An Ecosystem For Atmanirbhar

In tune with the national policy of ‘Atmanirbhar’ in defence manufacturing and production, there have been several significant policy initiatives designed to enhance the role of our Defence Industry and Technology Base (DITB). 

These recent policy changes in India’s defence industry and the technology firmament signal an unprecedented and unique opportunity for sectoral growth and revitalisation. A comprehensive list places more than 100 items under progressive import embargo; the earmarking of a portion of the defence budget for domestic procurement; and changes in the acquisition and offset procedures are some of the new additions.

Policy changes have been matched on the ground with the recent final orders for Tejas fighters, HAL assembled SU30 MK-I aircraft and other indigenously manufactured military hardware. Missile exports have also been opened up.

CHANGES TO DAP

Certain revisions to the Defence Acquisition Procedure (DAP) constitute the most important long-term change in the ecosystem. Detailed procedures and principles for the leasing of military equipment have been worked out. There is much more clarity on the incentivisation of actual technology transfer, computation of indigenous content, and the establishment of global manufacturing hubs by major OEMs.

Design and development by the ordnance factories/defence PSUs/Defence Research and Development Organisation have been put on firmer ground. There is greater clarity on prototype development. Procurement procedures for military material and special alloys have been streamlined. Greater Indian participation in the weapons and sensors segment has been emphasised. Several categories of procurement have been exclusively reserved for Indian vendors. The Rs. 1,000 cr. Prarambh initiative for start-ups has been launched.

The trial and testing procedure has been substantially simplified, with greater emphasis on self-certification, certification by accredited laboratories, and computer simulations. Multiple, sequential trials have been eliminated. Special procedures have been drawn up for the procurement of ICT, electronic warfare, and other software-intensive equipment, with special emphasis on interoperability, upgradation, and change management.

Together with upcoming changes in the governance structure of the DITB, through the corporatisation of the Ordnance Factory Board and planned disinvestment in frontline defence PSUs, all these have the potential to transform DITB.

With the signing of the BECA (Basic Exchange and Cooperation Agreement), all the foundational agreements with the U.S. are in position. Given the progress in the Indo-U.S. defence technology initiative, we should now see some real forward movement in hi-tech transfer and IPR sharing between defence manufacturers and developers. Early operationalisation of the proposed AK 203 JV with Russia and with major OEMs for aircraft engines and spares will also send the right signals.

KEY CONCERNS

In our system, the devil is in the details. Changes in the DAP need to be matched with special dispensations in the financial rules. If required, the General Financial Rules should include a separate section on defence procurement, or at the very least, recognise the unique features of defence procurement. The parallel existence of two, quite different modes of operation within government finance has been problematic. Better harmonisation will prevent confusion and forestall repeated objections and requests for clarifications to the Finance Ministry.

To start with, indigenous products are likely to be more expensive than imports. In fact, they may even be more expensive than similar items bought earlier from foreign vendors. The rules have to explicitly provide for a “domestic premium”. The premium could be set to decline to zero over the next four or five years.

Several processes — leasing, stockpiling of special alloys and materials, advance payments for prototypes and spiral development, lifecycle costing and performance-based logistics-have few parallels in non-defence sectors and will have to be formally recognised by the Finance Ministry. The possibility of failure of government-funded prototypes also needs to be articulated with greater clarity. The very recent report quoting the COAS on the overbearing nature of the rules and the primacy of process over output in defence acquisition holding up modernisation and preparedness, ought to be seen in this perspective.

Leasing needs to be thought through. Dual-use and support equipment, like tankers, tugs, transport, and heavy machinery, already have well-developed leasing mechanisms and will pose no problems. Exclusive military items may pose a different set of problems, including the issue of prior authorisations, or the likelihood of “remote switch offs” in the event of hostilities. It might be a good idea to test the 'leasing waters' on the G2G route for such equipment at the earliest.

NURTURING LEGACY LINES

Irrespective of the Strategic Partnership initiative, we need to be careful about our existing lines of production, be it submarines, aircraft, or armoured vehicles. Such lines grow slowly, and the expertise needs careful nurture. Very few countries can afford more than a single production line for major platforms.

We would do well to recall that post the cancellation of additional units of HDW submarines in the 1980s; there was manpower leakage to foreign shipyards. This could happen again with the SU line at Nasik, or the Scorpene line at Mazagaon, the helicopter unit at Koraput, the heavy vehicles unit or even at the strategic facilities for that matter. Experience from other success stories of Indian forays into globally competitive manufacturing, such as pharma, auto, and LEDs, shows the significance of strong domestic manufacturing capabilities.

More importantly, experiences demonstrate the ease with which domestic systems and expertise can be re-engineered to suit new requirements without having to dismantle them altogether.

ONUS ON THE FORCES

The armed forces will have to drive the entire process. They will have to balance operational preparedness and domestic capabilities. They will have to nurture gradual development through achievable specifications. This issue has been very well highlighted several times by the CDS.

The quest for India-specific, customised capability enhancements over standard products, and insistence on specifications equal to or in some cases even beyond those of the NATO or the U.S., albeit in the interest of cutting-edge preparedness, could impact the entire indigenisation effort. But this call has to be that of the armed forces. The Department of Military Affairs is charged with the “promotion of the use of indigenous equipment”. This specific task and the actual responsibility for the acquisition of major capital equipment, currently with the Department of Defence, perhaps requires greater harmonisation.

Finally, an enhanced defence budget will have a major impact on the DITB. Indeed, higher spends on domestic procurement could have beneficial multiplier effects. Higher imports will not. Once again, the government and the armed forces will have to jointly address issues of defence preparedness and in particular, preparedness in the post-Galwan era, in conjunction with the Atmanirbhar thrust under resource constraints.