tube dimensions as the 1990s-vintage German Type 209 submarines also operated by the Indian Navy. So now Scorpene will share the obsolescent torpedoes as the old German subs!

India has become one of the largest importers of defence goods and services in the world because of inept planning all along. This needs to change.
Roadmap still needed

However, given the unique nature of the market, the government, apart from having a clear road map on what it wants, will simultaneously need to stabilise funding for defence acquisition. These are the pre-conditions to attract manufacturing investment and collaborations from top end arms companies in the world. Even before the pandemic struck causing a crippling economic downturn, financial support for India’s military was parlous. In anticipation of the annual budget in February this year, all three services and the associated Headquarters Integrated Defence Staff (IDS) had demanded Rs4.09 trillion from the MoD for fiscal year 2020-21 as their revenue and capital expenditure for salaries and operating costs and to modernise.

  • The Ordnance Factory board building

They received Rs3.05 trillion, or Rs1.03 trillion less. This mounting deficit is likely to get worse in the coming years. Therefore it does not come as a surprise that some defence experts and analysts say the government’s moves disregard financial reality which is grimmer now than was the case in the past. A more productive defence industry in India will depend on how much money the government can spend for local procurement as well as the availability of materiel in the domestic market – two factors that should be a matter of concern, particularly with export targets, according to Amit Cowshish, a former financial advisor (acquisition) in MoD.

There are several key challenges that need to be tackled before the programme becomes successful. Vipin Sondhi of Ashok Leyland, says, “The main challenge today is a long lead approval process for any product and multiple points of contact. This process needs to be addressed. Some suggestions would be: streamlining procurement procedures to reduce complexities – one nodal point can be created for all approvals; rationalising numerous stages of Procurement Process; Trial and evaluations to be time-bound as this will reduce expenses in-built in the contract price; incentives for creating domestic DDM (design, development, manufacture) capabilities.”

On the technology front, the government can initiate flagship defence technology development programmes catering to future defence acquisitions. Ideally, these should be based on India’s existing competencies, such as information and digital technology, to integrate the commercial and manufacturing dimensions with research and development efforts and expedite their commercialisation, like in the United States. Brahma Chellaney, noted security expert, points out that conventional weapons can scarcely be effective in countering unconventional or emerging threats, including from malware aimed at sabotaging power plants, energy pipelines and water supplies. “Cyber warfare capabilities, underpinned by artificial intelligence, will be key for national security and future war-fighting. If India invested in this domain 10 per cent of what it spends on importing arms, it could become a cyber superpower.”

India has joined three out of four major multilateral export control regimes – the Australia group, the Wassenaar Arrangement and the Missile Technology Control Regime. It can now leverage its membership of these groups to access certain technologies which were earlier denied to it. India should also embrace new innovations like additive manufacturing which is now being used in the production of civil and military aerospace and naval systems components.

Through its latest move, the Modi government may have shown the political will to reduce import dependence by creating a domestic defence industrial base. But it needs to bring certainty to the defence procurement process, monitoring emerging technologies and joining hands with like-minded countries in order to convert the initiative into a reality.


Markets: Relief sets to turn to euphoria again

No budget blues – the market is all geared up to see off one more event in style

Cover Feature

Climate Change: Real and happening

India is in the process of building infrastructure for its future. Resilience to disasters needs to be built into each of these

Corporate Report

ESDS breaks into the big league

ESDS is well poised to commence its next growth phase

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Remsons gets ready to take off

With strategic tie-ups Remsons is poised to create synergies that will propel it to new heights

Real and Happening
Coalition Challenge
Up, Up and Up






Corporate Report


The introduction of black pepper as an inter-crop in the sopari and coconut orchards, has enabled farmers to cultivate crops simultaneously

Skill Development

In 2020-21, the programme reached over 112,482 girls in urban and rural locations across six states in India, including 10,000 across Delhi


The event brought together stakeholders and changemakers to participate in a series of conversations on global trends and recent developments


The programme will focus on educating children on oral health and building awareness around the dangers of tobacco use


German BioEnergy enters Indian market

Published on Aug. 17, 2023, 11:54 a.m.

BioEnergy will showcase its innovative biogas technology in India


Ather looks to double its market share

Published on Aug. 17, 2023, 11:26 a.m.

Ather aims to produce 20,000 units every month, soon

Green Hydrogen

‘Kerala Hydrogen ecosystem a model for all states’

Published on Aug. 17, 2023, 11:06 a.m.

German Development Agency, GIZ is working on a roadmap for a green hydrogen cluster in Kochi

Renewable Energy

Adani Green eyes 45GW RE

Published on Aug. 17, 2023, 10:45 a.m.

AGEL set to play a big role in India’s carbon neutrality target