Home/ Opinion / Five reasons why defence production in India will take off

Since assuming office, the National Democratic Alliance (NDA) government has been stressing that defence manufacturing is a crucial pillar to revitalise the manufacturing sector and put India on the road to self-reliance in defence products.

The Make in India initiative is over 18 months old and despite promises from a significant number of foreign original equipment manufacturers (OEMs) nothing seems to have happened at the ground level.

This begs the question whether the sector would actually deliver or whether it would be reduced to an obscure mediocre project. The answer to the question is yes, the sector will deliver. Here are five reasons:

Establishment of a new procurement regime: The industry has been waiting for the new defence procurement procedures (DPP) for over a year. While, the delay may be perceived to be due to the typical bureaucratic hurdles, which are faced by any set of new regulations, in this case, it has largely been due to constant suggestions being taken from stakeholders to remove past hurdles. A few glimpses of simplification can be seen based on the amendments introduced in DPP 2013 where relaxations have been made to appointment of offset partners to reduce lead times. Another example has been the constructive feedback taken from the empowered committee to outline the issues and its suggested remedial steps. In the past era, a committee recommendations would have been reduced to an academic endeavour with little in way of implementation, however, the government has been quick to act on a few of the suggestions which means that it’s listening to the industry and stakeholders.

Push to domestic industry: The present DPP provides a few categories exclusively to cater to the Indian industry, these are Buy (Indian), Buy & Make (India) and Make. All these categories have faced individual challenges and have not been as successful as expected. To streamline the capability of the domestic industry, the concept of strategic partners is being introduced. This would mean that an identified Indian company would be vested the development, implementation and maintenance of a particular platform (helicopters, weapons, aircraft, etc).

There are two distinct advantages which would result from this: firstly, it would ensure a more comprehensive skill building and knowledge transfer for these platforms in India and secondly, the domestic industry would not be required to compete amongst themselves. Early signs of this can be seen with Bharat Forge and Tata Group joining hands along with General Dynamics for the Future Infantry Combat Vehicle project. A related but critical advantage of this initiative would be that foreign OEMs would deal directly with private enterprises instead of long negotiations with the government.

Simplification of offset regime: After the initial failed experiments with offsets, the government is devising new ways to keep OEMs invested. For example an OEM has been given the option to select the offset partner till the time the offsets need to be completed and filed. The approach is not as cavalier as it may seem, since the government has increased the penalties for non-compliance in direct proportion to the flexibility exercised. This is one of the key areas where the government has shown that it is willing to get out of the way of businesses to achieve the end goal. However, the true test of success in the offset regime will only be witnessed when the new DPP is announced and analysed in entirety.

Increasing involvement of states: India’s federal regime is one of the most defining characteristics of our democracy. It has done wonders in some spheres and has been a debilitating handicap for some. A few states such as Andhra Pradesh, Telangana, Karnataka and Maharashtra have shown a clear indication to attract the defence manufacturing industry by welcoming companies and putting in place clear policies for the industry.

The resistance faced by industries at the state levels and the inability of the lower bureaucratic levels to appreciate or understand business requirements have seen several projects stalled and caught in bureaucratic quagmire.

The efforts introduced by the above mentioned states have also seen rewards since Andhra Pradesh, Telangana and Karnataka are evolving as India’s aerospace hub.

Maturity in Indian industry: The domestic industry has matured significantly in the last few years. Companies such as Bharat Forge and Tata have shown that Indian companies can work seamlessly with the global industry and can deliver on the most exacting standards.

Tatas are servicing Lockheed, Sikorsky, Airbus and Boeing who are in the very upper echelons of the industry.

Bharat Forge has tied up with Rolls-Royce, Elbit, Saab, Rafael on a variety of programmes and is investing equally or more than the foreign partners—a sign of the industry willing to shed its inhibitions and reservations on past concerns of being sidelined by the foreign OEMs.

The Indian industry has also shown its ability to innovate and there are many categories of products where the domestic industry has significantly worked and developed improved designs from existing equipment.

There are several other reasons where the commitment from the government can be seen. The facilitating role of department of industrial policy and promotion, frequent Defence Acquisition Council (DAC) approvals to projects all indicate a thriving and robust engine being created to make defence manufacturing the bedrock of Indian industry a question of “when" and not “if".

Despite the several encouraging steps mentioned above, there is a lot of ground to cover and a large part of it can be achieved if the opposition realizes that the roadblocks to key legislation such as goods and services tax, land acquisition, etc. compromise national interests and not just political interest.

However, despite the challenges, the defence manufacturing industry in India is the beginning of an optimistic tale.

Kabir Bogra is an associate partner at Khaitan & Co.

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Updated: 30 Mar 2016, 02:31 AM IST
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