Enhanced role is being given to the private sector, which has resulted in large and big business houses taking a plunge in the defence manufacturing sector.
The Aero India 2023 show in Bengaluru has not only showcased the prowess of India in the aero and aerospace domain but it has also given an opportunity to look at defence manufacturing in India afresh. The Defence Minister’s conclave on the sidelines of the event was attended by close to 80 countries through their representatives. Hence, almost close to half the world was represented. This is also indicative of the fact that the world has started believing in the Indian story of growth and development wherein defence manufacturing has started taking the centre stage.
This has not happened overnight but started with the announcement of “Make In India” on 25 September 2014, within four months of the current Prime Minister assuming office on 26 May 2014. Make In India focused on 25 specific sectors which included five sectors closely related to defence manufacturing. These were aviation, defence manufacturing, defence exports, electronic systems and space & astronomy thus occupying 20% of the sectoral coverage. Defence manufacturing did not progress in the desired manner as there was a lack of skilled labour. The government realised this skill deficiency and launched “Skill India” at the national level on 15 July 2015. While both Make In India and Skill India underwent qualitative course correction from time to time, much more complex challenges impacted the nation when these changes were taking shape.
These challenges included the worldwide Covid-19 outbreak and the Chinese aggression along the Line of Actual Control (LAC) in Eastern Ladakh. It was at this juncture that the Indian government announced Aatmanirbhar Bharat on 12 May 2020. While supply chain disruptions catalysed the need for being self reliant in all aspects, Chinese transgressions necessitated indigenization of the defence forces and propelling defence manufacturing in India to a new level.
There have been notable changes in the defence manufacturing ecosystem in India since then. Some of the notable changes are as following:
* 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.
* Defence industrial corridors: Two defence industrial corridors were announced (one in Uttar Pradesh and the other in Tamil Nadu) in Budget 2018-19. Though the full operationalisation is yet to take place as close to two years of Covid -19 impacted their progress but these have gained momentum now.
* 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 taking a plunge in the defence manufacturing sector, be it in land systems or in 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.
* Leveraging transfer of technology (TOT) and defence facilities for testing: There have been certain cases post Independence 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: 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, the third and fourth lists cover the timespan of five years and 10 years, respectively. With this ban alone, an opportunity of over Rs 2 lakh crores will come up in two years and Rs 4-5 lakh crores in four to five 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 1 February 2023, 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 domestic defence manufacturers besides MSME industries as well.
* Defence export: In addition to indigenisation of the equipment for own defence forces, the country is focusing on defence exports as well, which will act as a big catalyst for defence manufacturing. Year after year targets are being achieved, with a target of Rs 25,000 cr set for year 2025.
THE TO DO LIST
But there are miles to go before a fully vibrant ecosystem takes shape. Some of the areas needing urgent attention are:
* 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 the Defence Acquisition Procedure (DAP) 2020 has become 681 pages long, when it was less than half the size in its initial version. This needs to be changed and result in a DAP in the form of guidelines alone, wherein decision makers are vested with both authority and 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 the 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 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 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 United States more so now due to supply chain and logistical disruptions and India should focus on this aspect.
* Leveraging defence veterans: There are a large number of defence veterans with high skillsets 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 skillsets. This needs to be institutionalised as against being left as an individual option.
* Leveraging 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 on enhancing defence export to the countries where they are posted. They should extend this support to both PSUs and private sector.
* India as MRO Hub: It’s high time that “Maintain In India” is formally declared as a complementary effort to Make In India.
The above are some of the suggestions to illustrate the issue. There are many more. We need to change the current method of defence audits and quality accreditations. Third party quality audits and Indian standards in each field are long overdue. Process simplification and out of the box approach need to be adopted fast.
Maj Gen Ashok Kumar is a retired officer of the Indian Army.