In August 2014, India’s newly elected Prime Minister Shri Narendra Modi gave a clarion call to the nation to focus its attention on making India a manufacturing powerhouse with his ‘Make in India’ vision[1]. Defence manufacturing was identified as one of the 25 sectors in this vision[2]. India has been one of the largest importers of defence equipment for over three decades and had the ignominious distinction of being at the top of the list from 2004 to 2014. As per the authoritative data base released by the Stockholm International Peace Research Institute (SIPRI) in 2020, India’s defence imports reduced by 33% from 14% of the global total in the period 2011-2015 to 9.5 % in the period 2016-2020, with Saudi Arabia pushing India to the second position.[3] Whether this drop was due to the success of the indigenisation process or due to the complexity of the acquisition procedure will become evident only when the figures for the current five year period are released. India is slated to procure some significant military hardware in the next few years including its most expensive ever import, the S-400 Air Defence system from Russia, 24 Sikorsky MR-60 helicopters from the USA, two Type 1135.6 Krivak class frigates and possibly, a nuclear-powered attack submarine on lease from Russia. The Air Force and the Army are also in need of modernisation and not all requirements can be met indigenously due to the capacity and capability constraints of the Indian defence industry. Indigenisation and self-reliance in defence manufacturing is a strategic imperative for India. As a regional Indo-Pacific power, India’s dependence on imports is a critical vulnerability. This has been exposed more than once; the first time was when the Soviet Union collapsed and so did its defence industry which left the Soviet equipped Indian Armed Forces facing a spares crisis with serious consequences for the country’s security. The second instance was the sanctions imposed by the West in the wake of the nuclear tests carried out by India in May1998 which also affected India’s military preparedness adversely. Both these events led to a thrust on indigenisation but was limited in scope and substance and focussed more on addressing the immediate crisis. In 2020, the Ministry of Defence unveiled a Draft Defence Production and Export Promotion Policy[4] to energise the defence manufacturing sector and set an ambitious target for defence turnover of USD 25 billion in ‘Aerospace and Defence Goods and Services’ with exports worth USD 5 billion by 2025. It is also intended to double defence procurement from the present Rs 70,000 crore to Rs 140,000 crore in the same time frame. Presently, the share of domestic procurement is about 60% of the total procurement[5]. The recent Budget has increased this allocation to 68%, which in percentage terms is 10% more than the current financial year. With the projected capital allocation of Rs 1.52 lakh crore[6], this amounts to a considerable Rs 1.03 lakh crore. This is ambitious but attainable and when seen in conjunction with the review of all ‘Buy Global’ cases undertaken by the Defence Acquisition Council in January 2022, it clearly spells out the intent to minimise the dependence on imports and invest more in developing indigenous capability. While this is indeed encouraging and necessary, there are considerable capacity and technology constraints in the defence industrial ecosystem which will need to be addressed. Perhaps an indication of how much of the 58% committed in the current FY has actually been spent on indigenous equipment would offer an insight into the probability of attaining the intended target. In 2021, the Government listed a total of 209 items which would be produced indigenously with the timeline reflected against each in two ‘Positive Indigenisation Lists’. Another ‘Positive Indigenisation List’ included 2,851 items including assemblies. Components and sub-components, imports of which are also embargoed. In addition, various other initiatives have been taken to encourage indigenous defence production. These include the ‘Innovations for Defence Excellence’(iDEX) scheme to encourage MSMEs, the Implementation of “Public Procurement (Preference to Make in India), Order 2017, the launch of the SRIJAN portal to facilitate indigenisation and the establishment of two Defence Industrial Corridors, one each in Uttar Pradesh and Tamil Nadu[7]. Revisiting the Defence Acquisition Procedure The Ministry of Defence has always been pro-active in promulgating policies encouraging the growth of the defence manufacturing base in the country, promoting indigenisation and meeting the requirements of the Armed Forces. However, regrettably, implementation has been found wanting. At the turn of the century, it was decided to streamline the defence procurement process through an institutionalised mechanism to ensure transparency, probity and above all timely procurement. This led to the promulgation of the first Defence Procurement Procedure (DPP) in 2002. Since then, this document has undergone numerous iterations (2005, 2008, 2011, 2013, 2016 and the latest in 2020, now renamed the Defence Acquisition Procedure). The document has grown from 141 pages (DPP 2005) to a humungous 657 pages (DAC 2020). These well-intentioned improvements over the years have led to it becoming increasingly complex in its understanding, interpretation and implementation. This is primarily because successive iterations have rarely been a result of any meaningful internal audit of the existing procedure as newer categories of acquisition and procedural terms and conditions have been added without adequately analysing the success, or lack of it of the existing ones. To illustrate the point, MoD introduced the ‘Make’ category in DPP 2006 with the intention of developing indigenous capability in some core areas. Amongst the first programmes announced with great expectation was the plan to build an indigenous FICV (Future Infantry Combat Vehicle) with active participation from all the leading private players including MSMEs. Other programmes included a nation-wide Defence Communication Network (DCN) and a Battle Management System (BMS). The FICV programme was cancelled after a few years which led to industry incurring considerable losses on its investment. While the larger players were able to absorb this, it was the MSMEs which bore the brunt. Subsequently, a revised ‘Make’ procedure was reintroduced and since then it has continued to evolve. In the DAP 2020, ‘Make’ has been subdivided into Make 1,2 and 3. It is too early to assess the effectiveness of this but the bottom line is that the Indian Army is no closer to getting a FICV today than it was 15 years … Continue reading India’s Progress As A Defence Manufacturing Hub
India’s Progress As A Defence Manufacturing Hub
In August 2014, India’s newly elected Prime Minister Shri Narendra Modi gave a clarion call to the nation to focus its attention on making India a manufacturing powerhouse with his ‘Make in India’ vision[1]. Defence manufacturing was identified as one of the 25 sectors in this vision[2]. India has been one of the largest importers of defence equipment for over three decades and had the ignominious distinction of being at the top of the list from 2004 to 2014. As per the authoritative data base released by the Stockholm International Peace Research Institute (SIPRI) in 2020, India’s defence imports reduced by 33% from 14% of the global total in the period 2011-2015 to 9.5 % in the period 2016-2020, with Saudi Arabia pushing India to the second position.[3] Whether this drop was due to the success of the indigenisation process or due to the complexity of the acquisition procedure will become evident only when the figures for the current five year period are released. India is slated to procure some significant military hardware in the next few years including its most expensive ever import, the S-400 Air Defence system from Russia, 24 Sikorsky MR-60 helicopters from the USA, two Type 1135.6 Krivak class frigates and possibly, a nuclear-powered attack submarine on lease from Russia. The Air Force and the Army are also in need of modernisation and not all requirements can be met indigenously due to the capacity and capability constraints of the Indian defence industry. Indigenisation and self-reliance in defence manufacturing is a strategic imperative for India. As a regional Indo-Pacific power, India’s dependence on imports is a critical vulnerability. This has been exposed more than once; the first time was when the Soviet Union collapsed and so did its defence industry which left the Soviet equipped Indian Armed Forces facing a spares crisis with serious consequences for the country’s security. The second instance was the sanctions imposed by the West in the wake of the nuclear tests carried out by India in May1998 which also affected India’s military preparedness adversely. Both these events led to a thrust on indigenisation but was limited in scope and substance and focussed more on addressing the immediate crisis. In 2020, the Ministry of Defence unveiled a Draft Defence Production and Export Promotion Policy[4] to energise the defence manufacturing sector and set an ambitious target for defence turnover of USD 25 billion in ‘Aerospace and Defence Goods and Services’ with exports worth USD 5 billion by 2025. It is also intended to double defence procurement from the present Rs 70,000 crore to Rs 140,000 crore in the same time frame. Presently, the share of domestic procurement is about 60% of the total procurement[5]. The recent Budget has increased this allocation to 68%, which in percentage terms is 10% more than the current financial year. With the projected capital allocation of Rs 1.52 lakh crore[6], this amounts to a considerable Rs 1.03 lakh crore. This is ambitious but attainable and when seen in conjunction with the review of all ‘Buy Global’ cases undertaken by the Defence Acquisition Council in January 2022, it clearly spells out the intent to minimise the dependence on imports and invest more in developing indigenous capability. While this is indeed encouraging and necessary, there are considerable capacity and technology constraints in the defence industrial ecosystem which will need to be addressed. Perhaps an indication of how much of the 58% committed in the current FY has actually been spent on indigenous equipment would offer an insight into the probability of attaining the intended target. In 2021, the Government listed a total of 209 items which would be produced indigenously with the timeline reflected against each in two ‘Positive Indigenisation Lists’. Another ‘Positive Indigenisation List’ included 2,851 items including assemblies. Components and sub-components, imports of which are also embargoed. In addition, various other initiatives have been taken to encourage indigenous defence production. These include the ‘Innovations for Defence Excellence’(iDEX) scheme to encourage MSMEs, the Implementation of “Public Procurement (Preference to Make in India), Order 2017, the launch of the SRIJAN portal to facilitate indigenisation and the establishment of two Defence Industrial Corridors, one each in Uttar Pradesh and Tamil Nadu[7]. Revisiting the Defence Acquisition Procedure The Ministry of Defence has always been pro-active in promulgating policies encouraging the growth of the defence manufacturing base in the country, promoting indigenisation and meeting the requirements of the Armed Forces. However, regrettably, implementation has been found wanting. At the turn of the century, it was decided to streamline the defence procurement process through an institutionalised mechanism to ensure transparency, probity and above all timely procurement. This led to the promulgation of the first Defence Procurement Procedure (DPP) in 2002. Since then, this document has undergone numerous iterations (2005, 2008, 2011, 2013, 2016 and the latest in 2020, now renamed the Defence Acquisition Procedure). The document has grown from 141 pages (DPP 2005) to a humungous 657 pages (DAC 2020). These well-intentioned improvements over the years have led to it becoming increasingly complex in its understanding, interpretation and implementation. This is primarily because successive iterations have rarely been a result of any meaningful internal audit of the existing procedure as newer categories of acquisition and procedural terms and conditions have been added without adequately analysing the success, or lack of it of the existing ones. To illustrate the point, MoD introduced the ‘Make’ category in DPP 2006 with the intention of developing indigenous capability in some core areas. Amongst the first programmes announced with great expectation was the plan to build an indigenous FICV (Future Infantry Combat Vehicle) with active participation from all the leading private players including MSMEs. Other programmes included a nation-wide Defence Communication Network (DCN) and a Battle Management System (BMS). The FICV programme was cancelled after a few years which led to industry incurring considerable losses on its investment. While the larger players were able to absorb this, it was the MSMEs which bore the brunt. Subsequently, a revised ‘Make’ procedure was reintroduced and since then it has continued to evolve. In the DAP 2020, ‘Make’ has been subdivided into Make 1,2 and 3. It is too early to assess the effectiveness of this but the bottom line is that the Indian Army is no closer to getting a FICV today than it was 15 years … Continue reading India’s Progress As A Defence Manufacturing Hub