The Government of India, Ministry of Defence announced a draft defence production and export promotion policy, on Aug 3, 2020.
The title of this policy document is draft policy, and we have to assume a final policy will be announced shortly. The Govt. is probably going to collect the views of the stakeholders and then move forward.
However, in the initial pages itself there is a clear indication that this is the tentative final policy for 2020. Any changes will probably be minor.
The fact that it is a 19 page document is very encouraging. Contrary to the large 200+ page documents we are used to seeing which finally mean nothing much.
Let us list the top highlights of the policy:
- All weapon systems have been listed in the document, no hidden, or grey areas.
- Imports are banned for all the 101 systems.
- The names of weapons have been clearly mentioned – with the specs.
- The list covers all wings of defence – Army, Air and Navy.
The draft policy is itself very simple, only 19 pages as said, and has some clear policies. For one, the Govt. has decided to tackle the problem of import lobbies headon. They have finally seen who has been blocking the growth of Indian Industry.
Import lobbies backed by vested interests have over the decades have successfully delayed and not approved indigenously built weapons equipment. This has resulted in stunted development of technology to design and build weapons equipment. The benefit to the lobbies is the commissions they recieve for facilitating the order.
Why the hurry to announce such a surgical strike?
To understand this let us recall that prior to Corona (Covid 19), the mechanical industry was finding it difficult to grow, particularly the machining and manufacturing industry. This was mainly because of demonetisation and GST. GST forced small businesses, which operated under multiple names, to create a single entity, and this created a turbulence of sorts, which has lasted for an extended period.
The second reason is the Chinese incursions:
Even though there may not be a war with China (I hope) it is very important for the country to be alert. The only way is to have strong indigenous defence manufacturing infrastructure.
The third reason is Covid. The pandemic mahamari has dampened multiple industries and Civil Aviation is one among them. This will dampen the Indian manufacturing Industry for some time to come.
Fully aware of the difficult situation, the Govt. has decided to put an import restriction on 101 weapon system, making it compulsory for defence establishments to procure locally.
But, we need to ask ourselves why is the country’s defence production in such a precarious situation?
The single most reason is delay tactics employed by vested interests for personal gain. Take the example of LCA (Tejas Light Combat Aircraft). This aircraft has been in the works for ages and in early 2019 the first batch was inducted. Do you know how long this aircraft was in the making? The first first flight was in 2001,19 years ago, while the project was conceptualised and took off in 1980s. The question, if it can be done in 2019 why not earlier? seems justified.
Let us now analyse the “101 Defence Weapon Systems” the list of items which cannot be imported beyond the specified dates.
Many of the weapon systems cannot be imported after Dec 2020, the earliest date given. Many of the items fall under this category. So, the Govt. seems to have done its homework, and it has concluded that these items are low critical equipment, and once the present import orders are cleared it is an open field.
A close look at the equipment list shows that the category of equipment are wide ranging. Simulators, satellites, missiles, rifles, barges, ammunition, radars, jet engines, missile destroyers, repair facility, rockets – anti, CBRN systems, pre fragmentation bombs, parachute, and sonar systems.
The list is quite exhaustive and covers everything the three defence services and BSF probably needs. The list however is silent on the quantity of each weapon system, which is understandable. I did a close analysis and thought that the list is organised in a descending order. The top ones are procured in high volumes and the later ones in lesser numbers. But, there are some odd ones, such as electronic fuzes. Is the list organised on two factors, numbers and value for a specific period?? A closer look is needed.
One thing we need to note is 9 Defence Public Sector Units and 30 odd OFBs have to now compete, in a level playing field along with the private sector. Prior to this the Govt. had sometime back evened out the excise and custom duty special rate for the DPSUs. Now, private companies and these DPSUs have similar taxes to pay, and compete with similar costs.
If you consider the top 10 private sector companies fully into defence production, we will see that DPSUs have many pluses and private sector also have many pluses on its side.
In fact, considering that defence production is tech intensive, private sector have a distinct advantage as they can hire meritorious professionals as they desire, whereas DPSUs will have to depend on their in house talent or take in consultants which can be time consuming given their long drawn procedures.
Given this background, the import embargo decision is intriguing. Because, we all know that that the Govt. has been saying we will support and increase local purchases of all defence equipment. The private sector has been willing. DPSUs have done their bit. Some large group has been delaying indigenization.
But, who is the invisible player who was blocking defence production?
For this we have to understand how the whole process works. Companies like Siemens or L&T demonstrate a product or a technology to the Ministry of Defence. After the initial interest a larger team is assembled which makes a technical and operational evaluation of the project.
During this process, the defence senior personnel get involved to clear the operational part of the purchase. After all they are the end users. This is where the delays start. Being the end users they become very stringent and continuously change or escalate their requirements which will be in contradiction to the pricing and production constraints.
Oblivious to practical realities, and everything else, defence personnel would simply demand more advanced features, not bothering about delays. Reason?
Imports are always an option!
With one stroke the Government of the day, has shut out all options to import dreams, and all players will be conscious that decisions which cause delays can be counter productive, because the equipment will not be available, if procrastination becomes a habit.
Imagine the Army having to conduct an operation, but do not have the weapon system because, they have continuously delayed project.
The next question will be whether Indian companies will be able to undertake end to end production of such varied range of equipment. Whether we have the technology competence to manufacture such sub assemblies and components. Here, I am referring to the private companies.
Private companies are now relatively at liberty to hire or partner with foreign companies to manufacture such high end equipment. Combined with their own expertise, ability to hire experts quickly, their decision making agility and freedom to partner they should be able to pull through.
Let us now look briefly at the list of 101 Weapon Equipment Systems.
- 120mm Fin Stabilised Armour Piercing Discarding Sabot (FSAPDS) Mark II Ammunition (A, AF, N)
- 7.62×51 Sniper Rifle (Army)
- Tracked Self Propelled (SP) Gun (155mm x 52 Cal) (Army)
- Towed Artillery Gun (155mm x 52 Cal) (Army)
- Short Range Surface to Air Missiles (Land variant) (Army)
- Shipborne Cruise Missiles (Navy)
- Multi Barrel Rocket Launcher (MBRL) (Pinaka Variant) (Army)
- Simulators Presenting Smart Ranges And Multi-Function Targets (Common)
- Simulators for Battalion Support (Common)
- S765imulators for Live Fire Training Container-based (Common)
- Tailor-made Simulators for Counter Insurgency (CI)/Counter Terrorism (CT) based Training (Army)
- Force-on-force Live Tactical Simulators / Infantry Weapon (Army)
- Tank Simulators (driving, as well as, crew gunnery) (Army)
- 155mm/39 Cal Ultra-Light Howitzer (Army)
- Successor of Flycatcher & Upgraded Super Fledermaus (USFM) / Air Defence Fire Control Radar (ADFCR) (Common)
- Component Level Repair Facility for Tank T-90 (Army)
- Shipborne Close in Weapon System (Navy)
- Bullet Proof Jackets (Common)
- Ballistic Helmets (Common)
- Missile Destroyers (Common)
- Multi-Purpose Vessel (Navy)
- Offshore Patrol Vessel (Navy)
- Next Generation Missile Vessels (Navy)
- Anti-Submarine Warfare Shallow Water Crafts (Navy)
- Water Jet Fast Attack Craft (Navy)
- 500 Ton Self Propelled Water Barges (Navy)
- 50 ton Bollard – Pull Tugs (Navy)
- Survey Vessels (Navy)
- Advance Landing Ground Communication Terminals (ALGCTs)for AGLs (Army)
- Aerial Delivery Systems for Transport Aircraft (Air Force)
- All variants of Depth Charges
- Ammunition Barges (Navy)
- Anti-Submarine Rocket (Navy)
- Anti-Submarine Rocket Launchers (Navy)
- CBRN Decontamination & Protection System (Common)
- CBRN Detection & Monitoring System (Common)
- Chaff Rocket Launcher (Navy)
- Chaff Rockets (Navy)
- Digital Tropo Scatter / LOS Communication System
- Diving Support Vessels (Navy)
- Dragunov Upgrade System (Army)
- Field Artillery Tractor (FAT) 6X6 for Medium Guns (Army)
- Fixed Wing Mini UAVs (Air Force)
- Floating Dock (Navy)
- General Purpose Pre Fragmentation Bombs between 250-500 Kg
- Ground Based Mobile ELINT System
- GSAT-6 Satellite Terminals
- High Power Radar (HPR)
- Hull Mounted Submarine Sonar (Navy)
- Integrated Ship’s Bridge System (Navy)
- Light Combat Aircraft (LCA) MK I A – Enhanced Indigenised Content
- Light Combat Helicopters
- Low Level Transportable Radar
- Magneto – Rheological Anti Vibration Mounts
- Military trucks of 4×4 and above variants: 12×12, 10×10, 8×8, 6×6
- Next Generation Maritime Mobile Coastal Battery (Long Range)
- Parachute Tactical Assault (PTA)- G2
- PKMG Upgrade System
- Pollution Control Vessels (Navy)
- Radar Warning Receiver (RWR) for Transport Aircraft
- Shipborne Medium Range Gun (Navy)
- Shipborne Sonar System for Large Ships (Navy)
- Short Range Maritime Reconnaissance Aircraft (Navy)
- Simulators for A Vehicles / B Vehicles (Army)
- Simulators for Correction of Fire by Observers (Common)
- Simulators for Towed and Self Propelled Guns of Air Defence (Common)
- Software Defined Radio (TAC) for IN (Common)
- Survey Vessels (Navy)
- Torpedo Tube Launcher for Light Weight Torpedoes(Navy)
- Transport Aircraft (Light)
- Wheeled Armoured Fighting Vehicle (AFV) (Army)
- 125 mm Fin Stabilised Armour Piercing Discarding Sabot (FSAPDS) New Generation Ammunition (Army)
- 30 mm Ammunition for Infantry Fighting Systems (Army)
- Assault Rifle 7.62 x 39 mm (Army)
- Conventional Submarines (Navy)
- Inertial Navigation System for Ship Application (Navy)
- Light Machine Gun (Army)
- Mine Anti-Personnel Blast (Army)
- Mine Anti-tank (Army)
- Mine Fragmentation (Army)
- Multipurpose Grenade
- 40mm UBGL (Under Barrel Grenade Launcher)
- Lightweight Rocket Launcher (Army)
- 155 mm Artillery Ammunition (Army)
- EW Systems – Electronic Warfare (Common)
- Material Handling Crane 2.5 to 7.5 Tons (Vehicle Mounted)
- GRAD BM Rocket (Army)
- 30MM HEI/HET (Army)
- ASTRA-MK I Beyond Visual Range Air to Air Missile (BVR AAM)
- EW Suit for MI-17 V5
- Communication Satellite GSAT-7C (Space)
- Satellite GSAT 7R (Space)
- 23 mm ZU Ammunitions (Army)
- 30mm VOG 17
- Bi- Modular Charge System (BMCS )
- Close in Weapon System (Land based) (Army)
- Electronic Fuses for Artillery Munitions (Army)
- Expendable Aerial Targets (Army)
- Light Low Level Terrain Radar (LLLWR) (Army)
- Long Range – Land Attack Cruise Missile (Common)
- Small Jet Engines with 120 kgf thrust (Common)
Nothing much seems to have been left out.
It is a huge opportunity and a challenge at the same time.
Huge opportunity because, finally the Govt. seems serious on strengthening and growing the local private industry.
Challenge because, the Indian Industry has to enable technology transfer from leaders abroad, train their engineers, manufacture the products and supply.
This may kick off with semi knocked down kits and then localisation.
Key points the Indian Manufacturing Industry should consider:
- This policy announcement is big. Amounts being touted are upwards of Re. 51000 crore.
- Every single item in the above list has components which require a manufacturing infrastructure.
- Investments will sustain in the long run as defence orders will exist as long threats exist.
- Export potential is high.
- Tier 2 and Tier 3 category business is there to be taken.
- DPSUs will compete in the open market. So, industry can expect a flood of orders from these PSUs.
- Remember, all import weapon systems will now be manufactured indigenously and there will be a surge orders as DPSUs will be quick to start executing orders.
- OFBs are also a target for marketing.
- An existing unit can undertake a thorough study of all the components manufactured till now, the part it goes into an weapon system, and draw up a plan of action for marketing.
- New units will have to take a defence license and register themselves as a vendor with corporate companies and DPSUs.
- Interested companies can buy existing loss making units with all infrastructure or invest in it.
- Reverse engineering will be a hot skill and will grow rapidly.
- Countries like Turkey which have done well recently are models to study – Turkey Defence Industry – Soaring Ambitions
- Market intelligence will play a key role in all manufacturing companies
- Dependence on software to accelerate business and manage will increase.
- QC will be crucial as defence quality requirements will be higher when compared to Auto Industry
- Sub assembly manufacturers will be able to show higher profits for every dollar value of production.
The self imposed embargo is a surprise in this major announcement by the Defence Ministry, Govt. of India.
But, this is not new to those in the Industry.
South Africa has developed into a major Defence hub, after the export and import embargo on it during the apartheid period.
More recently, Turkey has developed into a Defence exporter, after the restrictions on it by US and European countries.
This decision is a major gamble taken by the Govt. of the day.
If it succeeds, it will do immense good for the country and its economy. The manufacturing industry will revive.
On the other hand if it fails, the Govt. will have a lot of answering to do. The opposition will be waiting.
As of today, the Govt. is sitting on a foreign exchange reserve of 14 months of import compared to earlier picture of 15 days of import.
Major technology transfers will happen to manufacture all the 101 weapon systems in India and the Govt. will be comfortable allowing the outflows.
The two defence hubs one in Tamil Nadu and the other in Uttar Pradesh being developed rapidly will be crucial to the plans of boosting defence production.
The Govt. has thrown the ball into the Industry’s court.
Will the Industry take up the challenge?