Facilitating “Make” projects

By Ajai Shukla

Business Standard, 7th Nov 17

Defence ministry officials, military officers and new defence ministers – of whom we have had rather a lot under the Bharatiya Janata Party-led government – like to periodically intone their commitment to indigenisation. Few bother to explain what they mean by that, not being entirely clear about the nuances themselves. Last fortnight, almost three years after Broadsword carried a column titled “Made in India versus Make in India”, top government officials spoke on the same subject at a Ficci-organised seminar in New Delhi: “Solutions to Problem Statements: Make in India to Made in India”.

Yet, none of the key participants, including Minister of State for Defence Subhash Bhamre and army chief General Bipin Rawat, clarified their version of indigenisation. Did they refer to the indigenisation of Prime Minister Narendra Modi’s “Make in India” initiative, which is no more than the licensed manufacture of foreign defence kit? Successive defence ministry procurement manuals, most recently the Defence Procurement Procedure of 2016 (DPP-2016), place this within the acquisition categories of “Buy and Make” and “Buy and Make (Indian)”. Or were the speakers referring to the ground-up development of indigenous defence platforms, a genuine “Made in India” effort that the DPP covers under its “Make” category? 

The “Make” category is an altogether different (and implicitly more desirable) category from the “Buy” or “Buy and Make” categories — aimed, according to DPP-2016, at “developing long-term indigenous defence capabilities”. But “Made in India” projects, which require serious planning, structuring and implementation, have been largely crowded out by the prime minister’s “Make in India” slogan, and by the military’s wish to buy ready-built weaponry over-the-counter. A scan of the multi-billion-dollar procurements over the last decade – such as C-130J Super Hercules and C-17 Globemaster III transport aircraft, P-8I maritime surveillance aircraft, CH-47F Chinook and AH-64E Apache helicopters, Rafale fighters and Mi-17 medium lift helicopters – highlights the government’s preference for “Buy Global” solutions. A look at the major procurements currently in the pipeline – single-engine fighters, carrier-borne naval medium fighters, conventional submarines, light utility helicopters – suggests that licensed manufacture through private sector “strategic partners” will only provide a fig-leaf of indigenisation, behind which billions of dollars will continue flowing to global vendors.

Proving this reliance on foreign vendors unnecessary is the Indian Navy, which has consistently endeavoured and largely succeeded in building its own warships. But for most others, “Buy” and “Buy and Make” remain the mantras.

Highlighting the lack of defence ministry commitment to the “Make” procedure that was first proposed by the Kelkar Committee in 2005-06, is the lack of funding for “Make” category projects since then. Not a penny was spent on “Make” projects in two years (2012-13 and 2015-16). And the highest allocation this category ever received was in 2016-17: ~184 crore, a laughable 0.25 per cent of the capital budget.

Budgetary allocations for “Make” procedure

(Rs crore)

	2010-11	2011-12	2012-13	2013-14	2014-15	2015-16	2016-17	2017-18
Allocated	Nil	118.32	89.22	1.00	35.71	144.21	Nil	44.63
Spent	81.95	29.10	Nil	28.86	0.50	Nil	183.79	???

(Source: Finance Ministry budget documents)

This despite, several declarations of government support to “Make” projects. In March 2012, the defence ministry’s director general of acquisitions, Vivek Rae, described the “Make” procedure as “modelled on the American DARPA”. Mr Rae was referring to the US Pentagon’s Defence Advanced Research Projects Agency, which functions with 120 administrators and an annual budget of $3 billion (~20,000 crore) to achieve its self-declared intention “to prevent and create strategic surprise”. Amongst DARPA’s innovations are the internet, stealth technology, global positioning satellites, unmanned aerial vehicles or drones, and micro-electro-mechanical systems (MEMS). Its modus operandi is simple: To fund selected short-duration projects that must be completed in 3-5 years by a mission-oriented team of experts from diverse organisations. The “Make” category is similar to DARPA in its funding model: the defence ministry pays a private firm(s) 80 per cent of the cost of developing a prototype, with the chosen development agency (DA) paying the remaining 20 per cent. DPP-2016 takes the ministry’s commitment to 90 per cent.

Mr Rae recognised that generating activity through “Make” projects, with the government funding Indian technology entrepreneurs, would energise the country’s defence industrial base. He promised to put a list of 150-180 “Make” projects on the MoD’s website. In January 2015, the defence ministry’s secretary for defence production, G Mohan Kumar, declared that at least 8-10 “Make” projects would be kicked off every year. But delivery has been sobering: Only the first two “Make” projects have been tendered so far — the Tactical Communications System (TCS) and Battlefield Management System (BMS). The development agencies (DAs) for these were selected in June 2012 and February 2014 respectively. But price negotiations continue; and not a single contract has been signed so far.

The third “Make” project, which has been ambling along for a decade, presents an even more sobering saga. The army needs to replace 2,600 BMP-2 armoured carriers with a Future Infantry Combat Vehicle (FICV) — an armoured vehicle in which infantrymen keep pace with tanks, while protected from small arms fire. In 2010, the ministry issued expressions of interest (EoIs) under “Make” category to four vendors but cancelled them in 2012, realising it had neglected to specify how the two DAs would be chosen. It took the ministry three more years to issue a fresh EoI in 2015. But now, a year after five industrial consortia submitted their FICV proposals, the defence ministries acquisition chief, Smita Nagaraj, has belatedly noted that the selection criteria laid more emphasis on firms’ commercial and financial strength than a demonstrated ability to design and develop complex systems. She has also noted that, while the first FICV EoI emphasised technological capabilities, the current EoI focuses on the financials. This runs contrary to the DPP-stipulation that: “The contribution of the Indian industry in the critical technology areas (sic) should be the key criterion in assessment of various proposals”. The DPP also enjoins the ministry to “ensure that the Indian industry does not become a conduit for entry of foreign company without any significant value addition by the Indian partner”.

Caught in a dilemma, Ms Nagaraj has proposed that all five respondent consortia be asked to submit Detailed Project Reports (DPRs) based on which the two winning DAs would be selected. The army has objected, since this would involve technical assessment of five DPRs, rather than just those of the two selected DAs, but the acquisitions chief has realised that preparing and defending a full DPR would provide an assessment of whether an Indian private firm is merely fronting for a foreign partner or possesses inherent technological strength. 

All this will naturally delay further a “Make” category acquisition that has already dragged on for a decade. The ministry must learn from the first three projects to ensure that future “Make” projects are processed expeditiously. Finally, a suitable percentage of the acquisitions budget must be separately earmarked for “Make” projects and managed separately from regular procurement funds.