The recently concluded Aero India 2015 was a much bigger show as compared to last decade and with Indian Prime Narendra Modi delivering inaugural address raised hopes among many international and domestic defence players that India is back on the race.
The response was overwhelming and this could be considered as the most optimist and large Aero show that has happened in India so far.
But the problem is under UPA government Indian MoD brought out several fraudulent documents such as DPP bureaucrats and politicians were incompetent and corrupt, the NDA has other problems to overcome such as lack of clarity.
“The present Indian government is all dressed up but it does not know which way to go,” remarked a sales representative of renowned global engine maker.
There is sincerity and Modi government is keen to do something in defence sector to enhance defence production and national power but it needs innovative ideas at all level.
No doubt, that the special emphasis on ‘Make in India in defence’ by the new Indian government is a key point in attracting the global defence manufacturers and senior delegation to the air show.
But the lack of clarity on what ‘Make-in-India’ means in relation to defence production and how it is different from systems and procedures earlier being followed by the MoD, has not gone down well with the defence industry people.
There appears as an overall lack of clarity and planning in the MoD’s approach to this Make in India concept.
Some are still considering it as another façade or a DPP type document to attract new players.
However, India needs to understand that showing results on ground will be critical to convince defence companies to invest in India and make it a defence manufacturing hub.
Narendra Modi has asked global defence contractors to transfer more technology to India as part of the lucrative deals that they win to modernize its armed forces.
India is forecast to spend $250 billion over the next decade to upgrade its military, which still largely relies on Russian equipment. However in the recent past the US, Israeli and few European companies have got deals worth billion of dollars.
India offers a great business opportunity and it is also considered as the largest defence importer in the world.
However, Modi wants that India should aim to cut defence imports from 60 to 30 percent in the next five years. It can double its defence output and create hundreds of thousands of skilled jobs as a result.
Defence technology has always been considered a strategic asset for any nation. And when it comes to gaining expertise in such a critical asset, it often becomes imperative to form alliances and partnerships for the obvious reasons that such an expertise demands huge investments, highly-skilled workforce, uninterrupted Research & Development work and infrastructure set-up.
Thus, the Indian defence sector is promising not only in expanding the domestic defence industrial base but also towards reaping the long-term benefits of India’s ever-growing military market and the enormous opportunities it will offer in the coming decade.
The NDA government which is focusing on Make in India and pushing for defence modernization has also raised the Indian defence budget for 2015-16 by 7.5 per cent which can be a big boost to local manufacturing of defence equipment and exports in the coming year.
Further the increase of FDI limit in defence sector can also prove to be beneficial in bringing modern technology in India.
India has one of the largest defence budgets in the world, but it also has the distinction of being the world’s largest arms importer.
While both India and China had similar defence expenditure of around $10 billion in 1990, China has now quadrupled its expenditure with rapid economic growth and planned modernisation.
The difference could not be starker-while India has become the largest importer, China has graduated into the club of top exporters.
Therefore the need of the hour is to identify the technologies that need to be developed for the Indian war fighting scenario.
Indian armed forces and their preparedness has long suffered due to delayed acquisition process, failure to take timely decisions, deficiency in QR formulation and lack of futuristic planning.
The weakness of planning and budgeting has further been aggravated by the deficiencies in the procurement system that the defence ministry has been desperately trying to overcome since the early 90s.
The result is depleting fleet of combat fighter platforms, submarines, guns, tanks, helicopters, night vision devices and other critical defence equipments.
The Ministry of Defence has expended a great deal of effort in putting up a Defence Procurement Organisation and revising its procurement procedures for both revenue and capital items.
These efforts have no doubt succeeded to a large extent, evident from the ministry’s ability to spend a majority of its allocated resources.
Now with Modi government and their renewed approach to obtain self sufficiency in defence sector, there are expectations from the domestic and global defence industry.
However, they also need to understand that the damage caused in last decade will take some time to be repaired.
The new Defence Minister Manohar Parrikar has also assured that the Make in India will be promoted in all defence acquisitions while bringing more clarity and reforms in the existing procedures.
At Aero India show, he had clearly stated that the existing DPP procedures are confusing and not well defined and his ministry will work on these drawbacks and correction will take place.
He has promised to come out with clear details and reformed policies over Make in India in defence by April 2015. However, how much implementation takes place on the ground remains to be seen.
However, PM Modi is strongly pitching for effectively implementing Make in India in defence sector.
During the Aero India show he touched upon many issues which need immediate attention by the Indian MoD, as customizing Make in India for defence sector require lot of efforts.
Modi had stated that the country’s offsets policy, which requires contractors to invest a percentage of the value of the deal in India, will be tweaked to encourage more technology transfer, and less simple assembly or production.
He called for a level playing field between the private sector and public sector firms such as Hindustan Aeronautics, the main beneficiary of India’s defence offset requirements, and asked both to step up to the task of meeting India’s requirements.
He also promised a suitable environment for manufacturers, including a discrimination-free tax system, and asked foreign firms not to be just “sellers” but “strategic partners”.
He said the foreign players can use India as part of their global supply chain and India’s frugal but sophisticated manufacturing and engineering services sectors can help reduce costs.
Also India can be a base for export to third countries, especially because of its growing defence partnerships in Asia and beyond.
Modi noted that his government has raised the permitted level of Foreign Direct Investment to 49 per cent and this can go higher, if the project brings state-of-the art technology. “Our procurement procedures will ensure simplicity, accountability and speedy decision making”.
The government’s focus is to reduce imports and develop domestic defence industry with a sense of mission which “is at the heart of our Make in India program.
However, Modi being a realist has noted that the nature of industry is such that imports will always be there. But global manufacturers can use India as part of their global supply chain.
A strong defence industry can boost investment, expand manufacturing, support enterprise, raise the technology level and increase economic growth in the country.
Government’s support for research and development is essential for defence sector and, it should also be accompanied by a degree of assurance on purchase.
With the Government ready to spend more funds for the defence sector along with a proposal to form a separate policy for this sector for greater clarity, forming new partnerships, both by the public as well as private- sector firms, will go a long way in realizing all the far-fetched goals of defence indigenization-promoting self-reliance, technology upgradation, achieving economies of scale and developing capabilities for exports in the defence sector.
It will bring in a new revolution towards designing, developing, producing high technology military systems and platforms to meet the domestic demand as well as to compete at the global stage.
Lack of clarity
But the ground reality reflects a completely different scenario. Many companies are unclear about the whole Make in India program. They are still in doubts over what does Make in India in defence mean and how does one enter the Indian defence production market.
Some companies, who have been doing defence business in India for a long time, also appear to be confused.
A senior official from a well known Israeli company during a personal interaction said that he did not find the Make in India at all a new concept, as it is same like ‘Make’ and ‘Buy’ procedure of DPP 2013.
This given an impression that the Indian MoD has been unable to actually clarify the real intention of launching Make in India into defence even to its existing defence partners across the world, so one can imaging what kind of confusion the new entrants must be facing.
Very few countries and their respective companies have actually got the real motive behind bringing the Make in India concept into defence sector.
All will be keen to ascertain how exactly the Modi government plans to translate its talk of building a strong domestic defence-industrial base into concrete action on the ground. The hike in FDI cap to 49 per cent in the defence sector, for instance, is yet to fully impress global arms companies.
India continues to struggle in attracting foreign investment in the defence sector. It is unlikely that after announcing Make in India for defence sector, foreign companies will find it irresistible to relocate their production units to India, even if there is drastic improvement in the eco-system, in the hope that at some point in the future the MoD will buy what they are making and that, in the meantime, they could sustain themselves through exports.
Although MoD bureaucrats think they have done a lot to promote defence manufacturing under the NDA government, in reality it has proved to futile.
Thus, no company has shown any credible interest to invest and bring technology into defence sector. The problem for Prime Minister Modi is that he wants to go for a bigger dream and think out of the box but he has nobody to implement in an out of the box format.
It is a step in the right direction but not sufficient. Many companies will not set up base or transfer crucial technologies without management control of the joint ventures.
One fails to understand the primary goals of pushing Make-In-India in defence sector. Therefore, there is an urgent need to conceptualize a policy framework for the foreign OEMs and Indian industry, what Make-in-India implies so far as defence production is concerned and how is the new concept different from the existing policy framework.
Further clarity on the role of DPSUs and involvement of private sector should be given emphasis.
As the government wants the MSMEs and SMEs also to take part in the indigenization process of Indian military, a detailed policy framework is urgently needed.
Even PM Modi has stressed that India’s public sector needs to do much better than they are doing now. “We have to exploit their huge assets and a vast potential. At the same time, we have to make them accountable.”
The DPSUs, having huge infrastructural set-up built over the years with the Government’s help, needs to cope with the new demands and modern technologies being used in the new age battlefield.
They cannot continue anymore with getting new deals and contracts while delaying the already ongoing projects. They should be ready to embrace the new trend and take steps towards either partnering or acquiring other small, medium or large-scale entities, public or private.
The cooperation between private-public sectors in defence will encourage financial build up, creating more skilled jobs while taking advantage of the already existing infrastructural set up to produce state of the art military equipments.
Indian private companies are tying up with global arms firms to enter defence production. The government, on its part, is working to remove bottlenecks for arms exports as well as streamlining the complicated ‘Make’ procedure for indigenous R&D, development and production of weapon systems.
The government needs to provide incentives and few norm relaxations to encourage more private sector participation into the defence sector.
Rules must be changed to allow private companies to export defence equipment made in India. Currently, private companies cannot export weapons, equipment or components without the clearance from the government.
Though the government has taken few important steps in this direction, but it is not enough considering the long term goal of ensuring self sufficiency in the defence industry.
“We must develop a financing system suited to the special needs of this industry. It is a market where buyers are mainly governments, the capital investments are large and the risks are high,” PM Modi said. “We must ensure that our tax system does not discriminate against domestic manufacture in comparison to imports.”
“More broadly, our defence industry will succeed more if we can transform the manufacturing sector in India. We need great infrastructure, sound business climate, clear investment policies, ease of doing business, stable and predictable tax regime, and easy access to inputs,” said PM Modi at the Aero India.
The government is releasing the importance of becoming self sufficient in defence production and now it should work systematically to bring about these changes.
Defence Minister Manohar Parrikar has big plans for bringing change in the Indian defence sector. His agenda is to push the Make in India and provide Indian armed forces with the best possible, cutting-edge equipment and armaments.
He has shown willingness to bring changes in the existing norms and system in the MoD functioning while ensuring grater efficiency and more transparency-a key requirement to transform the existing defence sector.
However, the enthusiasm and hopes shown by him have not been effective and some defence industry players still remain doubtful whether he can do what he has promised.
In January this year he has assured that the legalization of middlemen in the arms purchases will be soon taking place.
Even during Aero India he said the policy draft for the same is ready and is waiting for the approval from DAC which might take n 4-5 weeks.
But till date no further step has been taken on this. This is just once case of him to release that having an out of the box thinking with big dreams is a completely different situation when implemented on the ground.
Therefore, as defence production is important part of Make in India policy, there is an urgent need to ensure that timely decisions are taken while ensuring transformation of the defence industrial base.
Integrated efforts are needed to manage strategic partnership with global defence manufacturers while giving equal level playing field to domestic private and public industry.
The vision of PM Modi to develop India’s defence industry with a sense of mission is commendable and with more cooperation, commitment and clarity, in near future, India can emerge as a major dynamic global centre for defence industry.