Time to recalibrate defence manufacturing

Ajay Shankar | Updated on April 07, 2021

Defence might Tejas fighter jet   -  The Hindu

The focus must be on self-reliance, and the strategy adopted to build the Tejas fighter jets should be the way forward

The recent order of 83 Tejas multi-role light fighter jets from HAL is historic. This plane, designed and developed indigenously with support from the government, is much cheaper than imported fighter jets. This could mark the beginning of the end of India being one of the world’s largest importers of arms, and becoming self-reliant.

Major powers have all developed their national defence industries. Sweden is a good example of a small nation which, as it industrialised, created globally competitive national defence companies such as Bofors and Saab. The costs of developing a national defence industry are huge. Most countries have developed only one firm for each category. France, for instance, has only Dassault for military planes.

Governments finance the development of the next generation of military equipment, and then buy what is developed. Some countries supported the growth of private firms in defence. Others developed their public sector companies. All prices for development and production are determined on a cost-plus basis with scrutiny and oversight by the defence procurement bureaucracy. Overseas sales have been a way of getting additional revenues.

As defence production is a monopoly from both the demand and supply side, it is not amenable to normal market competition. It has been developed and nurtured on a long-term basis by governments with micro management of design as well as costing. The implication of this fundamental difference from normal industries is that it would be wasteful to pursue the creation of a competitive industry structure.

Domestic assembly

Developing a ‘national’ defence industry means development of the capacity for mastering the design, technology and production of a weapon system of one generation and then being able to develop the next generation technology and weaponry on one’s own. India has achieved this with Tejas. It does not mean domestic assembly of the product of a foreign firm along with an Indian partner, though this has been the case with most of our defence production till now.

If an Indian partner is to be only of help to a global player in getting a high-value contract then it is of little value in the medium term. India cannot afford , nor should it be thinking of, having two or more firms making military planes or naval ships through two successive tenders. Nor would global MNCs doing assembly in India with a junior Indian partner be of any real value in becoming self-reliant.

What are the lessons of the past few decades? India acquired strategic nuclear capability with a peaceful nuclear explosion in 1974. This led to a harsh regime of technology denial by the West, which ended only after the nuclear deal with the US. In the strategic sectors of nuclear, missile and space, impressive national capabilities have been created. A large number of high technology private sector firms in niche areas were created and nurtured for these programmes by government agencies; an exemplary success story.

The erstwhile Soviet Union was our reliable military partner. Defence public sector undertakings and ordnance factories undertook licensed production on a massive scale. Even today the Armed Forces depend mostly on these Russian technology weapon systems. In the next round of modernisation in the 1980s, agreements were negotiated for weapon systems with technology transfer and licensed production from European partners; submarines from Germany, and Bofors guns from Sweden.

Then came the reports of pay-offs by Bofors. The result is that procedure and process now reign supreme in the Defence Ministry with outcomes being secondary. Negotiations are ruled out. The ability to leverage the size of the contract for maximising technology transfer and domestic value addition is lost if negotiations are ruled out.

The DRDO’s new weapon systems have had teething troubles and also difficulty in getting accepted by the Armed Forces. The challenges that need to be overcome quickly are: how to (a) get better synergy between the customer and the producer, (b) build long term partnerships with Indian firms, (c) get better organic relationships between DRDO laboratories and production units, and (d) get NRIs to return and work for self-reliance.

Long-term partnerships with private sector firms with financial support from government for next generation technology development would help. Converting ordnance factory units into corporate entities and providing greater flexibility and better management to defence production undertakings would be forward steps. Disinvestment below 50 per cent for greater autonomy and more professional management could also be considered.

The opportunities provided by the end of the technology denial regime from the West are huge. These should be utilised fully with strategic purpose. A 10-year plan for achieving self-reliance and achieving technological parity with China, if not getting ahead, should be the ambition. We should also be willing to consider out-of-the-box options of joint development of technology as well as design of sub-assembly systems with foreign partners on payment. Such decisions need a radically different empowerment and confidence to negotiate the best deals to leverage the size of our huge market.

The writer is a former Secretary, Department for Promotion of Industry and Internal Trade

Published on April 07, 2021

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