Friday, May 24, 2024

India’s Drive For Self-Sufficiency In Defence Production Faces Obstacles As Strategic Partnerships Encounter Challenges

By Aritra Banerjee

India’s drive for self-sufficiency in defence production has been primarily influenced by government policies, including the phased embargo on importing over 400 categories of defence equipment or components and allocating defence budget funds for procurement from domestic manufacturers. However, recent reports from the Comptroller and Auditor General’s (CAG) audit of Defence Research and Development Organisation (DRDO) projects have shown inordinate delays and cost overruns, underscoring the dangers of over-reliance on the nation’s premier research and development (R&D) agency.

According to G Mohan Kumar, former Defence Secretary of India, the government’s decision to allocate 25% of defence research funds to the private sector is a step in the right direction. However, experts believe an increase to 50% is necessary to bridge technology gaps and accelerate domestic production. As India evaluates the embargo’s impact on private-sector defence production, it is evident that the private sector must become an equal partner in R&D efforts for a successful ‘Make in India’ defence transition.

In the realm of defence production, the same principle applies. The defence public sector undertakings (DPSUs) have been the primary beneficiaries of the new emphasis on domestic manufacturing, with many rapidly becoming blue-chip stocks in the market. This is unsurprising given the defence bureaucracy’s preference for the DPSUs. However, there are no apparent signs that the private sector is making significant headway in producing critical technology areas. The Tata Airbus project to manufacture the C-295 light transport aircraft is an exception, but it remains to be seen whether it will significantly impact technology transfer.

The line replacement units (LRUs) and other critical components of this equipment will likely be sourced from the existing suppliers of the original equipment manufacturer for the aircraft assembly. Unless the original equipment manufacturer (OEM) decides to procure essential components from the domestic market, the project’s impact may be insignificant. For this to occur, the government must support this project with long-term orders, which could stimulate product development and large-scale indigenisation of the components.

To achieve the sought-after manufacturing revolution, several projects of similar nature are necessary to provide the momentum needed to build up the micro, small and medium enterprises (MSME) ecosystem. Strategic partnerships between the private sector and OEMs for all significant defence platforms are required to expand the production base horizontally, as companies need more incentives to relocate their manufacturing plants to India.

Critical mass must be attained in defence manufacturing to attract MSMEs, which will create the ecosystem required to catalyze innovation and R&D. The progress of Innovation for Defence Excellence (iDEX) under the Defense Innovation Organisation (DIO) of the Ministry of Defense (MoD) is promising and underscores the underutilised potential within the country due to the lack of a vibrant ecosystem.

The Indian government’s strategic partnership (SP) policy aimed at facilitating collaborations between private companies and OEMs in the defence sector appears to be encountering obstacles, as recent developments have shown. Such partnerships are critical for self-reliance, especially given the ineffectiveness of the offset policy and the country’s struggling research and development infrastructure. The SP policy was designed to make technology transfer feasible in an environment where OEMs are reluctant to share their defence technology, which entails the transfer of complete control to their private sector partners while also bearing responsibility for the quality of the manufactured product.

However, the decision by Swedish defence firm SAAB to terminate its partnership with the Adani Group highlights the challenges of the policy, potentially driven by its desire to secure a 74% stake in its aircraft if the Gripen E wins the Indian Air Force (IAF) project for 114 fighter jets. Leading defence industry analysts told IADB that a rigid approach is unlikely to yield results, and the defence ministry must exercise creativity and pragmatism in nurturing such initiatives.

Concerns have been raised over the country’s strategic partnership (SP) policy. There is a prevailing view that the failure of the SP policy could result in OEMs manufacturing in India on their own, which is a shortcut that could undermine efforts to foster self-reliance. To prevent this from happening, industry watchers feel that the MoD must be imaginative and pragmatic in nurturing strategic partnerships between private sector firms and OEMs.

Partnerships between private sector firms and OEMs are crucial. Despite the perceived ineffectiveness of the offset policy and the country’s struggling research and development infrastructure, such partnerships remain essential for self-reliance. They enable technology transfer and provide opportunities for domestic manufacturers to develop critical capabilities in the defence sector.

Kumar believes that to make the P75I submarine and the fighter aircraft projects successful, the MoD must not abandon the SP policy for shortcuts but instead tweak it to make the projects happen. Strong Indian partners, such as those in the C-295 project, could make a difference even if they have a minority stake. Such projects will unleash tremendous entrepreneurial energy and innovation in the long run. The SP policy must, therefore, be thoroughly reviewed and amended suitably to make it work.

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