Defence manufacturing: Is ‘Make in India’ stuck between the realms of our desires, possibilities and truth?

New Delhi: (Indigenous Defence Manufacturing analysis) As Defence Acquisition Council (DAC) clears procuring additional SU-30MKIs and MIG-29s at a time a when the Line of Actual Control (LAC) is hot with China, it reminds us of old saying 'Digging the well only after the house is on fire'. For decades the Indian government has made unsuccessful attempts to ramp up the country's indigenous defence manufacturing, however, for certain reasons, nothing substantial has been achieved. What concerns Indian strategists is the fact that recent steps and the pace of change are not enough to spur the speed of indigenization in the defence sector.

Defence policies in recent times: Old wine in a new bottle

In order to transform India into a manufacturing and design hub, the ambitious plan of 'Make in India' was launched by Prime Minister Narendra Modi in September 2014. 'Make in India' was a judicious response to the demanding situation. The defence was identified as one of the core sectors where the government would put the extra focus. Also, Modi government took a myriad of decisions to boost the local manufacturing. One of the most critical steps the government has taken at the policy level is the opening of the defence industry for the foreign players. Centre tweaked the policy pertaining to Foreign Direct Investment (FDI), allowing 100 percent FDI in the Defence industry. Through the automatic route and government route, it allowed FDI up to 49 percent each. The step is aimed at accessing modern technology that is confined mostly to the western countries.

The government also removed the requirement of single largest ownership of 51 percent of equity. Besides, the government issued the Defence Procurement Procedure (DPP 2016) and, focussing on the institutionalising, streamlining and simplifying defence procurement procedure to enhance the country's local manufacturing. Moreover, the Draft DPP 2020 aims at encouraging higher levels of local content, new multipliers in defence offsets, and procurement category for leasing, and new options for equipment sustainment activity. The Draft DPP 2020 has the objective of further promoting local design capacity and higher localisation. The Draft has also introduced a provision of 'Leasing' where the forces will be allowed to lease the equipment from defence firms or countries rather than purchasing.

Data doesn't lie

Although there have been multiple steps taken, indigenisation is yet to take off. Despite having the world's third-largest defence budget in 2019, India still procures around 60 percent of its weapon systems. The country which is still facing a dire need of ammunition is yet to deliver on major projects. As per few estimates, India's ammunition held in stock is not sufficient to even fight a 10-day war at an intense rate. Primarily, it is slow-moving bureaucracy and complex procurement policy that is to be blamed for this state. India does have a Defence procurement policy in place but it has failed to spur the entire process due to a huge gap between its interpretation and implementation. Commodore (retd.) Anil Jai Singh who was attached to the Directorate of Naval Plans and Submarine Acquisition at the Naval Headquarters argues that so far the policies, as well as the implementation, has hampered indigenization process.

• India still procures around 60 percent of its weapon systems

• Govt has allowed up to 100 percent FDI in the Defence industry

"The bottom line of programmes like 'Make in India' was to invite major manufacturing companies across the globe with high-end technology to India so that they manufacture here and sell it anywhere in the world. But the policies emanated after initial thrust were not supportive for local manufacturing in the defence industry. For example, the L1 process was chosen over the bidding process, there were many conditions introduced in the FDI policy which did not attract foreign investment in the industry." he said. "Yes, in some cases FDI was allowed up to 100% on a case by case basis but not even a single contract was awarded by this route. So, the ambiguous policy created a hindrance towards the goal of self-reliance but majorly it was the implementation that badly affected the 'Make in India' in defence," he added.

Sushant Sareen, Senior Fellow at Observer Research Foundation argues that there are many issues in the indigenisation process that has left the defence forces at the mercy of foreign manufacturers. "The word indigenisation should not be confused with licensed production. Even the SU-30MKIs made in India by HAL is actually 'assembled in India'. In fact, no country manufactures 100% indigenised materials in the globalised world. Due to a myriad of reasons we end up paying much more in this licensed production that is so-called indigenised system than buying it from outside," he said.

"The word indigenisation should not be confused with licensed production. Even the SU-30MKIs made in India by HAL is actually 'assembled in India'. In fact, no country manufactures 100% indigenised materials in the globalised world"-  Sushant Sareen, Sr. Fellow, ORF

He further said, "Secondly, the nebulous policy and lack of clarity in the defence sector is also a major interruption. Over the years we have increased FDI slab but nothing substantial has been visible on the ground. Moreover, in multiple RFIs issued in past, we called for complete Transfer of Technology but we are still unclear whether we can absorb such sophisticated technologies. Perhaps, no country will transfer the complete state of the art technology. Technology has to be either developed or stolen. So insisting on tech-transfer is like entering a cul-de-sac."

Besides, the delays in procurement processes have further complicated things. For instance, the development of Infantry Combat Vehicle (ICV) and Battlefield Management Systems (BMS) was the pilot project in 'Make in India' category but because of the faulty evaluation procedure, the entire process was scrapped after investing four years into it. Now even if the entire process takes place without any further delays it would be only by 2027 that the production would start. Given the track record that we have, it is highly unlikely that the project would take-off even by 2027. Similarly, the falling strength of the number of fighter squadrons of the IAF and limited capabilities of HAL to fulfil IAF's requirement poses a serious question to national security. Almost all the projects in DPSUs are either facing a cash crunch or have been delayed considerably. The financial implication of COVID-19 throws another challenge to DPSUs which are already battling on this front. Further, the Private sector is almost invisible in the defence sector especially due to majority projects being handed over to DPSUs. 

What is the way out?

India will have to revive 'Make in India.' There is no doubt that the government is moving in the right direction towards not only becoming self-reliant in the country's defence needs but also a net exporter of defence goods. Firstly, to mitigate the fears of losing out to DPSUs, the private sector must be allotted big-ticket projects which will infuse confidence in the entire industry. There is a long-standing gap between the government and private industry which should be bridged with the highest priority. The government will have to do more in creating a level playfield for the private companies, DPSUs, DRDO and OFB's. Further, the country requires a permanent arbitration committee similar to the United States' DRAPA which has a permanent arbitration committee having the power of resolving issues amicably. The decision taken by the committee should be time-bound and final, not to be further reviewed.

"The bottom line of programmes like 'Make in India' was to invite major manufacturing companies across the globe with high-end technology to India so that they manufacture here and sell it anywhere in the world. But the policies emanated after initial thrust were not supportive for local manufacturing in the defence industry"- Commodore (retd.) Anil Jai Singh

As Sushant Sareen further suggests, "We need to re-jig our strategy at multiple levels be it strategic or military level.  We should be in a better position to anticipate our needs rather than being caught off guard and look for emergency measures. The assessments at all these levels must be strategized taking into consideration the problems we are facing now and in future. Let's say, we argued that IAF needs at least 42 fighter squadrons to fight a two-front war but this calculation is obsolete in modern times. Finally, for pushing the domestic manufacturing we need to incentivise manufacturers in India and align the same with the global supply chain."

In a recent piece published in Times of India, Captain GR Gopinath calls for a separate directorate for procurement that will people having expertise in the field and not the 'Generalist' IAS officers. He also recommends a policy to award the contract within three years after all formalities including completion of field trials with an investigation and accountability on delays. Finally, political will is central to the idea of local defence manufacturing that is still a distant dream.

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