Today's Editorial

27 April 2018

Execution key for defence manufacturing in India

Source: By Subrata Saha: Bloomberg

Defexpo 2018, the biennial defence exhibition was held at Chennai from 11-14 April. It has been nearly four years since the Make in India initiative was announced by Prime Minister Narendra Modi. Fundamentally, the initiative is meant to enhance manufacturing, attract investments, create jobs and increase technical depth. But for defence, there is the added criticality of achieving self-reliance for security.

The intensity and complexity of security challenges is increasing due to the nexus between China and Pakistan. With infrastructural improvements in Tibet, belligerence on the Line of Actual Control has increased. China’s military engagements with South Asian and Indian Ocean region states have been increasing. There is a continuing endeavour by Pakistan to push the envelope of proxy war. Faced with such security threats, India cannot afford to be 60-70% import-dependent for defence. Furthermore, the international community expects India to be a net provider of security in the Indian Ocean region. India is poised to become a $5 trillion-dollar economy by 2025. Such economic growth requires be undergirding by strong security, and underpinning by the capability to project power in the battlespace, both physical and cognitive.

Close on the heels of Make in India, the defence procurement procedure (DPP) 2016 incorporated several new provisions to achieve indigenization and promote MSME (micro, small and medium enterprises). These include the ‘Buy-Indigenously Designed Developed and Manufactured’ as the most preferred category for procurement, ‘Make II’ (private industry-funded design and development opportunity for simpler requirements), and reservations for MSME in Make I and II. Concomitantly, there were policy interventions in the management of offsets, an increase in foreign direct investment (FDI) in defence from 26% to 49% and the strategic partnership programme.

Even such forward-looking policies could not make the impact that had been visualized. Past legacy and convoluted procedures kept process dominant over outcome. In the past six months, with defence minister Nirmala Sitharaman, a concerted drive is visible. With swift shuttles between the front line and industry, the minister has made a spate of announcements like simplification of Make II, two defence industrial corridors, and the draft defence production policy 2018.

The Make II procedure has been simplified considerably and timelines have been compressed. A refreshing new feature is the provision for industry or individuals to suggest suo motu proposals for potential Make II projects. Projects up to Rs3 crore are earmarked for MSME. Now “acceptance of necessity” needs to be provided and projects commenced on priority for the vision to be realized.

The draft defence production policy 2018 envisions India as one of the world’s top five defence producers by 2025, with self-reliance in 13 areas covering almost the entire range of weapons and systems. A turnover of Rs1.7 trillion is visualized in defence by 2025, with Rs70, 000 crore being invested to create employment for two-three million people. The export target has been fixed at Rs35, 000 crore ($5 billion) by 2025. The FDI limit is proposed to be raised to 74% under the automatic route for “niche technologies”. “Hackathons” are proposed to resolve problems, with allocation of Rs1, 000 crore for 2018-22 and defence innovation hubs are proposed to encourage start-ups. The draft defence production policy is a grand vision document with unambiguous goals and objectives. This ambitious policy needs to be backed by granular detailing. Most important is continuity and scale for creating viable business cases for the entire life cycle.

The numerous instances of RFP (request for proposal) cancellations, discontinuation of schemes after months of RFI (request for information) interactions in favour of nominations to the public sector, leads to scepticism in the private sector. As much as the public sector requires boosting, the private sector needs encouragement. The private sector needs assurance of orders to build a business case for investment. To accomplish the export targets, the Indian defence industry has to start displaying capabilities in defence exhibitions across the world. India has to conduct international professional military competitions based on indigenously manufactured defence equipment to establish credibility.

For the development of the two corridors, the policy provides for 50% assistance from the government of India. The state governments and the industry need to pitch in for the rest. For the ministry of defence, separate allocations over and above defence budget estimates would be necessary. Provision for testing facilities by industry needs to be supported by incorporating third-party certification.

Defexpo 2018, for the first time, intends to project India’s defence manufacturing capabilities to the world. The press release states that Defexpo 2018 will brand India as a defence exporter of several defence systems and components for all three services. While showcasing the strengths of India’s substantial public sector, it will also unveil India’s growing private industry and spreading MSME base for components and sub-systems.

For Defexpo 2018, the defence production policy 2018 and Make in India to succeed, the process has to be simplified and mindsets have to be changed to enable trust. Organizational security for well-meaning decisions is an imperative, of course with accountability for timelines.



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