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Towards Self Reliance In Defence Research Economics Essay

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Published: Mon, 5 Dec 2016

“The idea of self-reliance is important even today. However, self-reliance does not imply pursuing a policy of autarky. It does not mean cutting ourselves away from the world. Self-reliance in the modern world implies the ability to pursue one’s interests with self-confidence and faith in one’s own capabilities. We do not have to pursue self-reliance by doing everything ourselves. We can, indeed, pursue greater self-reliance by creating inter-relationships of inter-dependence that enhance our bargaining power. Greater interaction with the world can in fact enhance a nation’s self-reliance by creating a web of mutually beneficial inter-relationships.” [1] 

– Dr Manmohan Singh

“Buy Indian and Make Indian is going to be the major component of our procurement policy. That will help us to have a strong defence industrial base in India.” [2] 

-A.K. Antony, Defence Minister

Introduction

1. The blossoming Indian economy is fast pacing into the 21st century with the potential of being an economic superpower. Spurred by economic reforms and the impact of liberalisation, privatisation and globalisation, India, is truly on the verge of carving its own niche in the world.

2. An economic superpower must also be a military super power, in terms of Military capability and strength. There should also be a dependable and reliable indigenous defence industrial base. A country which is self reliant and independent in its military requirements, and thus, also has access to technologically advanced capability can truly be termed as military superpower. The establishment of a well developed defence industrial base is of primary importance to any emerging super power. Focus should be on capability development followed by numeral growth, not the other way round. A clear understanding and identification of the requirements and needs of the armed forces and ensuring that the requirements are met within the stipulated time, in a cost effective manner, should be the primary goal of any defence industrial base and the determinant of its success.

India’s Defence Industrial Base. A Historical perspective

3. Pre Independence. The pre-independence defence-industrial infrastructure in India consisted of 18 Ordnance Factories (OFs) [3] , generally catering to repair and overhaul as well as to supplement weapons and equipment produced in Britain. During this period India was never allowed to develop core competencies in industrial production.

4. Post Independence. Since independence the Indian leadership aimed at attaining self-sufficiency in entire domain of defence production and to achieve this India’s industrial policies [4] emphasized ‘core’ industries (including defence sector) to be taken care of by the central government and others by the states. As a result eight Defence Public Sector Units (DPSUs) under exclusive control of the government were devoted to production of different military systems and components. Defence Science Organisation (DSO) was established at that time to take up challenges of undertaking R&D activities. DRDO was formed in 1958 from the amalgamation of the then already functioning developmental establishments with the DSO. DRDO then comprised of 10 establishments or laboratories which has now grown into a network of over 50 laboratories throughout India [5] .

5. Post 1962 war License production, direct purchase and acquisitions remained the predominant form of supply for the Indian defence forces. This resulted in a gap of nearly three decades in India’s effort toward indigenous production which was especially evident in the fields of design and development, which constitutes the upper spectrum of self reliance. A fighter aircraft between Marut and the Light Combat Aircraft (LCA), a basic trainer aircraft between HT-2 and HPT- 32, an intermediate trainer between Kiran and an yet-to-be fully developed Advanced Jet Trainer (AJT) are some of the examples that typify both the technology and production gaps [6] .

6. Trends in 1980s and 1990s. This was the period when Cold War came to an end and Global defence expenditure rose to an all time high in 1987 and then fell sharply during the late 1980s and early 1990s. Also, there was a rise in low intensity conflicts lawlessness, crimes and terrorism was spreading manifold. This was also the time countries were opening up their economies and the globalization era commenced. This period was the starting point of major defence acquisitions from abroad coupled with major initiatives in indigenous defence production, including R&D activities. The license production of Jaguars and MiG- 27M was undertaken by HAL [7] . Also indigenous development of Light Combat Aircraft (LCA), Advanced Light Helicopter (ALH) and Main Battle Tank(MBT) Arjun were speeded up by DRDO. Production of missiles developed under Integrated Guided Missile Development Programme (IGMDP), through Bharat Dynamics Limited (BDL) commenced. Hence, during this period India had been able to initiate a number of projects for indigenous development. However, fructification of these projects was accompanied by inordinate delays and technological gaps.

7. The mainstay of armed forces was met through substantial arms acquisition from abroad primarily due to slow progress in our indigenous design and development activities as also the inability to keep pace with the global state-of-art technologies in the defence industry. With the change in environment after nuclear explosions by India and Pakistan and the Kargil conflict, the country had to give a re-look to its defence strategy including its objective of achieving self-reliance in defence industry.

8. Defence Industry in 21st Century Soon after the liberalization of the economy, the defence industry started realizing the importance of civil military interaction in the industrial sector to attain ‘near self-reliance’. Coupled with changes at institutional and organizational levels as recommended by the Group of Ministers Committee Report on ‘Reforming the National Security System’, is the most important policy shift in the defence-industrial sector allowing 100% private sector participation and 26% by Foreign Direct Investment (FDI) [8] . Confederation of Indian Industries (CII) has been instrumental in influencing such a marked change in policy. While these far-reaching institutional and policy-oriented changes have been underway for quite some time, the demand for private participation has assumed significance in recent years.

Trends in Global Defence Industry

9. The global defence industry has undergone profound changes in recent years. The massive military build up by many countries during the Cold War era fuelled greater demand for military weapons and systems. However, immediate post Cold War period witnessed the reverse trend in demand for military weapons and systems resulting in reduction in budgetary allocation in the defence sector. This resulted in many smaller companies either to merge with big ones or to shift their priorities towards civilian production, thus leaving the defence sector. Mergers and acquisitions during this period resulted in creation of a few giant companies like Boeing, Lockheed Martin, British Aerospace, Northrop Grumman, EADS and others. The military expenditure again witnessed upward trend since 1999 and this is likely to continue in future [9] . As procurement budgets have started to swell again and are likely to stay that way, new opportunities are expected for the defence industry. In the changing conflict scenario, there has been an upward trend in the LIC, insurgency, terrorism, OOAC etc as a result of which the global defence industry after a period of significant downsizing and rationalization has entered into a phase of renewed attention.

India’s Defence Industry.

10. Post Cold War era, the changing trends in the global defence industry had affected Indian defence industry in many ways. The era of economic liberalization since 1991 has resulted in indigenous build-up of technological base in the IT, communication, electronics, automobile sectors etc. Since, all acquisitions in the past and till upto mid 90’s were either outright purchase or linked with license production, what best the DPSUs or the OFs could gain was expertise in production which was entirely dependent on the assemblies and Semi knock Down Kits (SKD) or sub assemblies imported from the Original equipment manufacturer (OEM). The real technology transfer aimed at enhancing the indigenous development was missing in all the deals covered under License Production and Transfer of Technology (TOT). However, the most far reaching change that has impacted the India’s defence industrial sector is the opening up of this sector for private participation. The objectives are manifold viz., reduction of defence imports from current levels of 70 percent, increase in defence exports, enhance the indigenous R&D skill level and infrastructure to produce technologically advanced state of the art equipment within the time frames specified. Coupled with the economic liberalization and opening up of the defence sector to private companies was linked the problem of licensing and requirement of foreign direct investment in the defence sector. In January 2001, the GOI initiated a series of major initiatives that included Foreign Direct Investment (FDI) up to about 26 percent and full private participation in certain sectors in the defence industry.

Shift from Self Sufficiency to Self-Reliance

11. Since independence the India’s industrial policies outlined in Industry Policy Resolution of 1948 and 1951 was aimed at achieving self sufficiency in defence production. Towards this the government invested heavily in scientific and technological institutions both educational-such as the IITs, and research and development institutes such as the CSIR, ICAR, DAE, DoS, ICMR, DRDO so as to develop a strong technological base. However, the country’s defence was neglected, as was evident in 1962 war. With a weak Defence-Industrial Base (DIB), the policies to maximize production in order to attain self-sufficiency in the defence sector although were considered farsighted, did not match expectations, thus leading to shift of focus from self-sufficiency model to self reliance model post 1962 war.

12. Self-reliance in its true sense does not preclude accessing external sources for technology and systems, or external help in any stage of the production cycle. Hence, self-reliance as far as India was concerned, meant – apart from India’s own production base for support – a degree of dependence on reliable foreign sources for access to technologies, supply of components and complete systems was desirable. These were materialized by meeting urgent and immediate demands through imports form abroad while simultaneously striving for indigenous capabilities in defence production. Although India’s main focus on imports was from western countries like UK, France, Sweden these countries were reluctant in supplying defence equipment to India post 1962 war with China. India’s quest for self reliance got a major boost when Russia (erstwhile USSR) agreed to Licence production by India for various defence equipment acquired by India form Russia. These Licence production of aircraft, battle tank, arms and ammunition were undertaken by various DPSUs as well as OFs. However, the only thing that lost its focus in the bargain was the transfer of technology aimed at enhancing indigenous production and R&D activities. The outcome of this is obvious, as witnessed in the LCA program, MBT Arjun, aero engine Kaveri to name a few. In spite of having produced aircraft, tanks and aero engines under license production the organizations involved in the production could hardly assimilate and nurture the technology needed to supplement our own indigenous efforts. Probably the focus of these organizations was more towards production rather than indigenization.

Defence Industrial Policy

13. The defence industrial policy was aimed at establishing a strong and self sufficient defence industrial base (DIB). The objective was to have thrust in indigenous production and exploring possibilities of exports to other developing nations that may look forward to supplies from India.

14. In spite of being more focused to numeral growth or production than on the capability development (R&D), India has made rapid strides in defence technology in recent past and reached a stage of some level of self-reliance. The existing potential of the country in defence production, in the form of resource capability, know-how and technical expertise, could not be exploited to its full due to lack of clear cut defence policy. However, since liberalization of the economy in 1991 there has been increased civil military interaction. The changes in the defence production policy indicates the intention to involve the private sector in defence R&D and production through licensing and indirect opening of the defence industrial sector to foreign companies through FDI and the offset arrangement. Our defence industrial policy [10] since independence broadly consists of the following:-

Maximization of indigenous production.

Licence production of those equipments which are available and can be obtained from abroad.

Direct procurement of those equipments not covered above, but considered essential for ensuring the security.

Indigeneous Production

15. To promote indigenous production 8 DPSUs and 40 OFs were established. Also DRDO comprising of a network of 50 labs was formed to undertake R&D in the field of defence weapons, systems and equipment.

Ordnance factories. At the end of the WW2 India’s defence industrial capacity amounted to 18 ordnance factories, a clothing establishment, and an aircraft production plant; and the new government subsequently inherited this capability. Post independence this continued till 1958 after which the ordnance factories were steadily expanded. The war against China in 1962 prompted a further expansion in India’s ordnance capability and today the country has 39 ordnance factories. They were built to meet the growing needs of India’s armed forces over the past 60 years.The Indian Ordnance Factories Organisation (OFO) is currently the largest departmentally run industrial undertaking in the country. The 39 OFs are government units producing armaments under five categories [11] :

Ammunition and explosives

Weapons

Vehicles and equipment

Armoured vehicles and

Ordnance equipment (other military supplies, including general stores).

Defence Public Sector Undertakings. The eight defence public sector undertakings (DPSUs) are public-sector corporations managed by the Indian government. The defence PSUs produces a range of defence equipment. They also provide overhaul and maintenance facilities. They are:

Bharat Dynamics Ltd. BDL was established in the year 1970 to be a manufacturing base for guided weapon systems [12] .  

Bharat Earth Movers Ltd. BEML is one of the largest manufacturers and suppliers of earthmoving, construction and mining equipment in Asia [13] . 

Bharat Electronics Ltd. (BEL) was established in 1954 to meet the specialised electronic needs of the Indian defence services [14] .

Hindustan Aeronautics Ltd. HAL is a major player in the global aviation arena. It has built up comprehensive skills in design, manufacture and overhaul of fighters, trainers, helicopters, transport aircraft, engines, avionics and system equipment [15] . 

Garden Reach Shipbuilders and Engineers Ltd. (GRSE) is one of India’s leading shipyards that builds and repairs a wide range of vessels from warships for the Indian Navy to merchant shipping vessels [16] .

Goa Shipyard Ltd. GSL is a shipyard that is one of the most sophisticated ship builders in the Country. For over four decades, GSL has designed, built and commissioned a wide range of sophisticated vessels for varied applications in the defence and commercial sectors with special expertise in building modern patrol vessels of Steel and Aluminium hull structure [17] .

Mazagon Dock Ltd. Mazagon Dock Limited is the India’s premier shipyard constructing warships as well as offshore platforms. It undertakes ship building, ship repairs and fabrication of offshore structures with facilities situated at Mumbai and Nhava [18] .

Mishra Dhatu Nigam Ltd. MIDHANI caters to domestic and international customers with modern metallurgical facilities and high degree of technical competence for manufacturing its diverse product mix of superalloys, titanium alloys, special purpose steels, electrical resistance & softmagnetic alloys, molybedenum and other alloys meeting the stringent requirements of the strategic sectors like defence, aerospace, power and general engineering etc [19] . 

Defence Research & Development Organisation (DRDO). India also has a defence research and development (R&D) capability. Called DRDO. DRDO draws on the work of 51 laboratories/establishments across the country, and (in theory at least) has close links with the eight PSUs. It also co-operates with 70 academic research institutions, 50 national science and technology centres, and some companies in the private sector.

License Production

16. Post independence India’s quest for self-reliance got a major boost through license production arrangement with USSR. This immensely benefited defence industry as it improved many notable weapon systems from this experience. India’s self-reliance model in defence production was thought to have given a life lease by the Soviets. The normal assumption is that production under license would enable the country not only to acquire the capability to produce a particular equipment or product but also help it gain the technical know-how for subsequent upgradation and further technological innovations. For the last fifty-odd years, India has been producing a number of defence equipment under license. Good examples in this regard are the Vijayanta tank and the MIG series of fighter aircraft [20] . But this does not seem to have helped in the development of the Arjun Main Battle Tank and the Light Combat Aircraft. Moreover, India has not even been able to upgrade certain fighter aircraft held and operated for a long time by its armed forces.

Direct procurement

17. To meet the immediate requirement of the armed forces, outright purchase of the systems/ equipment is resorted to. This may be from abroad or for indigenous companies. The objective of the defence policy aims at maximizing indigenous production; what could not be produced indigenously should be produced under license arrangement; and those that could not be obtained through these two routes should be acquired by direct purchase.

Emerging Defence Production Policies in 21st Centruy

Transparency in Defence Procurement

18. Since independence and almost till late 90’s only a select few companies got the Request for Proposals (RFPs) with secrecy being maintained in the procurement process. With the introduction of Defence Procurement Procedure (DPP) the government has strengthened its commitment to transparency in the procurement process and to removing the “veil of secrecy” surrounding it. The case in point is the procurement of MMRCA. The deals of recent times are open deals with no more veil of secrecy in the RFP. The details of the RFP are made available to all industry representatives by placing the tenders on the net, except in the most sensitive cases, which may be minuscule in number. Ensuring transparency in the procurement process has also resulted in widening the vendor base.

Defence Procurement Procedure

19. Defence Procurement Procedure – 2008 is presently being followed. This was issued after DP-2006 was revised along with the Fast Track Procedure – 2001 and the Procedure for Indigenous Warship Building. In addition, most importantly, a procedure for the development of systems based on indigenous research and design, categorized as ‘MAKE’, has now been formulated. This bridges a critical gap that existed hitherto, and would provide the requisite framework for increased participation of Indian industry in the defence sector. Some of the important features of Defence Procurement Procedure includes:

Reducing the timeframe for acquisitions.

Enhanced transparency by placing the generic requirements of the Services on MOD website and generating vendor registration through Internet.

Increased transparency in the conduct of field trials.

‘Integrity Pact’ made compulsory for all contracts above Rs. 100 crores.

An ‘Offset’ obligation of 30% for all contracts above Rs. 300 crores. However, there have been indications of companies trying to dilute this clause.

FDI in Defence Production

20. To boost up the indigenous production in the defence sector, the government in 2001 had opened up the defence sector by permitting 100 percent private participation in defence production and also 26 percent Foreign Direct Investment of the host company’s equity. However, the only glitch in the whole process was the requirement of obtaining a license from the defence ministry by the private firms to produce military hardware. However, there is a need to increase FDI limit from the current 26 per cent which would facilitate access to desired niche technology and processes.

De licensing of Defence Production

21. DPP-2008 did away with the license requirement for industries for manufacturing military hardware, thereby creating a “level playing field” with the defence public sector undertakings. Considered to be a revolutionary DPP, the de licensing will enable the private industries to skillfully employ the available expertise to take up production of military hardware. This will definitely boost up the efforts of indigenization in defence technology.

Raksha Udyog Ratnas

22. Effective participation by the Industry, both public and private, at various points of interaction and subsequent long-term association in product development and productionisation, can be only done through those firms of proven excellence and which are capable of contributing, depending on their technical, managerial and financial strength. These firms called as Raksha Udyog Ratnas (RUR) would be the key drivers towards raising indigenous defence technological base and world-class manufacturing capabilities in India.

R & D in Military Aviation Sector

23. Aviation is one of the most significant technological influences of our time and empowers the nation with strength. It is a major tool for economic development and has a significant role in National security and international relations.

24. Various military, DPSUs and private companies have been associated in the R & D activities, software and systems development and systems integration on civil, fighter aircraft and helicopters. These are Defence Avionics Research Establishment (DARE), Aeronautical Development Agency (ADA), Aeronautical Development Establishment (ADE), Aircraft Upgrade Research and Development Centre (AURDC), HAL, Mission Computing System Research and Development Centre (MCSRDC) HAL, and Software Development Institute (SDI). DARE played a pivotal role in evolving the avionics architecture of Mig 27 upgrade, developed the Core Avionics Computer (CAC), mission computer software for CAC, display suite software of SU 30 MKI and the hardware and operating system of Radar Computer of SU 30 MKI. SDI based at Bangalore has been actively involved in the indigenous upgrades of SU 30 MKI as well as development of various mission planning systems and weapon algorithms employed in Mig 27 upgrade. AURDC has been involved in the Bison upgrade, Mig 27 upgrade and various indigenous upgrades of SU 30 MKI aircraft. MCSRDC has played a vital role in the software development and integration of avionics systems in the Jaguar (Darin II) aircraft. It is also involved in the upgrade of Jaguar to Darin III standards.

Joint Ventures

25. India has an inherent edge over several other nations because of higher skills and lower costs of production. This makes India an ideal contender for joint ventures. HAL has entered into joint ventures with many overseas aviation system companies to undertake design and development of new systems in India. Some of these are the BaeHAL, HAL Edgewood, HELBIT etc. Many other software and hardware giants involved in the aviation hardware and software development especially in the embedded and real time system domain have also established their facilities in Bangalore. Some of these are GE Intelligent Systems, Honeywell, etc.

26. Given their rapid growth over the last decade, it is perhaps no surprise that Indian software companies such as HCL, Infosys, Infotech, Tata Consultancy Services and Wipro have been active in the aerospace industry for several years. Increasingly, they are benefiting from the engineering services outsourcing programmes. This will help India evolve from IT and low-end business process outsourcing work to high-end design services. Overseas companies view the Indian companies as “long-term partners and not as mere suppliers/vendors”.

Private Participation

27. EADS’s helicopter subsidiary Eurocopter has had one of the longest partnerships with Indian industry. Since 1962, it has worked with HAL in India to manufacture more than 600 Alouette 3 and Lama (known as Cheetah and Chetak locally) helicopters. HAL also produces airframes for the Ecureuil/Fennec family of rotorcraft. The European firm also plans to set up pilot training facilities in India for the civil and military segments and plans to invest €7-8 billion ($9.5-11 billion) over the next 10 years. Tata has entered into JV with AgustaWestland to assemble the AW119 in India.

28. Honeywell Aerospace, which provides integrated avionics, engines, systems and service products for the aerospace industry, is one example. The US company has a design and development centre in India that it hopes to expand in the coming years. Airbus has set up the Airbus Engineering Centre India in Bangalore where local engineers help develop capabilities in modelling and simulation, covering areas such as flight management systems and aerodynamics, to help in the design and production of aircraft such as the A380 and the A350. It is also working with Indian IT firms such as CADES, HCL, Infosys, Quest and Satyam to offer support across various aircraft programmes.

Conclusion

29. India’s defence-industrial strategy is directed primarily toward achieving self-reliance. Presently, there is a clear imbalance in requirements by the armed forces. While roughly 70 percent of requirements are met through arms imports, the domestic sources supply the rest. The current strategy is geared to reverse this trend with the primary aim of supplying three-fourth of the requirements through domestic sources. India’s decision to allow private participation in the defence-industrial sector is seen as a dual aim, namely to achieve much-needed capital and production enhancement and, secondly, to open up to the external market through their presence. There is also an effort to adopt suitable strategies to make select sectors like aerospace and electronics globally competitive. DPSUs like HAL and BEL are now much in demand and are trying to become viable global giants.

30. The overall strategy is to make the defence-industrial sector act as a locomotive for economic development. In this regard, an emphasis on dual-use technologies and production is contemplated which could benefit both the defence and civilian sector. The current strategy also looks into various options toward minimising the state investments in the defence sector while encouraging private and foreign portfolio investment in existing Indian defence companies. If recent changes in various policies related to the defence industry are supposed to have any meaning, then, despite all problems, there is something to be optimistic about in the Indian defence industry.


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