By Kamal Shah
I&AD Editorial Director Kamal Shah, in a candid conversation, talked to the Defence Secretary of India, Dr. Ajay Kumar, about a wide range of industry issues such as supporting mechanisms for start-ups, indigenous technologies, and scope for foreign military equipment companies in the Indian market.
Q. From a defence industry point of view, do you see a shift, starting from 2014 as a reference point, in terms of political will and direction regarding a military policy? While there have been big-ticket military acquisitions in the past, has the institutional framework been more conducive to the industry from the political level since a change in government?
Ans: I can say that today, for defence export itself, for example, the cabinet-level committee composed of the Defence Minister, Foreign Minister and National Security Advisor has been created to clear exports. So, there is a clear political direction and decision to achieve Atmanirbharta in defence and promote defence exports. Regarding both Make-In-India and Make-For-The-World, there is a precise political determination. This is also one of the reasons we see a significant increase in defence exports and as well as in greater indigenisation efforts.
Q. Speaking of Atmanirbharta, what are your views on the level of self-reliance at present?
Ans: Regarding the life cycle of any sector, a time indeed comes when it is in a take-off stage. The ecosystem in our defence industry stands genuinely at that point. We have been trying to promote domestic manufacturing in defence, and we can say that we have achieved particular progress in that to a certain extent. Presently, our domestic production is about 85,000 to 90,000 crores. However, a lacuna in our current model has been that most of this production has been based on the licensed transfer of technologies. This is a significant handicap since the control really remains with the country giving us the technology.
However, we are evolving to a further level of a self-reliant India in a true sense where we can say that the defence products and equipment that we develop are not only going to be manufactured in India but will actually be based on those particular technologies that are designed and developed in India, as well. Once we can do this, I think we will have achieved what you call true Atmanirbharta.
Once we stand with licensed production, there are restrictions on how many units can be produced for the country’s known use. With this, there are also constraints on export and on upgrading that technology to the next level. This actually ties us down to what was offered. In comparison, our own technologies do not handicap up in such a way; there is room to experiment. For example, we could tweak the system by buying some other component (compared to the original) and using that in case of availability or budgetary issues.
Q. Are there any new events to nurture the emerging Indian defence start-up ecosystem?
Ans: Indeed. We are spearheading a new event geared towards start-ups: Invest For iDEX or Innovation in Defence Excellence. Under this, we are bringing venture capital into the domain because we see several of our start-ups raise funds from the market. For defence start-ups, this is a very encouraging sign. To institutionalise this mechanism, we have created the aforementioned event named Invest For iDEX, where venture capital firms will have discussions with iDEX start-ups, and hopefully, some of them will find interest in investing in them.
Q: How do you presently view levels of innovation in the defence sector?
Ans: The technology profile of defence equipment can be seen changing. Now, we are no more looking toward non-kinetic warfare, and even in kinetic warfare, various unmanned platforms are being looked forward to. The role of digital technologies is predominant in each of these domains.
If you look at India, this stands as an area of our strength today. Our start-ups are emerging in terms of new technology; unicorns are literally raining every day. As the world is moving towards technology-based defence platforms, we have an opportunity to leapfrog in this with inputs of design and development, and leverage the strength of India as a whole, whether it is our existing public sector institutions, industry, academia, or start-ups.
I would like to go a step ahead and say that this country is a place where innovation is ingrained in people’s psyche because you have to contend for every little thing with your competition. Therefore, the moment we transform this whole effort of design and development into getting the country involved, I think it is evident that we will surely see the tremendous pace of growth of defence technologies.
We are now also involving all the stakeholders. Yet, the amount of energy and vibrancy in the start-ups and MSMEs is actually quite thrilling.
To illustrate, we have seen start-ups under the iDEX program developing, in 18 or 24 months, technologies that would have conventionally taken around eight to ten years to build. Technologies that would take hundreds of crores of rupees are now getting developed in 10 crores. Now, out of this, the assistance that the government gives is one and a half crore, and the maximum aid that we provide to iDEX is also one and a half crore. Usually, in this industry, a player would take up one problem and then be stuck with it- largely because it takes an immense amount of time to solve the problem. However, recently, there has been an enhancement in the number of problems that we can solve simultaneously. So now, we give hundreds of problems to various people at a time. These simultaneously get solved, depending on the area of interest of the people involved. We are now using the scale of our start-ups to gain the capability to produce new technologies at a faster pace.
Q. How do you see India’s defence export story so far, and how would you envision the road ahead?
Ans: There is a significant export opportunity for India, and there has been precedence with health export over the past few years, especially since 2018. This year despite COVID-19, we are aiming for the highest ever defence export. That is what we are aiming for. There are some excellent stories in this regard. One example would be Munitions India Limited recently signing a Rs. 600 crore export order with the US.
There are new players who are entering this business successfully. Both private and Defence Public Sector Undertakings (DPSUs) are aggressively pursuing exports, and we are also promoting them to whatever extent possible. We are on track to achieve a $5 billion export target by 2025; at least, that is what we feel. The momentum is only increasing. We should be able to achieve it.
Q: What is the path envisioned for DPSUs within the Make-In-India roadmap?
Ans: I may be able to best illustrate this with the Norway example. Norway is already outsourcing a lot of shipbuilding to India’s Cochin shipyard and to other shipyards. One of the vessels they outsourced was an autonomous ship, but the technology for autonomous vessels was coming from Oslo. However, Goa shipyard has already managed to develop this technology on their own, and this is the kind of prominent jump that we are seeing happening. This is an excellent example for other DPSUs to follow and emulate for their own products. What has happened now is that the Goa shipyard is flooded with orders for this particular order – the police want it, the oil companies like it, the navy has already said they want it, and the army wants it for some of their operations, too.
The other thing is that they have become very competitive. I think what the shipyard has done very effectively, and something on which I think we need to give more stress is standardisation. The Goa shipyard developed its own design focusing on offshore patrol vessels (OPVs). They designed their own OPV, standardised the design, and after standardisation, the shipyard has been churning out OPVs for months now. In less than a year, the cost has come down. No one can compete with them at that cost because the design is standardised, the material is standardised, and vendors are standardised.
Today, the cost has come down to 30 to 40 per cent of the cost they were going to cover. Standardisation is critical for various platforms and various companies. We are talking to quality control of India to work out a model of how we can standardise some of our platforms; this is particularly relevant for shipyards in the past. We seem to be doing slightly different designs for everything. We need to standardise wherever possible.
Q: How does the ongoing Russia-Ukraine conflict impact the Indian defence ecosystem?
Ans: We have excellent relationships with both countries and see that our relationship with these countries will continue to be good in the coming years. We also have a commendable relationship with the United States and France, but our Make-In-India program is independent of this relationship and precedes this war.
These things are part and parcel- they come and go, but our efforts and determination to be able to create our own defence technologies will go on relentlessly. More than 85 per cent of Acceptance of Necessity (AON) were for Make-In-India in the previous year. This year, once again, the number is going to be something around that figure, and now, we have absolutely made it clear; the services are making an earnest effort to see wherever there is an indigenous solution available, they would prefer the indigenous solution as against any imported solution.
Q. Could you tell us about some bureaucratic changes your office has initiated to streamline the defence export process?
Ans: There have been many policy changes that we have initiated. For instance, we have streamlined the procedure: the processing is online now. We have measures in place, such as the Open General Licence (OGL), which empowers companies to export without having to take permission on a case-to-case basis. This was implemented in 2019. We have already approved fit-for-military use policies for vendors who are technically qualified but cannot sell. The Defence Line of Credit is also available. Procedures are in place, and we are further looking to enhance them.
DPSUs have opened their marketing offices for export, and defence attaches have been tasked to promote defence exports as part of their work profile. A scheme to provide necessary financial support to defence attaches to conduct marketing in foreign countries has been approved. Many policies are in place. It is now a matter of the mechanism for pursuing the leads.
For sharing enquiry and leads, a mechanism has been created online. So, when we get a lead, we share it with the industry in case someone wants to pursue it.
Q. Are there any more industry-specific initiatives that the government in general and the Defence Ministry, in particular, are working on?
Ans: We are working on several things; the OGL that I talked about earlier, for instance, is a crucial area of focus. We propose expanding the list of items included in the OGL. We are also looking to have the industry as part of our defence delegations, enabling greater export dialogue; this includes private sector players. Furthermore, we are working on a system through which government-to-government (G2G) arrangements could be considered.
We also want to further streamline imports for exports. Suppose I want imports for components that will enable export, and that import is not meant for domestic requirements, then we want to streamline that import. Therefore, if we are exporting a platform that requires a particular component that needs to be imported from somewhere, we should be able to do it and then export that bigger platform. This is more likely to be used for subsystems or components, as opposed to raw materials.
Q. Another statement from the Indian industry is that while the mentioned changes are in place, they have not received sufficient consistent orders. What is your take on the same?
Ans: We are trying to increase the number of orders, and we have made two efforts to consciously push in that direction. One is that we have said, rather, we have commenced earmarking the budget for the domestic industry. Within that budget, we have initiated the earmarking of 25 per cent for the private sector industries. On the other hand, a significant chunk of money is for the start-ups, too. This is an evident sign that you should come and take more orders for the industry.
I think slowly, even this is enhancing. We would be delighted if more orders could be offered to the private industry. We are discouraging nomination-based orders to PSUs as much as possible, and we desire everything to be given on a level playing field. The DAC, chaired by Raksha Mantri, recently took a crucial decision in favour of the industry. We reduced the bank guarantee load because of the IPBG on the industry– because an industry means that everything counts. Defence contracts can go on for 8-10 years. So, if one has to carry their bank guarantee for as much as eight to ten years, that much money will be lost. The PSUs did not have to pay this, thus creating a differential. We have taken that off now while continuously trying to bring industry at par wherever possible. It will make it smooth for them to compete and participate.
Q: How can your goals be seen in the changes made in the budget?
Ans: In this year’s budget, the government has taken an enormous leap of faith in terms of saying that we are opening up defence R&D. In 2022, the government said that we are opening up the defence sector, and this has led to this opportunity (or the thought which I just shared with you) of using the strength of start-ups, academia, industry, and of anyone else who is capable of doing something. To kick-start that process, we had the budget webinars held under the guidance of the honourable Prime Minister.
Some suggestions came during the budget webinar; from those suggestions, we have consulted with the services, the Defence Research and Development Organisation (DRDO), and with all the stakeholders in defence. Through this, we have shortlisted 18 major platforms which will prove to be a game-changer. For example, there are a lot of unmanned platforms which are requirements of the future. Indeed, there are directed energy weapons (DEWs) which are the future technologies.
There is the lightweight tank which is something which the army wants, and the industry says we can do it, so, like that, 18 significant platforms have been recognised. Of these, some are under Make I and some of them are under Make II, and some of them are in the SPV model.
We are now going to be taking further steps and looking at how the progress is, and I think the more important thing is to get everyone who has an interest in developing this to come together and take this forward as a team.
Q: With such an intense focus on indigenous industry, is there a concern about foreign companies being ignored?
Ans: We have liberalised our FDI policy, and that is a clear indication that we encourage and invite foreign OEMs to come to Make in India. We have created a new category for foreign OEMs to make in India so that we can buy especially those technologies which are not designed and developed in India.
We have put in efforts in the defence industry corridor where we provide incentives for foreign firms to come and set up their shops. Currently, our effort lies in the direction that if someone is willing to participate in the Indian market, they have to come and make it in India.
We also emphasise that when they make for India, they don’t just look at the Indian market, which will create a complaint about not having enough scale. They should also look at the more significant exports. For instance, if a company is focusing on setting up an MRO shop, they should not simply focus on the number of equipment we have but on the numbers in the particular region. More numbers of OEMs now desire to accept this position, which is why our FDI has shown growth.
We are glad to welcome any foreign company, especially in areas where we are lacking. Of course, we are not saying that we will have every technology, but as long as we are not locked into anyone, we are happy to buy things off the shelf.
Q. What is your message to the industry?
Ans: I would like to conclude by saying that in all life cycles of every industry, there comes a time when that industry is at a takeoff stage, and for the defence industry, this is that time. The government policy is totally aligned, and there is a tremendous amount of opportunity; the good news is that the industry is optimistic. So, it is also seen that most of our defence industry is getting excellent responses on the stock market. The stock market is confident about the sector, showing how bullish the Indian defence industry is today!