Friday, May 24, 2024

Joint Ventures, Technology Transfer & IPR: Key To Success For India’s Defence Industry

By Staff Correspondent

India’s aerospace and defence sector has witnessed remarkable growth in recent years, with the private sector contributing a staggering 20 percent to its INR 80,000 crore turnover. Leading business conglomerates such as L&T, Tatas, Mahindras, Hindujas, and Bharat Forge have made significant investments in this sector, driving it to new heights of success.

Meanwhile, public enterprises and organisations, including Hindustan Aeronautics Limited (HAL), Bharat Electronics Ltd (BEL), BEML Ltd, and National Aerospace Laboratories (NAL), have also scaled up their operations to meet the government’s ambitious aspirations under the ‘Atmanirbhar Bharat Abhiyan’ and ‘Make in India’ schemes.

The Indian government’s defence procurement policies, which include market opportunities and offset clauses, have lured several global players, such as Airbus, BAE, Boeing, Collins Aerospace, Dassault Aviation, Israel Aerospace Industries (IAI), Pilatus, Lockheed Martin, Raytheon, Rafael, Safran, and Thales, to set up operations and form joint ventures in India.

Several initiatives have been launched to promote self-reliance in defence manufacturing and innovation, such as the Defence Industrial Corridors, Positive Indigenisation Lists, DRDO’s Technology Development Fund (TDF), Innovations for Defence Excellence (iDEX), and Defence Testing Infrastructure Scheme (DTIS).

These initiatives are expected to foster local manufacturing of aerospace equipment and aircraft for defence and commercial applications, creating significant opportunities for Indian companies, including Micro, Small & Medium Enterprises (MSMEs).

The Indian aerospace and defence sector is poised for tremendous growth in the coming years, thanks to the concerted efforts of both the public and private sectors. With continued investment and support from the government, this sector will undoubtedly emerge as a major contributor to the nation’s economy and strategic interests.

The recent joint venture between Tata and Airbus to manufacture the military transport plane, C295, is set to create a comprehensive industrial ecosystem in India. This first-of-its-kind’ Make in India’ aerospace program in the private sector is expected to involve more than two dozen MSME suppliers, producing over 60% of the 30,000 detail parts, sub-assemblies, and component assemblies locally.

In addition, the aircraft will be equipped with an indigenously developed electronic warfare suite developed by BEL and Bharat Dynamics, while Airbus will continue to provide critical systems such as engines, landing gear, avionics, and the Electronic Warfare (EW) suite.

To foster a thriving indigenous research, design, development, and manufacturing infrastructure for the defence sector, it is essential to address four interconnected issues. The first issue is development costs, which require significant investment from companies in design, development, prototyping, trials, and participation in competitive bidding processes.

This is followed by the installation and commissioning of plant and equipment, industrialisation pre-production, and a long gestation period. Companies need to commit substantial investments upfront for development with a guarantee of receiving a production order.

The second issue is enabling technology transfer, which requires transferring know-how from Original Equipment Manufacturers (OEMs) to local vendors. This would involve skills development, training, and upskilling to meet the defence sector’s high-quality standards and technological requirements.

The third issue is intellectual property rights (IPRs), crucial for commercialising research and development efforts. Companies need to own the IPRs to their developments to protect their investments.

The fourth issue is testing and trial facilities, which are required to evaluate and validate the performance of defence equipment. These facilities must be equipped with state-of-the-art testing equipment and manned by qualified personnel.

To de-risk the investment required for prototype development and foster a thriving research and development (R&D) ecosystem, the Ministry of Defense needs to increase its funding support from 70% to 90% without any cap. This will encourage all bidders to price their products more competitively, leading to lower costs for end products.

It will also reduce development risks and encourage companies to participate in multiple programs simultaneously. By addressing these interconnected issues, India can create a robust R&D ecosystem for the defence sector, which will be crucial for achieving its ambitious aspirations under the ‘Atmanirbhar Bharat Abhiyan’ and ‘Make in India’ schemes.

The Indian government’s ‘Make in India’ programs have aimed to enhance domestic capabilities by reducing dependence on OEMs. However, the success of local players depends on the transfer of technology (ToT) by OEMs. Unfortunately, most OEMs only extend ToT for low-value items, not part of the core proprietary technology items, leading to lifelong dependence on the OEMs.

Mandating norms for higher levels of technology transfer in return for access to the booming market, low-cost labour, favourable policies, and tax incentives is necessary to address this issue.

Moreover, incentivising OEMs to establish ‘Centers of Excellence’ (CoEs) and ‘R&D Centres’ in India through offset clauses can also boost technology transfer. By providing incentives similar to Production Linked Incentives (PLI), domestic players can invest in research and development (R&D) to build long-term capabilities to address domestic demand and tap global markets.

Another critical aspect of the ‘Make in India’ programs is Intellectual Property Rights (IPR). The IPR belongs to the government as a fallback mechanism if the development agency is insolvent or encounters project delays. To encourage progress, the option of passing the IPR to the development agency for a royalty or one-time fee for government-funded development programs is a progressive move.

One of the biggest challenges for private players and existing MSMEs in the defence industry is testing and trial facilities, requiring significant land, infrastructure, and personnel investments. Incentivising investments and expanding the capacities will significantly reduce delivery timelines while reducing the cost of the end product.

To establish the envisaged next-generation indigenous domestic defence ecosystem, it is necessary to have a robust and state-of-the-art testing and trial infrastructure. To boost investments in the indigenous design and production industry, the DTIS has opened up test facilities in defence laboratories and public sector organisations to start-ups and MSMEs in equipment development and manufacturing.

Furthermore, setting up an independent nodal umbrella body for testing, trial, and certification requirements of defence systems will improve access to existing facilities while reducing the need for investments to recreate the capital-intensive infrastructure.

Aspiring to conceive in India is crucial and not just ‘Make in India.’ Developing IPs will be a long and arduous, but it will enable a quantum leap in the number of IPs being created, taking ‘Make in India’ to the next level of moving from being Tier 1 and Tier 2 suppliers to innovators and new product creators.

Collaborative research for technology development between global aerospace firms, such as Collins Aerospace and Boeing, and technical and research institutions, including Indian Institute of Science (IISc), Indian Institute of Management (IIM) Bangalore, Indian Institutes of Technologies (IITs), and R.V. College of Engineering (RVCE), can help promote partnerships and foster the future pool of researchers.

Developing a strong research base in India and a robust supply chain for components and sub-systems, most currently sourced from abroad, will help create the market for civilian and defence systems in the aerospace sector.

Finally, public funding for investments in several critical future technologies, such as artificial intelligence (AI), robotics, autonomous vehicles, augmented and virtual reality, and blockchains, will be foundational for future innovations, both for commercial and military applications. The line demarcating products designed for commercial versus military purposes is blurring with these new technologies, making public funding critical to drive innovation and secure India’s position as a leader in the global defence industry.

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