The Hindu Business Line : Defence Sector: Huge potential to be tapped

For India’s Defence sector, the past 60 years have been an era of high expectations and low realisation. However, it can still catch up if the inherent strengths in the civilian sector in foreign capital flow, business knowledge and
technological foresight are used for the sector’s
rapid development, says
.

The script of the Indian Defence sector, as played out in the last 60 years, seems to have an air of under-achievement and inevitability. The future is even more daunting and uncertain. Nevertheless, two things appear to augur well — relaxation of the state stranglehold and invitation to foreign participation, opening the window to global capital and the latest technology. Israel and South Korea undertook a contemporaneous quest for self-reliance alongside India by i nvesting in the defence industry and technology, and there are no prizes for spotting who finished last.

Chimera of Self-Reliance

Sixty years ago, the notion entertained was that the mushroom clouds created by atom bombs in Hiroshima and Nagasaki virtually ended the era of conventional warfare. On that presumption, nations mothballed the government-owned military factories of World War. The renewal of faith in international forums like the United Nations also made leaders somewhat indifferent to matters military.

Then, suddenly, and in some cases almost immediately after they unfurled their flags to flaunt their nation status, these countries were called upon to defend their borders, whose contours remained unclear, a result of the unfinished agenda of their erstwhile colonial rulers or of the mandated agreements between people who had to live as neighbours. The United Nations, or its Security Council, were of little help despite the promise held out during their formation.

To build up a credible strength of troops and arsenal, these nations had to engage in the polemics of ‘make or buy’, which would dog the decision-makers in future too, while equipping their armed forces. The military everywhere cannot wait for the local development and production efforts to fructify. This forced the rulers to buy off-the-shelf equipment from leading international suppliers which were wrapped with political strings attached.

The Cold War era of super-power rivalry forced the buyers to take sides if they wanted off-the-shelf items or even technological help in arming themselves. At times, there were instances of sudden slowing or stoppage of flow of arms and ammunition or even technology if the perceived alignments of the recipients were not to the liking of supplying nations.

These countries felt the urgent need for building indigenous capability of development and production to create a viable defence sector. However, with resources spread thin, especially in Research and Development in the rapidly changing technological environment, progress was slow. Production in the protected public sector was plagued by inefficiency. The only recourse to overcome the resource crunch was to aggressively undertake exports, if the products kept pace with rapidly advancing technology. Israel, for instance, realised relatively early that arms production can be viable only if the entire world is treated as a market.

India, Biggest Importer

Unfortunately, at that time, the Indian public sector system could not attract the best talents for scientific and technological endeavours.

More exasperating was the marked lack of synergy, as observed by the Prime Minister even as recently as a few weeks ago, between designer, producer, and user. The result was that, while over 60 years, Israel became fifth largest exporter in the world, India was the number one importer of arms.

South Korea, too, despite being a late starter and the obstacles placed in its way by its ally the United States because of its innate competitive manufacturing culture, scientific temper and work discipline, made its mark to earn its place in the top league of arms exporters. Relatively speaking, India failed to live up to the promises as its technologists candidly admit that, against a target of 70 per cent indigenisation, they could achieve only 30 per cent.

On the export front, India’s intentions were ambivalent and not sustained and, hence, it could not get even a toe-hold particularly because of its inability to keep pace with the exacting technical specifications demanded by the market. These failures, among other things, have compelled India to plan weapons imports to the tune of $ 05 billion currently, making it an even bigger importer of weapons than the oil-rich West Asian nations.

This is not to say that the Indian story is not without its share of outstanding achievements. The most recent and noteworthy is the joint production with Russia of the Brahmos, the supersonic cruise missile, and moderate successes in building guided missiles.

Also, sustaining the momentum generated after the Chinese conflict in 1962 in the development and manufacture of small arms, mortars, howitzers, mortars, field guns, mines, ammunition of all types for these weapons and chemicals, as also wheeled vehicles, with very little external help, deserves all praise.

India could also absorb foreign technology — Russian, French and British — even under difficult contractual clauses and erratic delivery of SKD/CKD parts and deliver battle tanks, fighters, helicopters, missiles and naval vessels and their spare parts.

Private Sector Role

Contrary to the popular perception that the private sector has been involved in Defence production, the fact remains that it was only allowed to function as a supplier of raw materials and components.

After setting up the Defence supplies department in 1965, to date, over 5,000 such SMEs (Small and Medium Enterprises) are involved, accounting for supplies of $6 billion annually. However, the indigenisation effort was flawed from the beginning as it was premised on reverse engineering and import substitution.

Since the Indian engineers in the technical committees had little or no grounding in product design, more time was spent after components were produced, on system integration by trial and error. More importantly, often, no single entity could be held responsible for delays or quality, as the efforts were fragmented and accountability diffused.

With the liberalisation of the economy in the early 1990s, these SMEs were recognised for the first time and honoured with national awards. It took another 10 years to open them up to 100 per cent private sector investments and allow foreign direct investment (FDI) of up to 26 per cent in select areas of the Defence industry, enthusing such leading industrial houses as Mahindra & Mahindra, Tatas, Kirloskar Brothers, Larsen & Toubro, Ashok Leyland, Jindal, Max Aerospace & Aviation, and Ramoss India. Only two contracts have been awarded so far, one each to L&T and Tata Power, for rocket-launchers.

With the far-reaching recommendations of Kelkar Committee, the pace of reforms for broadbasing the Defence industry was expected to be stepped up, despite objections from certain trade unions.

Its offset policy on imports of weapon systems, which predicates compulsory sourcing of components at least up to 30 per cent of the value of an order, is expected to expand the scope of the Defence sector as the Defence budget is forecasted by Jane’s to rise to $30 billions by 2009.

New Horizons

Rapid globalisation and increasing mobility of labour and skills may invite military intervention for securing our trade, people and even our way of life, rather than for defending border integrity. Network-centric capability cutting across military and security arenas, involving the linkage of sensors, decision-makers and combatants through open architecture and standard interfaces will be the need of the hour.

The wireless will further revolutionise devices and equipment, enabling them to talk to each other with aerially dropped sensors supplying accurate information on troop and vehicle movement of enemy positions. Remotely operated weapon platforms and unmanned aerial and combat systems may become the mainstay to help minimise troop casualties.

Amidst this, the greatest challenge before the Defence industry, both private and public, lies in picking the most competent of technologies, products and services which are durable in terms of obsolescence and marketable worldwide.

This is also an opportune time to re-focus on the needs of the Defence industry, even as a recent white paper on “Accessing International Defence Markets” in Janes’ exhorts world-renowned companies in the US and Europe to enter into mutually beneficial partnerships with local industry complementing their capability to increase their exposure to Asian markets.

R. SUNDARAM (The author is a former Member, Ordnance Board.)