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A Pipe Dream in India - TSI - The Sunday Indian
 
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Monday, October 23, 2017
 
 

DEFENCE PRODUCTION

A Pipe Dream in India

 

Modi’s slogan of Make in India in the defence sector will remain a pipe dream because of the lack of domestic and foreign investments, and limited capabilities, says V. Singh
TSI | Issue Dated: April 5, 2016, New Delhi
Tags : Make in India | Sukhoi Su-30 MKI aircraft | Ministry of Defence | DRDO |
 

Despite the announcement of new defence orders worth over Rs 1.5 lakh crores by the present Modi government, very few projects will take off because of the fact that despite announcements, these will take at least five to ten years to materialize. Consequently, it can be said with some confidence that these big announcements are a tad misleading.
The private sector, which was allowed in the defence sector ten years ago, still remains confused and is unable to invest funds in the defence research and development, mostly because the government continues to buy armament through competitive bidding and places orders to defence public sector undertakings on recommended nomination.

Now the ruling government is bringing in private sector companies as strategic partners to build full-fledged platforms including fighters, warships, submarines, helicopters, tanks, missiles and other major platforms. However there’s a catch there. The catch is, a private company can become a strategic partner only for one single project and cannot be allowed to build other platforms. Needless to say, it is not being seen as a particularly encouraging step by the industry.

And as if that was not enough, a section of the serving military officials also argue that the ‘Make in India’ initiative in the defence sector is bound to face delays and massive cost over-runs, considering the past experiences.

The production of armament and major platforms by domestic firms will remain far more expensive compared to the import of the same platforms, mostly because the government will never commit long-terms orders to the same company. Also, by eliminating competitive bidding, the government has given a mixed signal to the private sector that will never make huge investments in defence R&D unless they see significant long-term profits.

The story of public sector enterprises is also dismal. The production of armament and major platforms by state-owned companies is far more expensive compared to the import of same platforms. The local production of a single unit of Russian designed Sukhoi Su-30 MKI aircraft by Hindustan Aeronautics Ltd. (HAL) is $62.2 million. Whereas the corresponding figure of the direct purchase of the same aircraft from Russia is $40.3 million. Though HAL is license producing SU-30 MKI aircraft for the past 15 years, the company is fully dependent on components, sub-components, engine and airframe assemblies from Russia. This is clearly nothing sort of appalling.

Surprisingly, the Ministry of Defence (MoD) never debates why the cost of military platforms built in India by public sector enterprises is always high. Apart from other reasons, the major factors are high industrial manufacturing waste, cost of sourcing the raw material from overseas, and very high cost man-hours' schedule. In addition to this, despite the mandatory 50 percent indigenous content clause that’s there, the realistic figure in building the large platforms is close to a very humbling and underwhelming 20 percent. In reality, the public sector enterprises are simply assemblers and not real time defence manufacturers. As much as this sounds like heartbreak, this is the fact.

Serving military officials point out that India cannot meet its indigenization goal of building 50 percent of defence platforms as we simply do not have established supply chains and are only dependent on an inadequate development base.

Though our Defence Research and Development Organisation (DRDO) has forged tie-ups with overseas partners to develop critical defence technologies, it is more of a hogwash. Almost no one gives us patents and the intellectual property rights of the products and the tie-ups are mostly used as photo-ops.

A case in point is the development of LRSAM and MRSAM. DRDO is undertaking the joint development of two missiles – Long Range Surface to Air Missile (LRSAM) and Medium Range Surface to Air Missile (MRSAM) projects with the Israel Aerospace Industries (IAI) and Rafael of Israel. For these two missiles programmes IAI and Rafael are sole design authorities while DRDO is only a buyer. Needless to say, Israel has not given technology transfer of these two missiles. The intellectual property rights of the missiles remains with IAI and Rafael, rather unsurprisingly. In August 2014, while addressing an awards function at DRDO, Modi criticised the scientists for their "chalta hai" attitude, mentioning "We should not say in 2014 that a project conceived in 1992 will take some more time." While extensions of over age scientists was a norm under the UPA government, Modi has repeatedly refused to extend tenures of such scientists (with the Ministry, in some cases, openly citing the need for young scientists).

Currently, India buys armaments and weapons from domestic and overseas companies under the "Make India", "Buy and Make India", "Buy and Make Global" and "Buy Global" categories. But India meets its armament requirements largely through imports, which forms up to 70 percent of its requirements whereas the remaining 30 percent is met though state-owned and private defence companies.

In the next three months, the MoD will introduce a new category to be called the IDDM or "Indigenously Designed, Developed and Manufactured" platforms. IDDM will have two sub-categories. In the first sub-category, it will be mandatory to have 40 per cent local content in case the design is also indigenous. Two, in case the design is not Indian, 60 per cent local content will be mandatory. But no one is sure about its implementation in the real life situation.

The existing procedures are well defined and the government already understands the current capacity and capability of the private sector.

Serving military officials point out that private companies meet only seven percent armament and weaponry requirement privately and they simply cannot achieve the 50 percent desired indigenization level till the contracts are awarded for large quantities and with an assurance of repeat orders. This assists their economies of scale and reduces the costs of manufacturing.

Till this is done, simply inviting private companies will be an unsuccessful exercise and would continue the lackadaisical "chalta hai" attitude.

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Issue Dated: Feb 5, 2017