12. The history of DIB in India dates back to 1775 when British authorities accepted setting up of Board of Ordnance in Fort William, Kolkata. This was the official beginning of the Army Ordnance in India. In 1787 a gun powder factory was established at Ishapore which started production from 1791  . However, the first ordnance factory, Gun & Shell factory was established at Cossipore in 1801 to manufacture guns and ammunition.  Since then the DIB in British ruled India grew to 7 Ordnance Factories (OFs) by the end of WWI and 18 OFs at the time of independence1, generally catering to repair & overhaul and supplementing weapons and equipment produced in Britain. During this period India was never allowed to develop core competencies in industrial production.
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Post Independence up to 1960s
13. Post independence the Indian leadership aimed at attaining self-sufficiency in entire domain of defence production. To achieve this Industry Policy Resolution 1948 and The Industries (Development & Regulation) Act, 1951  emphasized ‘core’ industries (including defence sector) be taken care of by central government. Hence, eight Defence Public Sector Units (DPSUs) were established under aegis of Government, to undertake defence production. Defence Science Organisation(DSO), which was established to take up challenges of R&D, got amalgamated with technical development establishment (TDE) in 1958. Hence, DRDO was created which then comprised of 10 laboratories  .
Post 1962 War
14. Post 1962 war license production and direct purchase remained predominant form of supply for armed 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 R&D. 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 yet-to-be fully developed Advanced Jet Trainer (AJT) are some of the examples that typify both technology and production gaps  .
Trends in 1980s and 1990s
15. During this period Global defence expenditure touched its peak in 1987 and then fell sharply in late 1980s and early 1990s. This period also saw globalization with countries opening up their economies, rise in low intensity conflicts, lawlessness, crimes and terrorism. This period was the starting point of major defence acquisitions from abroad coupled with major initiatives in indigenous defence production, including R&D. The license production of Jaguars and MiG-27M was undertaken by HAL  . This period also saw commencement of indigenous development of LCA, ALH, MBT Arjun by DRDO and missiles under Integrated Guided Missile Development Programme (IGMDP) by Bharat Dynamics Limited (BDL). However, fructification of these projects was accompanied by inordinate delays and technological gaps.
16. With nothing forthcoming from indigenous R&D, the mainstay of armed forces was met through substantial arms acquisition from abroad. 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.
Defence Industry in 21st Century
17. The importance of civil military interaction to attain ‘near self-reliance’ in defence production was realized and this period saw changes at institutional and organizational levels as recommended by GoM Committee Report on ‘Reforming the National Security System’. The major shift in policy was allowing 100% private sector participation and 26% Foreign Direct Investment (FDI) in defence-industrial sector  . 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
18. Cold War era saw an upward trend in military demand followed by a reverse trend in post cold war era. Reduction in defence budget allocation  in the post cold war period, as shown in Table 1 resulted in many smaller companies either merging with big ones or shifting towards civilian production. Mergers and acquisitions resulted in creation of few giant companies like Boeing, Lockheed Martin, British Aerospace, Northrop Grumman and EADS. As shown in Table, the military expenditure again witnessed upward trend since 1999 and this is likely to continue in future  . With procurement budgets increasing 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.
Table 1: Stockholm International Peace Research Institute (SIPRI): Military Expenditure Database in GDP 1988 – 2009.
India’s Defence Industry.
19. Post Cold War era, changing trends in global defence industry had affected Indian DIB. Economic liberalization has resulted in indigenous build-up of technological base in IT, communication, electronics, automobile sectors etc. Since, all defence acquisitions till mid 90’s were either outright or under license production/TOT, DPSUs/OFs could only gain expertise in production by assembling Completely knock Down (CKD) and/or Semi knock Down (SKD) Kits imported from the Original equipment manufacturer (OEM). The real TOT aimed at enhancing the indigenous development was missing in all these deals. However, the most far reaching change, in recent times, that has impacted the India’s DIB is opening up of defence 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 state of the art equipment within time frames specified. In Jan 2001, the GOI initiated a series of major initiatives that included FDI up to about 26 percent and full private participation in certain sectors in defence industry. However, licensing requirement was still an impediment towards luring private industries.
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Shift from Self Sufficiency to Self-Reliance
20. Since independence India’s 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 such as IITs, CSIR, ICAR, DAE, DoS, ICMR, DRDO etc. However, the country’s defence was neglected, as was evident in 1962 war. With a weak DIB, the policies to maximize production in order to attain self-sufficiency in defence sector although were considered farsighted, did not match expectations, thus leading to shift of focus from self-sufficiency model to self reliance model.
21. 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 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. India’s quest for self reliance got a major boost when Russia agreed for licence production by various DPSUs as well as OFs in India. However, in the bargain TOT aimed at enhancing indigenous production and R&D activities lost focus. The outcome of this is obvious, as witnessed in the LCA program, MBT Arjun and aero engine Kaveri. In spite of having produced aircraft, tanks and aero engines under Licence 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.
22. Thus, the approach that India adopted in defence procurement and defence industrial development can be divided into three stages. The first stage was from independence till 1962 when all defence needs were met from overseas procurement. The second stage was from 1962 till mid-1980s when efforts were made to build domestic production through licence production. The third stage from mid-1980s until the present day not only saw procurement from Russia and France, but also initiation of a number of indigenous R&D projects.
23. Prior to independence, the focus of DIB was primarily aimed at supplementing the equipment produced in Britain. Various committees such as the Chatfield committee in 1938, Roger Mission, the Eastern Group 1940 and the Grady Mission 1942 were formed to look into issues relating to India’s defence production  . The Grady Mission could not find a single person or department with whom they could discuss issues pertaining to defence production in India. Hence, the mis-management of the defence production in India dates back from colonial era and the heritage continues even today with the defence R&D and production sector still being neglected by the bureaucracy and the political giants.
24. Globally, Military technology has grown from the era of vacuum tube and electromechanical systems of early 19th century to miniaturized electronics and software driven sophisticated systems. Till the cold war era, Military Doctrine drove technology. However, in the fast-changing technological world, technology is driving military doctrines.
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