Economic Undertakings

The myth of Atmanirbhar Bharat in the making of defense


‘Corporatization’ was among 167 transformational ideas to be implemented in the first 100 days of coming to power in the NDA’s manifesto for the 2019 general election.

The delay in announcing the corporatization of 41 munitions factories is understandable, given its seniority and the strong and established unions they have with 81,500 employees.

In 2000, the TKA Nair committee suggested converting the Ordnance Factory Board, established in 1979, into OF Corporation Ltd. In 2006, economist Vijay Kelkar recommended that the new company be given Navaratna status as Hindustan Aeronautics Limited (HAL), which helped them to strike deals with original equipment manufacturers (OEMs) and benefit from technology transfer.

In 2014, Admiral Raman Puri recommended dividing munitions factories into three groups, namely weapons, ammunition and combat vehicles.

The government’s current arrangement is significantly different as the four proposed public sector companies (PSUs) will continue to manage gliders, parachutes, optics, components and accessories, and products designed for the comfort of troops. This will perpetuate the poor quality, delays and high prices of products that can easily be purchased from private actors at a better price and of better quality. While this strategy made sense during the world wars, when the capacities of the private sector were insufficient, India after 1991 with its push on liberalization, privatization and globalization, must not perpetuate the manufacture of these weak items. technology and non-strategic in captive munitions factories.

After the 1956 industrial policy resolution, the defense manufacturing sector became the exclusive prerogative of defense PSUs and munitions factories. Given their strategic nature, the government was slow to embrace economic liberalization by a decade. In 2001, it allowed the private sector to participate 100% in the manufacture of defense equipment and capped foreign direct investment (FDI) at 26%.

While Kelkar’s level-playing field doctrine has encouraged companies like L&T, Mahindra & Mahindra, Godrej & Boyce, Tatas and a number of IT companies to enter, the paltry 26% of FDI has scarcely thrilled. no major OEM to set up a production base. in India. The government then announced a compensation policy in 2006 to take advantage of India’s costly acquisition to secure outsourcing, export orders and critical technology from the world’s leading defense manufacturers. The experience so far has been dismal, with the exception of a few low-tech item outsourcing orders.

Discouraged by the lukewarm response from OEMs to 26% FDI, the Indian government increased the limit to 49% in 2014 and 74% in 2020 to get technology into niches.

Despite these initiatives, the capacity of India’s military industry shows a deplorable image and the private sector is still not treated as a partner in India’s quest for greater self-reliance. The much-publicized native light fighter (LCA) is powered by a GE 404 engine from the United States, while the radar is sourced from ELTA, Israel. The development of the Kaveri engine by the Gas Turbine Research Establishment (GTRE) was a total disaster. The Main Battle Tank (MBT), the flagship native tank, is powered by German MTU engines. Despite the significant rise in FDI, inflows were only $ 300 million from April to September 2020. This is largely due to the number of warnings to allow 76% of FDI.

India has the dubious reputation of being the second largest importer of conventional arms (9.5%) according to the SIPRI 2021 report. Our Self-Confidence Index (SRI) was assessed by the Kalam Committee in 1993 at 30%, with a roadmap to increase it to 70% within a decade. The committee had identified a number of critical subsystems such as the focal plane array, passive homers, stealth, AESA radar, RLG and carbon fibers, where the quality of the design and development of the India needs to be drastically improved. Weapons, propulsion and sensors remain the main scarecrows of India’s design capacity within the Defense Research and Design Organization (DRDO) and the Indian SRI has not progressed.

Technology transfer has been India’s main political mosaic for building major systems and platforms since 1963 (following the MiG-21 aircraft). HAL produced Sukhoi Su-30 on the basis of technology transfer documents from Russia. Similar is the story of the T90 produced in the Avadi tank factory, based on technology transferred from Russia. From this, it is evident that the manufacture is based on a foreign design, rather than an indigenous design. The general rant against defense PSUs is that they are good integrators of imported subparts rather than manufacturers per se. No wonder, the added value of HAL in the production of Su-30 is less than 20%.

The major problem that plagues the OFB is not the lack of autonomy or responsibility but the means to improve its capacities. OFB’s R&D expenses only represent 0.7-0.8% of their turnover. The other big drag was spending on new capital, which represents less than 1% of their revenue spending. Capital expenses also represent a measly 3-5% of total expenses. While ammunition factories have a well-managed renewal and replacement budget to replace obsolete machinery, they invest very little in capital and advanced machinery.

OFB’s corporate transformation should be seen in the overall context of improving Indian military industry capacity, run-time quotient, critical systems design capability and quality, time and the profitability and involvement of private actors in defense manufacturing as tandem partners. with OEMs and design houses. The move from MMRCA’s technology transfer contract (ToT) with HAL (buy and make) to the direct purchase of aircraft from Dassault Aviation in France is a clear demonstration of how HAL has failed to meet the expectations of users and also the ToT partner.

The government clearly prefers the private sector. A major development has been the ToT contract with Tatas rather than with HAL for the construction of 40 C-295 transport aircraft. This is the first time that a major ToT has been used by a private company. Research cannot be DRDO’s monopoly. The private sector, universities and reputable design houses must be part of this process, which will significantly improve India’s design capacity.

The time has come to get rid of the ineffectiveness and ineffectiveness of defense PSUs and munitions factories, rather than cheer for the corporatization of OFB.

SN Misra was JS, HAL. The opinions expressed are personal.


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