Made by India, not Made in India

It is for the government -- through FDI caps and licensing -- to nurture Indian defence players rather than exposing them to a brutal marketplace

by Ajai Shukla

Business Standard, 3rd Apr 12

In a timely article on this page, Nitin Pai has addressed the vital question of how to equip India’s military, without delays and with bang for the buck (“Buying into superstition instead of military strategy”, April 1). A debate on this crucial issue is a black hole in our national discourse. The defence of the realm will cost some Rs 2 lakh crore this coming year. With defence spending rising some 15 per cent annually, that figure could double every five or six years.

Pai’s conclusions, however, are questionable. He argues that the dogmatic pursuit of indigenisation is a mistake that has led to powerful defence public sector undertakings (DPSUs) capturing policy, and to burdensome procurement regulations. Far better, says Pai, to throw open the door to foreign industry, which will promote defence indigenisation just as it did in the automobile sector.

In fact, there is ambivalence rather than dogmatism over defence indigenisation. There is broad national consensus on indigenising atomic and space capabilities because no country parts with the technology that drives nuclear weapons, reactors and fuel enrichment — or rockets and satellites. But in defence there is a two-faced approach. Advanced countries eagerly seek buyers for legacy equipment and technology. But in cutting-edge defence technologies, which have cost billions to develop, the rules of atomic and space commerce apply.

Technology denial exists not just in strategic systems like ballistic missiles but increasingly in tactical systems. Take, for example, the electronic command systems that determine winners and losers in today’s digitally networked battlefield. In the good old days, your new fighter required just an interoperable radio for joining the air defence network. “Mission 101, hard right, 300 degrees, buster 500 knots, maintain 3,000 feet; target bearing 270 degrees; 40 nautical miles, six aircraft in trail formation, low level,” you would hear in your headphones and you gunned your Mirage-2000 into aerial combat. Today, it plays out differently. The intruding fighters might be picked up by your airborne warning and control system (AWACS); or radar network; or even an unmanned airborne vehicle; or satellite. An “identification friend or foe (IFF)” kit would electronically ascertain that these were hostile aircraft. An electronic decision support system (DSS) that tracks every “Blue Force” aircraft would determine that your Sukhoi-30MKI was best placed to intercept the intruders. The engagement order would be passed as a coded digital message to your weapons systems officer in the rear cockpit; and you would swoop down on the enemy without a word having been said.

Since all these systems must talk to each other, indigenisation becomes ever more essential as the battlefield becomes increasingly networked. Foreign electronic command systems, or a DSS, or AWACS, or IFF kit, or the electronic warfare (EW) systems that make your fighter invisible to enemy radar would pose not just issues of interoperability, but also carry security risks: malware that snoops, or kill-switches that render it inoperable at crucial moments. Linking new fighters, or radars, into this electronic network would only be possible if the vendor parts with software source codes, something that most manufacturers are loath to do.

The pursuit of indigenisation, therefore, has to be sharply focused. Clarity is essential to avoid reinventing the wheel, and for this the ministry of defence (MoD) is (finally!) coming out with a 15-year Long-Term Integrated Perspective Plan (LTIPP) for 2012-2027. This will provide the defence industry with a road map of the capabilities and technologies that the military will require, thus providing a clear direction for R&D efforts. The MoD’s defence acquisitions chief, Vivek Rae, promised during last week’s Defexpo that this would be promulgated on the MoD’s website in three or four months.

This would provide a more level playing field for Indian private industry, which has historically played second fiddle to the eight DPSUs. Pai incorrectly ascribes their enormous clout in South Block to the “dogmatic pursuit of indigenisation”. In fact several DPSUs, notably BEL and BEML, have undermined indigenisation by serving as fronts for the back-door induction of foreign technology through partnerships with foreign vendors. The real problem with DPSUs is structural; placing them under the MoD has crowded out the private sector since bureaucrats, themselves members of the DPSUs’ boards, have patronised the DPSUs over the private sector.

There is, therefore, a need to review the DPSUs’ control structure. One option would be to break their patrimonial links with the MoD by placing them under the Department of Heavy Industries. But to throw out indigenisation itself while reforming the defence public sector would be a self-destructive ejection of the baby with the bathwater.

Finally, it is naïve to apply the automotive industry template onto defence production. Unlike the former, where purely market forces are in play, the strategic dimensions of defence technologies result in tight government regulation. America’s International Trafficking in Arms Regulations and the licensing rules of the US State Department ensure that US defence manufacturers, which are custodians of defence technology, require a licence for even a dialogue with an Indian partner. Government decisions, not market forces, determine whether technology is transferred or not.

Nevertheless, foreign defence industry must be allowed into India. It enhances production quality by exposing Indian industry to global standards and helps in creating the broad industrial eco-structure essential for developing high-technology defence systems. However, Indian private developers of high-technology systems (and the first level is already emerging) apprehend that the unconstrained entry of foreign vendors would allow them to kill off nascent Indian capabilities through predatory pricing policies and strategic acquisitions. It is for the government – through FDI caps and licensing requirements – to nurture the fledgling Indian defence players rather than exposing them prematurely to a brutal marketplace.