Atma Nirbharta is a concept which captures the economic vision of an India which pursues policies “that are efficient, competitive and resilient, that encourage equity, by being self-sustaining and self-generating.”
Under this abhayan, there has been a tectonic shift in policies governing defence production. Emphasis is now on creating a second line of production, import substitution, positive lists of in-country manufactured products, lowering costs and reducing dependency on third country supplies to meet India’s security needs through encouraging the private sector. This would help drive public-private co-production and independent private production which would take India on the path of self-reliance.
This focus on private sector participation comes with a goal to utilise the resources and capital of the private sector to not only bolster the nation’s defence capabilities but also to accelerate the market share of Indian-made defence products in the world market. Defence exports, in 2021-22, climbed to a record breaking INR 13,000 crore from a meagre INR 2059 Crore in 2015-16. More than 70% of exports were realised through the private sector route on a competitive basis. Public sector exports were achieved mostly through the Government to Government route. The Government has set a target to achieve INR 35,000 crore worth defence exports by 2025.
Presently, defence production is primarily public sector driven and dominated by a few major companies in the private sector. Government processes, usually tend to privilege DPSUs over the private sector. Case in point, while the private sector interaction with the end user and the production agencies remains mainly through industry associations and structured meetings, DPSUs/PSUs have almost free access to the same officers, creating an information imbalance.
In terms of orders, of the 40+ warships under construction/order at Indian shipyards, only 2 multipurpose vessels and 5 diving crafts are being built in the private sector. Furthermore, public and private shipyards are treated differently. Where a DPSU may delay deliveries by several years and incur cost overruns to little consequence, any deviation from the contracted date and cost will cause the private sector to be brutally penalised. The main reason for this imbalance is that there is a lack of confidence in the private shipyards after the colossal failure of ABG Shipyard and RNEL to deliver fairly simple warships. Today, both shipyards are bankrupt. On the other hand, L&T Shipbuilding has delivered ships ahead of schedule and on contracted cost.
On other fronts, the private sector has done well by delivering sophisticated weapon systems such as the K9 Vajra and M777 artillery systems, Pinaka Multi Rocket Launch Systems and a variety of specialised vehicles, communication systems, machinery, etc. However, its main role is that of ‘vendor’ to a DPSU acting as the prime contractor. Platforms and large, complex systems have so far been the preserve of the public sector units.
That said, the PSUs heavily rely on a large vendor support base of MSMEs whose role is rarely recognised. A comprehensive mapping of the capabilities of the MSMEs in the defence sector would help integrate the existing industrial base.
Given that civilian technologies are now far ahead of military technology an appropriate enabling eco-system that promotes civil-military technology fusion is becoming crucial for developing the national A&D industry. This is the key advantage that the private sector enjoys due to its diverse portfolio of products. The private sector synthesising civil technologies for military applications and leveraging its capital and human resources must gear itself towards developing advanced IP. Such IP can then be seamlessly licensed for production using the pre-existing highly expensive production, testing and trial infrastructure and resources of the public sector undertakings to achieve Atmanirbhar Raksha Utpadan. The United States, followed China in recognising the acceleration that such an approach provides for the growth of this strategic sector. India, too can adopt this approach.
Arun Ramchandani, Head L&T Defence adds, “it is critical for the Government to encourage private R&D and IP creation in Defence technologies through implementation of various mechanisms and schemes which enable flow of funds to industrial R&D. Various policy measures, announcements of intent and schemes are in place but implementation mechanisms still need to be devised to trigger this crucial move towards self-reliance in national defence.”
Further, there is no doubt that a trust deficit exists and the so called ‘level playing field’ required for the private sector to boost its production is yet to be seen. To remedy this situation there needs to be a constant and uniform institutional interface between the Ministry of Defence (MoD), Private Sector and Public Sector. The progressive steps announced in the new DAP2020 and various public procurement policies need to be unleashed through greater flexibility and empowerment to the acquisition wings of the MoD and User directorates.
MoD today acknowledges the strengths of the private sectors and seeks to use it to enhance defence production. Private Sectors are not as risk averse and are early adopters of new technology, for example in design which has progressively upgraded from vintage 2D – 3D drawings to computer aided design and manufacturing, rapid prototyping and adoption of virtual and augmented reality to actually feel the final product before it is fabricated. Digital Twins of the production design are also created which can be used to model Predictive Maintenance of the final product with real time visibility of its health. Well-regulated environmental health and safety practices, strict budgeting and inventory management systems are in place. Quality control tools such as CMM, Lasers, Non-destructive testing and traceability mechanisms throughout the product and supply chain is now commonplace. Therefore, Industry 4.0 practices are embedded in the Indian private sector.
A core concern is the issue of Intellectual Properties (IP) rights and their ownership. Patenting Defence technologies is a risk from a National Security perspective. As a combined industry – whether private or public – a well-documented and constantly updated & regulated data bank of nationally registered IPs of defence technologies could be considered so that it is readily identifiable and easily accessible for anybody who wishes to access and license the IP. Also, a more pragmatic approach towards ownership of the IPs and building a fair and equitable IP regime is necessary, even though it may be public funded and therefore in a sense is already paid for.
There are reservations about the manner in which the development partner for IDDM projects is selected and it would be helpful if the criteria for selection is merit based. While the private sector must make the investment decisions as per their strategy an impetus can be provided if there is some risk sharing by the government through providing adequate funding i.e. sufficient ‘skin in the game’ even if the risk is that it may be a sunk cost in the development project. This is not a unique suggestion. Many countries fund such projects in the private sector where the risks are high but the rewards of success are breath-taking. The dependence on government organisations for design, ToT, development and production need to be eased and private sector involvement – including academia – needs to be encouraged. In this regard, the Government announcement to set aside 25% of the defence R&D budget for private sector-led R&D has been welcomed by industry. The Government has also eased the burden of carrying the cost of capital by reducing security deposits, performance bond guarantees and earnest money deposit for bidders.
Admiral RK Dhowan, PVSM, AVSM, YSM (Retd). Chairman Society for Aerospace Maritime and Defence Studies (SAMDeS) and Former Chief of the Naval Staff, Indian Navy says that to accomplish the Honourable Prime Minister Shri Narendra Modi, vision of Atmanirbhar Bharat, “We will have to stop working in silos and adopt a more coordinated and integrated approach between the Ministry of Defence, the Public and Private sectors of the defence industry and the research and development agencies to achieve Atmanirbharta and Swadeshikaran, self-reliance and indigenisation in defence production, in India.”
For self-reliant defence production, an India specific and industry friendly ecosystem is the need of the hour, which emphasises more flexibility rather than rigidity. Keeping the supreme objective clearly in focus a collaborative rather than a confrontationist approach between the Buyer & Seller and between private & public sectors is desirable.
Some effort has been made towards achieving this state. The Strategic Partnership model began as an exercise to build capability and capacity in the private sector. However, by opening the programme to PSU participation, the very purpose of the SP Model is defeated. The P75(I) submarine project is a case in point. The earlier attempt to acquire the Naval Utility Helicopter and the Multi Role Helicopter through a Strategic Partnership Model has also been abandoned in favour of a Buy IDDM from HAL.
While there have been slow but steady improvements to the procurement process, given the nature of the Defence business, reliance on the domestic market alone for orders does not make a sustainable business case. The scale and size are simply inadequate, do not match the CAPEX required and the immensely long gestation period from inquiry to order is daunting. The Government is aware of this constraint and has thus been encouraging domestic defence players to pursue alternate customers and has even begun outreach programs in partnership with Industry Associations to reach out to a host of countries. Vivek Pandit, Head of defence and Assistant Secretary General at the Federation of Indian Chambers of Commerce and Industry (FICCI) notes the proactive efforts being made to promote defence exports, points out: “The past few years have seen a flurry of activities on the export facilitation front by MoD in tandem with our missions abroad. Right from sharing of leads on the defence exim portal, to partnering with industry bodies to showcase capabilities, to speedier processing and grant of export licenses, industry has a well-developed ecosystem to leverage exports.” The recent AI for Defence and Swavlamban initiates showcased the power of collaboration in building indigenous defence technologies.
The Ministry of Defence is also expected to put out the final version of the ‘Defence Production and Export Promotion Policy (DPEPP) 2020’. It is envisaged as an overarching guiding document to provide a focused, structured, and significant thrust to the defence production capabilities of the country for self-reliance and exports.
In the future, as companies grow and develop market forces may naturally push them to create standalone business units in an area of their core interest and expertise. So, divisible sectoring of projects between companies may naturally result in major Indian players becoming Indian monopolies and thereafter scaling up to become global players through a judicious mix of mergers, acquisitions and organic growth. For such a model to thrive a new mindset that is not averse to single vendor acquisitions and which lays emphasis more on technical competence and quality subject to rational and negotiated pricing is a prime requirement. An enabling requirement would be to adopt a pipeline model of production of defence products by this one company instead of batch orders placed at irregular intervals through fresh tendering on several companies. Such a system would create the scale, size and scope for a resilient supply chain and further promote import substitution, continuous improvement, higher quality and timely delivery at reduced costs.
Adds Arun Ramchandani of L&T Defence, “Defence is a monopsony with the Government being the only buyer. Worldwide there are just one or two Companies in every country that build key platforms and systems. The Strategic Partnership model was meant to achieve just that. The Competition Act doesn’t apply to this Sector but in our eagerness to apply the L1 methodology to the entire defence acquisition process, we have slowed down the construction of a mature market for defence goods in the country. An evolved Defence Industrial base would have just one or two key platform and system integrators supported by a network of tier one and two supply chain partners”
Another concern is that the policy and procurement system lacks predictability, credibility, stability and simplicity. Acquisitions must be predictable based on the statements of case generated by the users. For credibility, at least all RFPs issued must result in orders. If, in the rarest of cases, a RFP is withdrawn or cancelled then the participants need to be compensated and accountability in government established. It is high handed and archaic to have processes such as No-Cost-No-Commitment as the cornerstone of an Acquisition Procedure. Stability is a major factor and to have a procedure that is not up for review every few years, unless inescapable. Finally, simplicity necessitates that requirements for meeting various terms and conditions should be reasonable, commensurate with fair business practices and captured comprehensively but also compactly in a simple document.
To summarise, Atmanirbhar Rakhsa Utpadan stands on the pillars of private – public sector collaboration, user – industry trust, merit-based contracts and a long term predictable, stable, credible and simple eco-system. Such a system must offer opportunities for scalability and sustainable profitability and allow for expansion to global markets. Batch ordering cannot build a resilient supply chain and a pipeline production model should be adopted to provide visibility and confidence in the acquisition requirements. While we may look forward to privatizing defence production but that will be to no avail if decision making remains moored in suspicion and distrust of the private sector and favours ‘nominations’ to the DPSUs/DRDO as the default option, as those stakeholders dominate the decision-making process. Therefore, the users must be the prime decision makers to determine what best serves their requirements. Essentially, the Government and the armed forces must consider the involvement of the private sector and public-private coproduction as a composite national asset to achieve the objectives of Atma Nirbhar Raksha Utpadan.
Chiraag Samaddar is a defence and space policy analyst based in Delhi and member SAMDeS. Views are personal.