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India’s approach to indigenisation of defence production has not been yielding desired results. The new procurement procedure addresses this issue.

While the world is grappling with coronavirus, Ministry of Defence released another updated edition of Defence Procurement Procedure (DPP 2020) last week, with a view to boost indigenisation and reduce reliance on defence imports. It proposes a higher percentage of indigenous content, new multipliers in defence offsets, a new innovative category for leasing, and new options for equipment sustainment activity.
Our approach to indigenisation has not been yielding desired results. It has a basic flaw, that it is majorly dependant on public sector, for manufacture as well as for research and development (R&D). The private sector should have been involved in big way, a long time ago. Even now, public and private sectors are competing in defence field. There is a need to collaborate more, although some competition is good for both sides. The new edition of DPP 2020 should be addressing this to some extent. DPP is primarily focused on procurement, and not on development. Transformational reforms are required to get industry to participate as an equal not only in defence manufacturing but in R&D as well.
Chinese model - While the US, UK and Australia have a dynamic public private partnership (PPP) in place, let us examine the Chinese model, as they have State Owned Enterprises (SOE) like our PSUs. Having opened up the defence industry to private sector in a collaborative model for design and development, in addition to manufacturing, their armed forces have to buy indigenously manufactured products, and later execute incremental product improvements.
In our context, let us take the case of manufacture of Light Combat Aircraft (LCA) by Hindustan Aeronautics Limited (HAL). Even if LCA is not the top of the rack fighter aircraft in the world, we can make incremental product improvements as we go along. The responsibility for this should be given to the Indian Air Force.

In fact, user interface in aviation industry is low. Navy, on the other hand, has been in the driving seat in ship building ever since the sixties, when a Directorate of Naval Design was set up. The Air Chief will have to be made responsible for product improvement of LCA. To accomplish this, he will also have to be given the authority to coordinate the activities of three major organisations that majorly constitute the aviation industry in public sector , namely Hindustan Aeronautics Limited (HAL) , Aeronautical Development Agency (ADA) and Gas Turbine Research Agency (GTRE).

If space sector can be a success story in the country, there is no reason why aviation sector cannot. Public private partnership between ISRO and Godrej is also an example to learn from. Space assets and satellites are mostly dual use platforms. Similarly, aviation sector in India lends itself to combining the buying power of private sector as well. In the next decade or so, India is forecast to acquire over a thousand commercial aircraft. Our armed forces too want to buy roughly same number of fixed and rotary wing aircraft put together. At a national level, we would do well to leverage this aspect to our advantage. On the converse, India must be the only country that holds separate air shows for military and civil sectors. Even developed countries have combined air shows and efforts.

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Need greater participation of Services - When armed forces draw up their criteria for acquisition of modernisation equipment, they would want the best possible. To be told to take ownership of an Indian product and put it through incremental product improvements, there will be a requirement to introduce changes in rules in a big way. For decades, our defence needs have been serviced largely by public sector that works in silos. It is time to synergise the silos, and enhance the user interface. Services should be put in the lead, making them accountable, albeit with adequate authority.
Public sector is a huge asset, only in need of optimisation. Public sector is a repository of significant amount of technology transfers, has huge infrastructure in terms of plant, equipment, experience and skilled human resource. Great potential, that best practices can optimise well. We would do well to move seriously on corporatisation of ordnance factories, making defence PSUs competitive, and try PPP models like government owned company operated (GOCO).

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Private sector participation - Transformational reforms are required to get private industry to participate as an equal not only in defence manufacture but in R&D as well. This will mean incentivising R&D by private sector. Even after conditions are made favourable for private sector’s participation in defence sector, they will need technology, which is a serious shortcoming in our country. To bridge this technology gap, a ‘Strategic Partnership’ scheme has been launched for big platforms, so that private sector can leapfrog to better technology by collaborating with defence majors in the world, the original equipment manufacturers (OEMs).

Similarly, in low tech manufacturing segment too, we could adopt more of a joint venture (JV) approach with foreign manufacturers, where required. A good example is manufacture of rifles in India as a JV with Kalashnikov. Although that is a JV with ordnance factories, similar model can be followed by private industry for low tech- high population weapons, equipment or even ammunition. These have huge scope for export as well. The ‘Buy Global – Manufacture in India’ category introduced in DPP 2020 should be able to address that.

Recently, two Defence Industrial Corridors have been announced by the govt, one each in Uttar Pradesh and Tamil Nadu. Together with these measures and more, defence industry can actually drive the ‘Make in India’ growth story, if we kick-start the private sector entry into defence manufacturing, R&D and exports, as well as public private partnership.

This Article is written by Lt General Satish Dua is a former Corps Commander in Kashmir, who retired as Chief of Integrated Defence Staff.Download Draft