February 15, 2018

India’s defence industry lacks fire power

The ministry of defence has to be lauded for its proposed move not to make any further investments in the state-owned defence production sector which has, over the years, become a drag on the economy. Today India is the largest arms importer in the world and spends annually on an average about $3.6 billion, which is more than the combined imports of both Pakistan and China. Over seven decades of nationhood, the state-owned defence industrial combine, except for missilery, communication systems and some low technology items, has not contributed notably to self-reliance in defence production.

India’s defence industry constitutes eight defence public sector undertakings (DPSUs) and 41 Ordnance Factories (OFs) besides 49 Defence Research and Development Organisations (DRDO) which were created to accomplish self-reliance in defence production. The decision to restructure state-owned defence was in view of their dismal performance; it should have been taken at least two decades ago.

No accountability ::

In the late 1980s the Government attempted to sell Vehicle Factory Jabalpur to truck major Telco, but the latter did not want to accept the existing workforce. The culture at OFs was one of “overtime”. Similarly in the mid-1990s the Government wanted to disinvest in HAL, its largest DPSU, but suddenly developed cold feet. The only two DPSUs that have been partially disinvested are Bharat Electronics (BE) and Bharat Earth Movers Ltd (BEML).

The problem with DPSUs is the absence of accountability and the presence of political interference. For instance, BEML was supposed to have indigenised production of the controversial Swedish 155 mm Bofors howitzers at its KGF plant but the entire project went into cold storage due to political compulsions in the late 1980s.

The DRDO contracted three private companies during the early 1990s to design and develop Multi Barrel Rocket Launchers, namely Marshall Engineering, Tata Power and L&T. The defence industry outsources the development order to private industry with assurances of production orders for bulk manufacture which has potential to earn profits.

However after the private company delivers the development order the DPSU then arm-twists it to share the production order with them. This deters private industry from integration with the state-owned defence industry.

In the early 1990s when the Indian Army considered importing the legendary AK-47 automatic rifle it cost ₹3,500 whereas to manufacture it indigenously would cost ₹17,000. This which highlights inefficiency and lack of commercial consciousness, characteristic of OFs. The first Army Industry Partnership held in 1995 at New Delhi to enable an interface between manufacturer and user was not a success. The fact that the Indian Navy needs to send its EKM 877 Kilo class submarines for medium/long refits and the Indian Air Force its MiG-21 and MiG-29 fighter aircraft for avionics upgrades to Russia, speaks volumes about the lack of Indian defence industrial capabilities. Russia plans to bill the Indian Navy ₹125 crore to repair the damaged nuclear submarine INS Chakra.

A question of priorities ::

Hindustan Aeronautics Ltd, Ozhar, never mastered the license production of the MiG-27 fighter ground attack which manifested itself as a common “fourth stage” compressor disc failure. HAL never figured out the metallurgy integral to the production process of the aero-engine. HAL and Israeli Aircraft Industries (IAI) are both state-owned entities formed almost around the same time.

However, IAI is much more profitable because it concentrated on high-value items like avionics, while HAL undertook even low-technology elements. Today, India is Israel’s biggest armaments customer.

Perhaps the Government needs to look at two successful global models for a winning formula. The US Defense Advanced Research Projects Agency (DARPA) has a team of only 240 scientists who run all its R&D activities through funds provided to academic institutions and private industry. In Israel there are wholly state-owned ordnance factories, public-private partnership defence companies and completely private defence companies that undertake both R&D and defence production.

Britain’s Margaret Thatcher privatised the national armament industry which included reputed names like British Aerospace (BAE) and Rolls Royce, the sale of Royal Ordnance Factories to Vickers, and the operation of the Royal Dockyards to private contractors. Today BAE and Rolls Royce continue to prosper in a competitive market.

Till now the Government has lacked the political will to restructure and reform the defence industry and thereby incurs a huge defence bill which affects both armament modernisation and maintenance of its military inventory. The fact that today the Indian Army does not have even the most basic piece of military hardware, a rifle, is a sad commentary on indigenous defence production capability. It is both an economic necessity as well as a national security imperative to reduce India’s annual average defence import bill and become self-reliant in defence technologies. This will benefit the country’s economy especially its manufacturing industry.


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