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TOWARDS AN ATMA NIRBHAR DEFENCE INDUSTRY: AN ANALYSIS

Maj Gen (Dr) Pawan Anand, AVSM (Retd) Writes :The Make in India initiative in 2014 saw defence industry as one of its major pillars, aiming for self-reliance. The buzz around it raised the hopes of many industry players ranging from existing giants to start ups and MSMEs. However, while some achievements may undoubtedly be made much of, the overall picture has been disappointing, with governmental agencies driving themselves into a flurry of activity with seminars and conferences, and private players pointing out there has been no real progress on ground.

Maj Gen (Dr) Pawan Anand, AVSM (Retd) Writes :

The Hon’ble Finance Minister announced May 16, 2020, a slew of measures meant to provide a much stimulus to India’s defence industry. The Make in India initiative in 2014 saw defence industry as one of its major pillars, aiming for self-reliance. The buzz around it raised the hopes of many industry players ranging from existing giants to start ups and MSMEs. However, while some achievements may undoubtedly be made much of, the overall picture has been disappointing, with governmental agencies driving themselves into a flurry of activity with seminars and conferences, and private players pointing out there has been no real progress on ground. Proof of the pudding… Foreign Direct Investment (FDI) into the sector was a dismal USD 2.18 million in 2018-19[1].

The new announcements by the FM acknowledge pain points and change the pitch of discussion. FDI has now been raised from 49% to 74% through the automatic route.  A ban has been announced on import of certain equipment. Ordnance Factories (OFs) are to be corporatised. Defence procurement will be a time bound process with Project Management Unit being set up for contract management. GSQRs and the trial/testing procedure will be realistic. Imported spares will be indigenised and a separate budget earmarked for domestic procurements.[2]

Some issues which need to be monitored closely are outlined below. Needless to say, the problems lie in implementation.

Resistance to change is the biggest hurdle, period.  The Defence Procurement Procedure and Defence Procurement Manual clearly spell out the time- period from start to finish for each case. Yet, bureaucracy, whether in MOD or the military, is hide-bound by existing procedures, operating more from “fear of failure”, than from “hope of success”. This one point needs to be addressed robustly, making all levels accountable by equating integrity in terms of honesty with timely processing and actual outcomes. A case within military HQ travels through some 50 hands, and 84 by the time it reaches any conclusion – it may well be turned down at the apex level. Babus in uniform ensure their actions are supported and covered from the lowest desk officer level. This extreme caution needs to be rooted out, and the only way to do this is to post out such individuals within a month of identification of delay. A simple rule, from origin to final decision no case must exceed 60 days, and individuals moved out on the basis of inefficiency, would change response times. It may sound harsh on individuals, but it would be music to many ears. A few examples set in the military and bureaucracy will send a clear message of intent. A monthly review of this action by the RM’s office should be the last word for deciding upon who stays in the procurement channel and who is removed from it. Departments will automatically accord priority and find ways and means to implement. So, just keep it simple!

Two decades ago, India’s defence industry began opening up to FDI initially with 26%; raised later to 49% through automatic route while permitting 100% on case to case basis to be cleared by Government of India (GoI); and now to 74%. This incremental approach, coupled with some decisions taken with retrospective effect, over almost two decades, has not only delayed the process of transfer and absorption of technology but also done considerable damage to confidence of private industry and foreign players. The new policy would surely attract Foreign Original Equipment Manufacturers (FOEMs). What else would they be looking for? Ease of doing business for one. The red tape in starting a company, or for Joint Ventures (JVs) and M&As with them needs to be ruthlessly removed. So called single- window clearances have become as bad as many- windows if they are going to take as long if not longer to process cases. If offices take longer than six weeks, automatic clearance must be deemed to have been given. This could be followed up with a strong oversight mechanism over business practices to keep wrong-doers in check. Trust must replace suspicion, until a wrong doing is noticed.

The Department of Military Affairs (DMA) has been charged with the responsibility to enable commonality of equipment across the Services. Its precursor in HQ IDS had the Integrated Services Equipment Policy Committee (ISEPC)[3] which decided upon the necessity and formulation of JSQRs (Joint Staff Qualitative Requirements), with no real power to enforce its decisions on service HQ. Inter service requirements often over-rode the need to ensure common equipment and spares support. The newly raised DMA would do well to ensure this, with direct interaction at the Line Directorate level of each service, with service HQ representatives in attendance.

The practice of setting up Project Management Teams to monitor specific projects is already in existence, with marginal utility or impact[4].  However, if Project Management Units are to be set up as per the FMs announcement, some issues need to kept in mind – these units would need to be integrated teams of specified-by-name military officers, scientists and bureaucrats; their responsibility for the project will be carried by them even as they move on transfers for service reasons; they must  have ‘skin in the project’, in that their annual reports or project-related reports impact their promotions depending on outcomes; specified milestones should determine longevity of projects; besides a host of other measures which can be outlined.

The ban on import of certain notified equipment must be accompanied with timely and high-quality substitutes by OFs and domestic private industry. To this end, the announcement to corporatise OFs to improve efficiency is timely. Once again, the devil lies in its implementation. Already unions are up in arms, preparing to sue the government for “using” COVID times as a means to implement policy changes under discussion with them. Higher levels in the Ordnance Factories secretly agree with this move, but do not say so in public for fear of annoying the unions. If there is a time to implement this urgent measure, it is Now.  Vested interests of these agencies need to be exposed openly to build an atmosphere of trust and efficiency. If they block the process, the government would be within its rights to consider closing down these losses making OFs.

Hand-holding MSMEs to encourage import substitution is imperative. Show cases of sample spares could be established at two or three regional centres with Ordnance and EME personnel explaining the exact requirement in terms of utility and quality would help MSMEs understand the requirement directly. Meanwhile MRO (Maintenance, Repair, Overhaul) organisations, as JVs with FOEMs if necessary, need to be allowed and cleared on priority. JVs must include a written understanding with FOEMs to enable export of jointly manufactured products and MRO services to ensure financial viability. This will entail deft leveraging of India’s growing clout and market potential, with close interaction between the Ministries of Defence and External Affairs.

The gap between intent and implementation has dogged our defence industrial establishment for years. Apart from policy and structures, it is time the delivery process and mechanisms are monitored closely if we desire real outcomes, not platitudes.

 

End notes

[1] https://economictimes.indiatimes.com/news/defence/defence-industry-received-2-18-million-fdi-in-2018-19-government/articleshow/69960949.cms?from=mdr

[2] https://www.hindustantimes.com/india-news/nirmala-sitharaman-live-conference-fdi-in-defence-production-raised-to-74-to-attract-investors-to-make-in-india/story-hB7LB8rLavTaPQF2NGCmYM.html

[3] Defence Procurement Procedure 2016 Amended, pp 210,  https://mod.gov.in/sites/default/files/Update 060519_0.pdf,

[4] Ibid, pp 202

 

 

Maj Gen (Dr) Pawan Anand, AVSM (Retd), Distinguished Fellow, USI of India, has recently completed his Doctorate on “Indigenising India’s Defence Industrial Base”.

Disclaimer: The views expressed are those of the author and do not necessarily represent the views of the organisation that he belongs to or of the USI of India.

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