The Defence Sector To The Indian Industry Accounting Essay


A nation state faces numerous threats, from varied dimensions like economic, industrial, military, non-state actors etc. These threats form a barrage of impediments for achievement of the stated goals for a nation. The national as well as international security environment and number of other issues of different ramifications also need to be considered simultaneously to avoid an imbalanced approach for the attainment of these national objectives.

2. With the changing world order and the new security dynamics of the world, India is looking forward to play a greater role in the emerging power plays. A nation state has to employ all the elements of national power to be able to protect its national interests. One of the most important element of this national power are the Armed Forces of a country. The Armed Forces of a country need to be equipped and trained accordingly, in order to serve the national interest of a nation state.

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3. India, since the last decade has been, progressively mordernising its armed forces and has emerged as the largest defence importer with imports amounting to 70% of its total capital revenue of the defence budget. Thus, the very fact that bulk of the equipment with our Armed Forces is of foreign origin itself is a fact to ponder upon. The cutting edge technologies produced in the international market are not up for sale and generally second hand technologies are what the country is offered in case of imported military hardware.

4. Our nation has varied terrain ranging from the frozen frontiers of the Siachen glacier to the Thar desert, it also has diverse weather conditions from sub zero temperatures to scorching heat which dictates the operational environment of our armed forces. This also has an impact on the type of defence equipment which is required for our armed forces. Not many countries in the world experience such climate and terrain and hence there are limited equipment producers, this showcases the need for home grown production of military hardware for our defence needs.

5. The nodal agency, in India for developing core technologies and state of the art equipment for the armed forces is the Defence Research and Development Organisation (DRDO). The DRDO coupled with the Ordnance Factory Board (OFB) is responsible for providing the Armed Forces with wpns and equipment which are state of the art.


Statement of the problem

6. The nodal agency, in India for developing core technologies and state of the art equipment for the armed forces is the Defence Research and Development Organisation (DRDO), which has not lived up to the expectations of the Armed Forces of the country.

7. There was a need felt to open up the defence sector to the Indian industry and was to an extent opened up by the 'Defence production policy' dt 01 Jan 2011 which states that the Indian industry be also included in the defence production and only in dire circumstances (which refers to a time bound need) an item be imported. The defence industry in India is however still in its infancy and needs the protection and support of the GoI. This study aims to analyse the relevance of DRDO in the present day context and the steps to be taken for fruitfully engaging the Indian industry for developing state of the art weaponry for Indian Armed Forces.


8. The def sect today requires cutting edge tech which need to be delivered in time. DRDO, at numerous occasions, has not lived up to the expectations of the armed forces. The DRDO takes up about 10-15 % of the def budget every year and results are not commensurate to the investments. The DRDO should only be given projects where it has achieved a lead role or tech which could endanger national security and the rest of the defence production should be opened up to the private industry.

Justification for the Study

9. With the envisaged place in the comity of nations and the present geo-strategic environment it is imperative for India to modernize its armed forces to meet the future security challenges. The country has been importing bulk of its military hardware and is being deprived of the cutting edge technologies as no nation is prepared to part with the same.

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10. DRDO being the sole agency in the field of defence R&D has been over burdened and hence a need was felt to open the defence industry to the private sector. A step in this direction was taken by introducing the Defence Production Policy in January 2011, however the private industry being in its infancy needs to be nurtured.

Methods of Data Collection

11. All the information presented in the study has been obtained from the sources listed below. A detailed bibliography has also been attached.

(a) I have had the opportunity of closely interacting with the DRDO scientists at DIAT Girinagar, during a year long course known as The Tank Technology Course.

(b) Books and magazines available in the Defence Services Staff College library.

(b) Newspapers and periodicals.

(c) Internet.

Organisation of the Dissertation

12. The organization of the dissertation is as follows:-

(a) Chapter II - Background of DRDO. This chapter covers a brief on the raising, aim, mission and vision of DRDO. This also highlights the structural hierarchy and the various research facilities of the organization.

(b) Chapter III - Relevance of DRDO. The chapter analyses the failures and the successes of DRDO in the past.

(c) Chapter IV - Examination of the Private Industrial Base in India with Specific Reference to Defence Production. This chapter examines the private industrial base in India with special reference to the cutting edge technologies which have been credited to the country and also the capabilities and the expectations from and of the private industries.

(d) Chapter V - Analysis of the Defence Production and Defence Procurement Policy. The chapter analyses the defence production and the defence procurement policies as relevant to the industry. It also forecasts the problems which may be encountered and gives out certain deductions from the same.

(e) Chapter VI - Options for Defence Production by Civilian Stakeholders. This chapter analyses the options of defence production for the Indian Private Industry within the framework of the defence production policy.

(f) Chapter VII - Recommendations. The chapter recommends steps which need to be taken by the Government of India in order to fruitfully engage the private sector for producing state of the art defence hardware.



13. Defence production in India can be traced back to the Indus Valley Civilization wherein the pre-historic men appeared to have employed swords of copper, barbed spears and harpoons. However the modern production of military hardware started with the setting up of the Gun Powder Factory at Ishapore in 1787 which started production in 1791 and was subsequently converted to a rifle factory in 1904. A few other factories which saw the light of the day during the colonial era were the Ammunition Factory at Khadki, Cordite Factory at Arvankadu and Ordnance Factory Dehradun.

14. When India gained independence, the bulk of its mil hardware, of WW II vintage, was of British origin. Thus, there was a need felt to equip our armed forces with state of the art hardware, with a sense of home grown technologies. The era of self sufficiency in all the spheres of production was being promulgated by our nationalist leaders as India had an under-developed industrial base due to the colonial rule which extended over two centuries. The field of defence production was no exception, and the pioneers in this field were the Technical Development Establishment of the Indian Army, Directorate of Technical Development & Production and the Defence Services Organization. The DRDO was formed in 1958 by the amalgamation of these pioneers. This Research and Development Organisation was headed by the Scientific Advisor and was appointed as the Director General of Defence Research and Development. Thereafter in May 1980, DRDO was upgraded as a department of the Government of India and came to be known as the 'Department of Defence Research and Development'.

15. The DRDO since its inception in 1958 has come a long way, and as stated in Ministry of Defence's annual report 2011-2012 "DRDO has transformed into a highly professional and mature organization with strong technology base and management systems to undertake indigenous development of state-of-the-art defence systems in a comprehensive manner including design, development, integration and production".


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16. The vision of DRDO is to "Make India prosperous by establishing world class science and technology base and provide our Defence Services decisive edge by equipping them with internationally competitive systems and solutions".


17. The stated mission of DRDO is as under:-

(a) Design, develop and lead to production state-of-art sensors, weapon systems, platforms and allied equipment for our Defence Services.

(b) Provide technological solutions to the services to optimize combat effectiveness and to promote well-being of the troops.

(c) Develop infrastructure and committed quality manpower and build strong indigenous technology base.

Structural Hierarchy

18. The DRDO as stated in para 13 is headed by the Scientific Advisor to the Raksha Mantri who also holds the appointment of Secretary to the Government of India, he is assisted by the Chief Controllers of Armaments, Combat Vehicles and Engineering, Naval Systems and Materials, Resources and Management, Human Resource, Missiles and Strategic Systems, Low Intensity Conflicts, Aeronautics, Avionics, Services Interactions, Life Sciences and International Cooperation, Electronics & Computer Sciences and Micro-Electronic Devices & Management Information System and Technology. The organization has two tier systems, viz. the Technical and Corporate Directorates at DRDO Headquarter in New Delhi and the Laboratories/ Establishments, Regional Centers and Field Stations located at different stations all over the country.

19. The corporate directorate at DRDO Headquarter in New Delhi is entrusted with the responsibility of guiding and directing the research of the org in order to fulfill the user's requirements. The directorate provides advisors to the three service chiefs and also acts as an intermediary in between the Service Headquarters, the Ministry of Defence and the Research Facilities. The detailed organization of the Corporate Headquarters is as under:-


Additional Joint Director Director General

Financial Secretary R and D Combat Vehicles


CC R and D (A) CC R and D (H) CC R and D (S) Special Advisor


Directors of SA to Director of

Laboratories Chief of Laboratories

(Mechanical Naval Staff (Armaments

& Electronics)

Fire SA to Directors of

Advisor COAS Laboratories


SA to Director Directors of

CAS Aeronautics Laboratories


and Aviation)

Various Research Facilities

20. The department functions in close  partnership with 70 academic institutions, 50 national science and technology centers  and 150 Public/Private industries to enable meeting the needs of the three services. These laboratories and establishments have been sub-divided into technology clusters, while the clusters are as listed below the detailed list of laboratories is attached at Appx A:-

(a) Aeronautics.

(b) Armaments.

(c) Combat vehicle and engineering.

(d) Electronics and computer sciences.

(e) Human resource development.

(f) Life sciences.

(g) Materials.

(h) Missiles.

(j) Naval.

(k) Medical.


21. The DRDO has been in service for the past 54 years now, though in the initial decade it was in a nascent stage wherein the infrastructure and research facilities were being developed. However, in the last four decades there have been a series of un-warranted delays and some projects are yet to see the light of the day, but on the flip side there have been some tremendous success stories as well. The successes and failures of DRDO have been enunciated in this chapter.

Successes of DRDO

22. Missile systems.

(a) Prithvi Missile. Surface to surface tactical battlefield missile, Prithvi, has three variants of ranges 150 Km, 250 Km and 350 Km, and all the versions have been inducted into the Armed Forces.

(b) Agni Missile. Three of the six variants envisaged have already been inducted and Agni IV, V & VI are under development and testing. This missile system forms part of the nuclear triad.

(c) Long Range Surface to Air Missile (LR-SAM). The project is a joint venture of DRDO and IAI, Israel. The ship weapon control system has been delivered and the rest of the system is under delivery.

(d) Brahmos Supersonic Cruise Missile. The land attack cruise missile has been deployed on naval warships and mobile complexes, both for the Navy and the army. Integration of the air version on Su-30 MK-I is under progress.

(e) Astra Missile. The Air-to-Air missile is being developed to destroy highly manoeuvring supersonic aerial targets. The captive flight trials on Su-30 MK-I have been completed.

(f) Surface-to-Surface Tactical Missile- Prahaar. The tactical missile bridges the gap between Multi Barrel Rockets and Medium Range Ballistic Missiles. It has been successfully flight tested and is under further testing and development.

(g) Helina. The seven Km range third generation Anti Tank Missile has been successfully flight tested from an Advanced Light Helicopter and is under further development.

(h) Shourya Missile. The 700 Km range missile has been successfully flight tested in a ground launch mode and is under further development.

23. Aeronautical Systems.

(a) Medium Altitude Long Endurance UnmannedAerial Vehicle (UAV) Rustom-I. The indigenously designed and developed UAV has made five successful test flights, all the mission parameters and objectives are being achieved. The project is under development.

(b) Light Combat Aircraft (LCA). The LCA began its journey in the early part of eighties. The IAF variant has been approved and is expected to be operationalised by 2013, the naval variant is under development and is yet to make its maiden flight.

(c) Airborne Early Warning and Control (AEW&C) System. The indigenously developed AEW&C system is based on an Embraer aircraft with mission system components provided by DRDO. The aircraft has been flight tested and is under further development.

(d) Electronic Warfare (EW) Suite for Mi-17 Helicopter. EW Suite has been developed, integrated on Mi-17 Helicopter and the flight trials of EW suite on Mi-17 have been completed.

24. Electronic Systems.

(a) Three Dimensional Surveillance Radar System- Rohini. The Medium Range Surveillance Radar developed for the IAF has been inducted for air space surveillance to detect and track air targets with reliability, even under hostile electronic warfare operational environment.

(b) Three Dimensional Surveillance Radar- Revathi. The Radar has been developed indigenously for the Indian Navy (IN). It has a stabilised platform and is capable of Track-While-Scan (TWS) of airborne and surface targets.

(c) Weapon Locating Radar (WLR). The Radar has been developed for the Indian Army to automatically locate hostile artillery, mortars and rocket launchers and tracks friendly ire to locate the impact point of friendly artillery fire to issue necessary corrections.

(d) ESM System 'Varuna'. The Engineering Model of ESM System Varuna' has been realised and installed onboard K-Class Naval Platform. Sea Acceptance Tests have been completed successfully. The system is being exploited by Indian Navy.

(e) Convoy Protection Jammer System 'Stride'. This jammer is a Vehicle Mounted Muting System designed to prevent detonation of Radio Controlled Improvised Explosive Devices (RCIEDs) employed by Anti National Elements. The system is being used by the Armed Forces and Paramilitary forces.

(f) Command Information Decision Support System (CIDSS). The system comprising of 58 nodes is fully operational and in service, which includes hardware, shelters, prime movers and the application software.

(g) Combat Identification of Friend or Foe (CIFF). The system is designed for ground-to-ground close combat operations in mechanised environment. It reduces the fratricides and enhances the target service rate. Three engineered prototypes of the system have been realised and field evaluation trials are being conducted.

25. Combat Vehicles and Engineering.

(a) Main Battle Tank (MBT) Arjun MK-I. 124 MBT Arjun have been ordered by the Indian Army out of which, 110 tanks have been handed over. With this, two MBT Arjun regiments have been raised and are now operational. Remaining 14 tanks are likely to be rolled out by mid 2012.

(b) Commander's Panoramic Sight (CPS) Mk-II. The CPS Mk-II has been realised for MBT Arjun Mk-II with new features, like Thermal Imaging Camera, Laser Range Finder and interface with ballistic computer. It provides night surveillance and full firing capability to the tank commander. Surveillance and firing trials of CPS Mk-II have been successfully carried.

(c) Uprated 1000 HP Engine. Power output of the engine of T-72 tank has been uprated from 780 hp to 1000 hp to enhance the mobility. The uprated engine is under trail and development.

(d) BMP Urban Survival Kit (BUSK). The objective of this project is to develop an Urban Survival Kit for the BMPs which will enhance the protection level against enemy weapons. The project has been successfully designed and developed and is presently undergoing trials.

26. Armament Systems.

(a) Close Quarter Battle (CQB) Ammunition for 5.56 mm INSAS Rifle & Light Machine Gun. The 5.56 x 45 mm INSAS Ammunition has been re-designed to offer higher lethality at short ranges. The user trials have been carried out and project is under GS evaluation.

(b) Corner Firing Weapon. It is a special-purpose weapon which can be used in Low Intensity Conflict Operations (LICO) especially in urban warfare and hostage conditions. The weapon is in development stage.

(c) Modular Charge System for 105 mm 37 Caliber Indian Field Gun. Bi-modular charge system has been developed for a field gun based on breech end obturation affected with a indigenously developed brass stub. All the development trials have

been completed and a new range table has been compiled followed by variation trials.

(d) Water Mist based Fire Suppression System(WMFSS). Fire Suppression System has been validated successfully and demonstrated. Performance of WMFSS was evaluated on various fires simulating submarine fire conditions including flammable liquid pool fire & spray fires; wood, cotton mattress & PU foam fires; electrical fires and gallery fires. The system is likely to be installed and commissioned shortly.

27. Naval Systems.

(a) Submarine Sonar - USHUS. It is an integrated submarine sonar system which replaces MGK 400 & MG 519 sonar's onboard EKM class Submarines of the Indian Navy. The system has been made operational on three platforms and two more are to be made operational in the coming years.

(b) New Generation Hull Mounted Sonar HUMSA - NG. It is an advanced active cum passive integrated sonar system for fitment on a wide variety of Indian Naval Platforms. HUMSA-NG and its variants are expected to be in operation for the next two decades. Six more systems are under order with Bharat Electronics for replacement onboard Brahmaputra and Delhi class ships. In this project, the time schedule of development was strictly adhered to with excellent coordination among design, production and user agency.

(c) NAGAN. The project is aimed to design, develop, install & demonstrate the performance of an Active cum Passive Towed Array Sonar (ATAS). Final technical evaluation trials of the system have commenced.

(d) Advanced Torpedo Defence System (ATDS), Maareech. It has been designed as a complete package for surface ships against vintage and modern torpedoes. The system is integrated with a fire control system and expendable decoys. Orders have been placed through the designated production agency.

Failures of DRDO

28. The DRDO apart from the successes mentioned above has failed miserably in a number of projects, some of which had been sanctioned by the user and some were taken up on the initiative of the R & D organisation. Some of the major failures are mentioned in succeeding paragraphs.

(a) Modular Bridge. DRDO took up a project for development of a modular bridge in October 2006 which was to be 46 meters in length but however it submitted a trial report in October 2007 of a bridge of 40 meter length. However the bridge was not acceptable to the user, hence incurring a loss of 17.89 crore to the exchequer.

(b) Ammunition for T-72 Tank. Design & Development of 125 mm Fin Stabilized Armored Piercing Discarding Sabot (FSAPDS) (Soft Core) MK-II Ammunition for T-72 tank was sanctioned in May 1996 Rs 2.30 crore and was to be completed by May 1998. The project was closed in December 2004 after four revisions of probable date of completion (PDC) and a loss of Rs 7.27 crore.

(c) 120 mm Long Range Mortar (LRM) System. The LRM developed by DRDO could not achieve the GSQR parameters as the desired range and rate of fire or burst fire capability could not be met with a low weight Mortar which was an inconsistency in the GSQR framed by the Army. As a result, DRDO foreclosed the main project from December 2004 after incurring expenditure of Rs 9.29 crore.

(d) Design and Development of equipment for Aircraft ammunition. A staff project based on the Air Service Requirements was sanctioned at a cost of Rs 62.50 lakh with PDC as October 1988. Seven PDC extensions for the project were sought cost of the project was revised to Rs 2.12 crore. As 10 development flight trials conducted till October 1998 failed, the 11th trial also ended up with similar results. The delay in development of the equipment led to import by the Air Force to make good the shortfall. The project was closed from December 2000 after incurring an expenditure of Rs 1.62 crore without achieving its aim.

(e) 125 mm FSAPDS Practice Ammunition for T-72 Tank. A Staff project based on GSQR for thedevelopment of a training version of the FSAPDS ammunition was sanctioned in August 1996 at a cost of Rs 95 lakh to be completed by August 1998. The project was closed in December 2003 after incurring an expenditure of Rs 1.82 crore without its acceptance by Army.

(f) Remotely Delivered Mine System (RDMS). A Staff project was sanctioned in October 1992 for Rs 1.75 crore with PDC of three years for the development of RDMS for both, Anti tank (AT) and Anti personnel (AP) mines. Despite ten PDC revisions, repeated cost revisions and 16 technical trials and one Pre User Trial Evaluation (PUTE) trial conducted from December 1996 to October 2006, the AT mine system failed to meet the Users requirement. Consequently, DRDO closed the project for Anti Tank mines from December 2007 at a cost of Rs 8.49 crore without fulfilling the objective even after 15 years of development.

(g) Universal Variable Time Fuze for Guns. DRDO in January 1998 sanctioned this Staff project at an estimated cost of Rs 3.20 crore with PDC as January 2001 which was extended up to 31 March 2006 on ARDE's proposal on the ground that development was almost 90 per cent complete, halting at this stage and under taking a new project would hinder its pace. Despite three PDC revisions up to March 2006, ARDE was unable to develop the fuze in time due to technological problems in designing the system, resulting in closure of the project from 31 March 2006 after incurring an expenditure of Rs 1.88 crore.

(h) Ammunition for various Artillery systems. In accordance with the GSQR of April 1995, DRDO in January 1998 accorded sanction for development of ammunition for various artillery systems i.e.155mm, 130mm, 105mm guns, 120 mm mortar and 122mm GRAD rocket at an estimated cost of Rs 16.35 crore, with the PDC being January 2002. Since Army had gone for import of ammunition for 155 mm guns, DRDO took up development of 130 mm ammunition on priority. As ARDE could not develop the ammunition within the PDC the User decided to import 130mm ammunition too and DRDO HQ decided to short close the project from January 2002 with an expenditure of Rs 2.79 crore.

(j) Delays in Project Completion. In certain cases DRDO has taken a very long time to produce results and in some cases the development is still in progress. Some of these projects are given in the table below.

S No

Name of the Project

Year When Sanctioned

Present Status


MBT Arjun


Mk I delivered in May 2009.


LCA Tejas


Yet to be Delivered.


Nag Anti Tank Missile

Early 1980's

Yet to be Delivered.


Trishul Surface to Air missile

Early 1980's

Project Terminated.


Kaveri Engine

March 1989

Yet to be Delivered.


Nishant UAV

September 1988

Yet to be Delivered.

Remedial Actions

29. The DRDO though, has focussed largely on home grown technologies and to a large extent has been successful in developing weapon systems and technologies which otherwise would have been denied by foreign manufacturers, still much is left to be done to satisfy the user. Some of the remedial actions which are required to be taken for performance enhancement are listed as under:-

(a) Accepting unrealistic qualitative requirements. The DRDO accepts unrealistic qualitative requirements from the user and then fails to produce the desired result. At the inception stage of the project only the qualitative requirements should be crystallised and the DRDO should be able to reject unrealistic or far- fetched requirements of the user.

(b) Lack of cohesion and continuity. The DRDO labs work in isolation and many a times the same problem has to be solved again and again, also the timelines for project fructification are so long that it is impossible for a scientist to complete the project in his service tenure, and the new scientists may not have to start over again, but certainly take time to integrate into the project. It is suggested that cohesion be built in the DRDO labs by means of networked databases and also scientists be earmarked for projects from their formative years.

(c) Lack of accountability. The very fact that scientists are not taken to task or no administrative action is initiated in case a project fails or does not meet the user's requirements, showcases the lack of accountability in the organisation. Also, the performance of DRDO is judged by the professors from the IITs and every milestone is hailed as a success whereas the project fails to deliver. This is because of the very fact that the DRDO sponsors research in these institutes which creates a climate of patronage. It is recommended that strict administrative action be initiated in case of project failures and an independent agency such as CAG be employed for performance analysis.

(d) Lack of practical experience. The scientists involved in developing weapon systems have no practical experience as to how the weapon system should function, hence there should be programs wherein the scientists get embedded with the user to gain experience and practical knowledge of the weapon system.

(e) Inability to attract and retain talent. The cream from IITs and top engineering colleges heads towards greener pastures offered by the private sector. The DRDO pay scales and work ethos are a major de-motivating factor for the younger generation. This certainly needs exponential improvement in order to attract and retain talent for futuristic R&D.


The Indian Defence Industrial Base

30. Since independence, Indian defence industrial base has grown exponentially, comprising of 39 Ordnance Factories, eight Defence Public Sector Undertakings (DPSUs) and over 50 Research & Development Laboratories. Traditionally defence production due to its ramifications on the nation's security has been trusted with the public sector enterprises only, leading to a narrow defence industrial base. The sanctions imposed by the super powers post the Pokhran tests came as a blessing in disguise. The country was denied cutting edge technology and equipment which in-turn forced the planners to focus on indigenisation programmes and diversification of technology sources. Though the Indian industry has achieved world class standards in varied fields of technology but is drastically lacking in the field of defence production, this is largely due to the policies of the Government of India (GoI). A comparative analysis of productivity of the DPSUs and the rest of the manufacturing sector is depicted below.

31. In May 2001, Government decided to open up the defence production sector for private industries with participation up to 100% and FDI permissible up to 26% which would be subject to government approval. After the opening up of the defence manufacturing sector for private participation, 178 Letters of Intent/ Industrial Licenses have been issued in favour of the private sector for manufacturing wide range of defence items. Thirty licensed companies in the private sector have so far commenced commercial production.

32. The last two decades saw the private sector being involved in supply of raw materials, sub-assemblies and components to DPSUs, Ordnance Factories, Base Workshops of Army, Base Repair Depots of Air Force and the Dockyards of the Navy. Defence PSUs and Ordnance Factories outsource 20-25 percent of their production to the private sector. Outsourcing of many of their requirements by the Defence PSUs and ordnance factories has developed a wide vendor base - that includes not only some of the big enterprises but also a large number of medium and small scale enterprises. The private sector can produce much more efficiently in a much less time frame and hence their role in Indian defence industry cannot be underestimated despite their constraints.

33. The table below depicts the value of outsourcing done by the public sector during the last three years.

Year(Value in Rs Crores)

PSUs/ Govt Agencies

SSI Sector

Non-SSI Sector


Annual Turnover























34. The emerging private sector. With the advent of highly sophisticated weapon systems and sensor packages, the vast difference between the technologies used in the commercial and military systems has narrowed down immensely. As a result the defence forces across the globe have turned to the private sector for dual-use technologies and new breakthrough scientific discoveries. India, also has not lagged far behind and in Jan 2011 the Defence Production Policy was published which provides a level playing field to the public and private sectors alike. Since then various private sector companies have ventured into the defence sector and have been issued license by the government. These companies have already taken up production of defence equipment by entering into joint ventures with many foreign companies, some of these companies are listed below-

(a) Mahindra & Mahindra Ltd, New Delhi.

(b) Larsen & Toubro Ltd, Mumbai.

(c) Max Aerospace & Aviation Ltd, Mumbai.

(d) HBL Power Systems Ltd, Hyderabad.

(e) Ramoss India, New Delhi.

(f) Tata Motors Ltd, Mumbai.

(g) Alpha Phazotron Radar Equipment & Systems Pvt Ltd, Bangalore.

(h) EADS's helicopter subsidiary of Eurocopter is associated with HAL since 1962, manufacturing more than 600 Alouette 3 and Lama (known as Cheetah and Chetak locally) helicopters.

(j) In Nov 2009, Mahindra Group created Mahindra Defence Systems in India which is a joint venture with BAE Systems. Mahindra Group has simultaneously acquired majority stakes in two Australian defence companies, Aerostaff Australia and Gippsland Aeronautics, signalling its entry into the defence and aerospace business.

(k) Tata has entered into joint venture with Agusta Westland to assemble the AW119 in India.

Cutting Edge Technologies Produced by the Private Sector

35. Defence Technologies. Some of the cutting edge technologies which have been produced by the private sector for various Indian defence/ strategic programs are as mentioned below:-

(a) Tata Electric and L&T. The first major order from the services after defence production was opened to the private sector in 2001, was bagged by both these firms, to produce 40 Pinaka Multi Barrel Rocket Launchers each. The product was delivered and operationalised in the given time frame.

(b) Godrej Aerospace. The company has been manufacturing rocket engines, thrusters and satellite sub-systems for ISRO, it had supplied the rocket engines for Chandrayaan I.

(c) Wipro.

(i) Designed and produced the country's fastest super computer for Vikram Sarabhai Space Center.

(ii) In discussions with ISRO to collaborate in the area of robotic design, for ISRO's planned moon-landing mission Chandrayan II.

(d) Walchandnagar Industries.

(i) The company has been producing flight motor casings and nozzles, flight motor segments, domes, nose caps etc. for SLV, ASLV, GSLV and PSLV programmes.

(ii) It is also producing the systems for the steam turbine integrated with the Pressurised Water Reactor for the indigenous nuclear submarine Arihant.

(e) L & T.

(i) The submarine design centre of the company has been instrumental in carrying out detailed engineering, using the latest 3D modelling and product data management software for the designing of the miniaturised nuclear reactor for Arihant.

(ii) The hulls for the submarine are being built by L&T's Hazira shipbuilding facility.

36. Apart from the above stated examples which are of strategic nature there numerous other projects on which the private companies are working as of date. These companies have either collaborated with foreign vendors or are developing indigenous technologies to produce state of the art equipment for the armed forces.

37. Civilian Technologies. The private sector, after the liberalisation of the economy, has carved out a niche in the global market for itself. The sector not only specialises in quality human capital but has also taken a lead role in developing core technologies. Some of the fields where the private sector is a global leader are listed below:-

(a) IT Industry.

(b) Automotive Industry.

(c) Atomic Energy.

(d) Space.

(e) Electronics.

(f) Boitechnology.


38. Though the GoI has not specified any specific target for the private sector for defence production but has committed to achieve substantial self reliance. As stated in the Defence Production Policy 2011 the GoI aims to "Achieve substantive self-reliance in design, development and production of equipment, weapon system and platforms required for defence in as early a time frame as possible." [1] 

39. The above stated aim can only be realised if certain policy and procedural issues are resolved. The issues which need to be resolved have been discussed in succeeding chapters.


Defence Production policy

40. Examination of the Policy. The Defence Production Policy (DPrP) came into force from 01 January 2011, the policy aimed at improving the private sector participation and was a step taken by the GoI towards achieving self reliance in the sphere of defence production. The policy lists four broad objectives which are as under:-

(a) To achieve substantive self reliance in the design, development and production of equipment / weapon systems / platforms required for defence in as early a time frame as possible.

(b) To create conditions conducive for the private industry to take an active role in this endeavour.

(c) To broaden the defence research and development (R&D) base of the country.

(d) To enhance potential of SMEs (Small and Medium Enterprises) in indigenization.

41. The private sector has seen the DPrP as a quantum leap, taken by the GoI towards indigenisation and self reliance in terms of defence production. Some of the major achievements of this policy are stated as under:-

(a) The DPrP has defined the scope of self-reliance with a view to include not only the indigenous production but also the domestic capability in design and development which are important factors from the point of view of self-reliance. This aspect was ambiguous previously as it was quantified in an index which reflected the domestic share in total procurement expenditure. The index focussed only on domestic production, including those based on imported technology, as a result, the index was often inflated when the country produced advanced weapon systems such as tanks and fighter aircraft with technical assistance from the foreign suppliers. Evidently, the exaggerated index was not the true reflection of self-reliance as the domestic industry lacked capability in design and development and even in the ability to upgrade items that they produced under technology transfer. The DPrP has to a large extent been able to solve this problem.

(b) To attain the objective of self-reliance, the DPrP has dictated that based on the 15-year Long Term Integrated Perspective Plan (LTIPP) of the armed forces, equipments "required 10 years so down the line, will be by and large developed / integrated / made within the country." If Indian industry is not in a position to deliver the equipment in required time and as per the specification and quality, then the system would be procured from foreign sources.

(c) DPrP has dictated that efforts would be made in progressively identifying and addressing any issue which impacts, or has the potential of impacting the competitiveness of the Indian industry in comparison to foreign companies, these efforts would go a long way in eliminating the domestic industrial weakness of the present day defence industrial set up.

(d) The document has also sought to simplify the MoD's Defence Procurement Procedure (DPP). It basically intends to streamline the "Make" category, which would further provide an impetus to the Indian industry for developing and producing 'high technology complex systems'.

(e) The DPrP has urged the Service Headquarters to take into account the capability of the domestic industry while preparing their operational and technical parameters of weapon systems they want to procure. It thus would mandate the services to cooperate with the industry for exploring indigenous solutions to their equipment needs for the future, and would harmonise the environment between the producer and the user.

(f) To synergise the efforts of the domestic players, academia, R&D institutes and various technical and scientific organisations the document has categorically stated that "all viable approaches such as formation of consortia, joint ventures and public private partnerships" would be formed to enable the domestic industry to meet the armed forces' requirements within the given timelines and at globally competitive prices.

(g) The DPrP in order to allow the industry time for development of new technologies has emphasised on incremental changes and spiral development ie progressing from Mk-I to Mk-II and so on. This would allow the industry to mature on the technological field as well as would cater for the requirements of the armed forces. In case the technology has to be developed with the help of foreign vendors the document mandates the industry to absorb the technology and dictates the Department of Defence Production, DRDO, Headquarters Integrated Defence Staff and the Service Headquarters to ensure that appropriate technology transfer takes place in the Indian industry.

42. Problems Envisaged. The DPrP has been a welcome initiative by the government but is still in a nascent stage. The document does not conclusively give out specifics in various fields and thus has a score of limitations. The major problem areas envisaged are highlighted in the succeeding paragraphs:-

(a) The policy fails to quantify the level and time frame for self-reliance to be achieved also it does not give out the specific fields in which self-reliance is desired. It would be appreciated that, keeping in view the present defence industrial base, complete self-reliance in defence production would be a farfetched objective.

(b) The DPrP does not give out the level of desired investment on R&D which definitely would form a backbone for achieving self-reliance.

(c) The formulation of technical specifications needs more deliberation, though this aspect has been addressed in the policy but has been done so very sketchily. The DPrP has failed to nominate an agency which would act as an interface between the armed forces and the industry, this aspect can also be undertaken by a professional agency as is done in most of the developed countries.

(d) In May 2006, after the government opened the defence production for the private sector there was a proposal, as part of the Kelkar Committee recommendations, to declare certain industries as 'Raksha Udyog Ratnas' (RUR), or champions of the industry. This status would have given certain privileges to these industries which would certainly have given a boost to the private sector. However this status is yet to be given and the DPrP has also not paid any attention to this aspect.

Defence Procurement procedure

43. Examination of the procedure. The Defence Procurement Procedure (DPP) was first formulated by the Ministry of Defence (MoD) in 2008, thereafter an amended version was published in 2009 and finally the latest version was released by the MoD on 06 January 2011. The focus of examining the DPP-2011 would be primarily the differences between the earlier version and the latest one. The major changes in DPP-2011, which are concerned with defence production, are basically in two areas relating to naval shipbuilding and offsets, thses have been enunciated in succeeding paragraphs:-

(a) Naval shipbuilding. The DPP-2011 incorporates two sets of guidelines for the naval shipbuilding as compared to the single set in the previous version. The guidelines in Section A of Chapter III exclusively deals with the government-owned shipyards on nomination basis whereas the guidelines in Section B of the same chapter are primarily meant for the shipyards owned by the private sector, though these guidelines do also apply to the public sector shipyards but on a competitive basis. The Defence Ministry hopes that Section B would "encourage participation of the private shipyards and promote indigenisation and self-reliance in warship construction."

(b) Offset obligations. The DPP-2011 has expanded the list of products which can be utilised by foreign vendors to discharge their offset obligations. The earlier version of the DPP had 13 categories under the "List of Defence Products" which now has been expanded to 27 categories under the new head of "List of Products Eligible for Discharge of Offset Obligations". The DPP has added two new categories namely "Products for Internal Security" and "Civil Aerospace Products". The new guidelines state that for the purpose of discharge of offsets, services will include maintenance, overhaul, up-gradation, life extension, engineering, design, testing of products and training.

(c) Several other changes pertaining to Defence Procurement have been brought about by the DPP-2011, which have not been included, as these generally pertain to procurement of defence products and not production.

44. Shortcomings of DPP-2011. Though the DPP-2011 has been a giant leap towards self-reliance and indigenisation, but is yet far from achieving its goals to fruitfully engage the foreign companies to invest in home grown technologies. The document has created new categories for discharge of offsets and has also tried to equate the public and private sectors but still has some major shortcomings, which are as under:-

(a) Conservative Offset Policy. The offset policy in DPP-2011 does not allow the provisions of multiplier and technology transfer through the offset route. The conservationist attitude of the GoI may be accredited to the the fear of being dumped with redundant technologies and partly because of lack of a strong monitoring system.

(b) Review of the FDI provisions. Though the FDI policy is out of the purview of the DPP, however certain measures could have been taken under the offset head to ensure active participation of foreign companies. The current FDI policy in defence production allows up to 26 per cent equity stake in any Indian defence industrial venture, which has failed to bring in any meaningful financial and technological dividends. This is primarily due to the reluctance of the foreign companies to execute a joint venture in India on which they have very little control.

(c) Disparity between Private and Public Sectors. The sub heads included in DPP-2011 for shipbuilding have created a situation where in whatever the public sector enterprises cannot manufacture would be thrown open to the private sector. These orders would be subject to competition, whereas the orders given to the public sector would primarily be for keeping their production lines open. Steps like these breed contempt amongst the private sector enterprises and would prove regressive in the overall aim for self reliance and indigenisation.