Aero India 2021-stepping Up Defence Manufacturing

A defence exposition is a significant marker of a country’s aspirations of augmenting indigenous aerospace and defence sector capabilities. Showcasing domestic capabilities and possibilities, it attracts exhibitors and original equipment manufacturers (OEMs) of both legacy and new technologies, who seek partnerships and markets.

Aero India has grown in the participation of Indian and foreign companies, static and flying displays, exhibition area, revenue generation, and the serious business for which these events are primarily organised: business-to-business (B2B) contracts, technology tie-ups, and product launches. Organising Aero India 2021 in a hybrid mode (both physical and virtual) is a welcome first step.

Participation has grown from 403 companies in 2019 to 540 in 2021, especially amongst foreign OEMs and governments who see great potential in the Indian defence market. The theme, exhibition layout and treatment, seminars and technical discussions focus on specific areas of interest to the Indian armed forces and aerospace and defence industry, defence R&D, innovation, start-ups, knowledge seminars, and skill development. However, the ‘grounding’ of announcements needs focus.

A MATURING EXPOSITION

The Department of Defence Production has galvanised its Defence Exhibition Organisation, under an officer of the services, to coordinate and lead the event with industry associations, academia and think tanks involved in seminars and technical interactions. Defence attaches abroad now undertake defence export promotion. Apex industry associations continue to be associated with seminars and country-specific meetings. A permanent tagline and practice of an ‘Outcome Report’ to capture the gains of the event and pursue possibilities, makes it business-like and reflects the government’s focus on tangible results and accountability.

Changes in the FDI policy to enable up to 100 per cent investment in defence; simplifications in industrial licensing to facilitate Ease of Doing Business, Testing and Certification, including self-certification; prototyping and associating other departments/ministries such as Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and National Skill Development Corporation under Ministry of Skill Development; wooing start-ups through the Defence India Start-up Challenges, and associating academia by collaborating with IITs and other engineering colleges, are steps that point to an approach that is based upon a sense of direction. Amendments proposed to the Defence Acquisition Policy and Offsets Policy are intended to signal both direction and urgency.

SURGE IN DOMESTIC PRODUCTION

CCS approval to Tejas Mark 1A, the long-awaited indigenously designed and developed light combat aircraft (LCA) by defence PSU HAL is opportune. The contract for 83 aircraft worth Rs. 48,800 crore conveys the maturing of domestic technical capabilities and signals the confidence of the Indian Air Force in a 4.5-generation aircraft that will replace the MiG 21 fleet and operate alongside the Su 30 and Rafael aircraft. Outsourcing of components from domestic private firms of all five major sections: the front fuselage, wings, centre fuselage, rear fuselage, and the tail and rudder has enabled HAL to transition from knocked-down assembly under licensed production to manufacturing in association with Indian OEMs, underlining the government’s resolve to induct indigenous technologies into the key defence sector.

HAL’s Light Utility Helicopter (LUH) is also likely to get Initial Operational Clearance (IOC). It is poised to replace the Chetak, IAF’s workhorse in high altitude areas. With the weaponised Advanced Light Helicopter (ALH) and the Light Combat Helicopter (LCH) also ready, indigenisation production is expected to receive a big boost. The downstream effect of domestically manufactured components and sub-assemblies will be huge.

EXPANDING HORIZON

The focus on UAVs and drones has sharpened post the Armenia-Azerbaijan war. Aero India 2019 generated hype around UAVs through the first-ever Drone Olympics, Start-up Day, Technology Day, and the association of IITs and DRDO. Application of A.I. in use of drones needs a close interface with the services to become the driver and integrator of technologies in surveillance, reconnaissance, and operations. An early industry-services interface will enable moving beyond the technical aspects to application platforms and for domestic manufacturing to leapfrog.

Events post-Galwan and continuing tensions in the western sector require communications for field-level operations to be another key focus area. A separate, more focussed event on these technologies, involving key stakeholders prior to the next marquee event in 2023 will facilitate scaling up of initiatives in this technological vector.

Aero India 2021 needs to effectively promote the Prime Minister’s direction for an Atmanirbhar Bharat. A focus on the manufacturing ecosystem looking beyond memorandums of understanding (MoUs)/ agreements will help. Promotion of dual-use technology is essential. A good beginning was made in 2019 involving maintenance, repair, and overhaul (MRO) sector (which has a $1.2 billion potential) with the Ministry of Civil Aviation (MoCA) and the Ministry for Skill Development for skilling technical manpower in the aeronautical sector through an MoU between the Aerospace and Aviation Sector Skill Council under the National Skill Development Corporation and the Singapore Polytechnic for technical support to the aerospace industry in India.

Innovation and start-ups need support in the short and medium-term. A joint mechanism of the three services, under the CDS, to identify key technologies for the operational requirements of the forces should be pushed with the mandate to scan military technologies and platforms that can be developed in the country. This mechanism needs to be linked to one led by the Department of Defence with DRDO, academia and start-ups to actualise the projects identified, bringing manufacturing capacity and technology together. This forum could be the interface with the technology exchange fora that exist with countries such as the USA, France, and Israel under the formal mechanism, to identify and implement specific projects in a defined time frame. A beginning has already been made with the U.S.

OFFSETS

Leveraging offsets is necessary. The Policy of 2006 focussed on fostering the development of internationally competitive enterprises, augmenting capacity for research, design and development in defence products and services, apart from encouraging the development of civil aerospace and internal security. Amendments in July 2020 deleted services, civil aerospace, and internal security sectors, shifting the focus to manufacturing. The new offset policy includes multipliers to facilitate technology transfer, attract FDI, and promote export of finished products through higher multipliers of 2, 3 and 4 for investment and technology transfer and not merely parts and components. The duration of discharge of obligations has been modified to two years beyond the end of the main contract, excluding the warranty period.

Fulfilment of offset discharge by entities other than the main offset provider and its Tier I sub-vendors has also been allowed to enable subsidiaries/sister companies to fulfil discharge obligations on their behalf. ‘Banking’ of offsets, introduced in 2008, has been discontinued. Inclusion of MSMEs in the multipliers has been done with similar incentives for the two Industrial Corridors announced in 2017. Greater transparency and accountability of the government is attempted through an on-line process for reporting and monitoring of offset discharges. Hopefully, this will send a clear message that foreign OEMs need to take advantage of these changes if they wish to engage.

TURNING ENABLERS

Private industry and the start-up community must feel enthused about working in the defence sector. The actualisation of the government’s policy changes must enable both domestic industry and the PSUs and Ordnance Boards. From the overall defence manufacturing and capability enhancement perspective, foreign OEMs and vendors must find it worth their while to find a market. Policies and facilitative mechanisms to instil confidence to collaborate and co-produce with Indian entities must be set up.

Enabling the growth of the indigenous industry and the realisation of the Ministry’s objective to achieve a $25 billion (Rs. 1,75,000 crore) defence industry with a $5 billion (Rs. 35,000 crore) export order by 2024 requires leveraging of the opportunities offered by such a marquee event. Follow-up and handholding will yield better results. Bengaluru can be the fulcrum for this.