Industry responds to MoD’s draft policy on “defence testing infrastructure”

By Ajai Shukla

Business Standard, 13th June 18

Indigenous aerospace and defence manufacturers have responded to the defence ministry’s draft policy on establishing defence testing infrastructure (DTI). 

The ministry, which promulgated the draft policy last month, had sought feedback by June 8.

The new policy draft notes that “Defence Testing Infrastructure is often capital intensive, requiring continuous upgradation and it is not economically viable for individual defence industrial units to set up in-house testing facilities.” 

It proposes setting up DTI as a government-funded platform, especially in two “defence industrial corridors” already planned in Tamil Nadu and Uttar Pradesh. 

The scheme envisages six-to-eight DTI clusters, to be set up with an assistance grant of Rs 400 crore (Rs 4 billion). The defence ministry will fund 75 per cent of the project cost of each DTI unit.

The private sector has welcomed the DTI Scheme, given that even large defence firms cannot afford to set up testing infrastructure needed for validating their products. 

DTI includes properly instrumented firing ranges for missiles, artillery and small arms, and facilities to test “ruggedisation” of military equipment. It also includes laboratories for testing electro-magnetic interference/compatibility (EMI/EMC) of radar and telecommunications equipment, and facilities for testing unmanned aerial vehicles (UAVs) and building specialised test-driving tracks.

Tata Power (Strategic Engineering Division) spent over Rs 150 crore (Rs 1.5 billion) to create its own EMI/EMC laboratory to validate its telecommunications equipment. But many other firms cannot afford this, given the lack of assured orders from the services.

The defence ministry has proposed implementing the DTI Scheme either directly, or through a Special Purpose Vehicle (SPV) that would establish, operate and maintain testing infrastructure and collect user charges from the industry. 

The draft policy proposes that at least seven firms that are potential users of the proposed DTI must be part of each SPV. 

“The industry units benefitting from the SPV should hold at least 51% equity and no single unit shall hold more than 25% of the share capital of the SPV”, states the draft policy.

However, large private defence firms have proposed an alternative to the SPV route. They say that, with at least seven industries participating, and the participation of major industry restricted to 25 per cent, there would be too many decision-makers, resulting in poor execution.

“It would be better if major industries, whether public or private sector, located in the proximity of the DTI, act as ‘anchor units’, responsible for operations and maintenance. These ‘anchor units’, with tier-ised eco-systems build around them, can allow other firms, including micro, small and medium enterprises (MSMEs) to use the DTI”, says Jayant Patil, head of L&T’s defence and heavy engineering verticals.

“Funding for the DTI can be from the central/state government to the extent of 75 per cent, as the draft policy states. With capital costs funded, industry can avail of the facility for a nominal fee”, says Patil.

L&T proposes that the “user charges” collected by the anchor units be displayed on a government website. The anchor unit would submit a quarterly statement to the government on the testing carried out and the recoveries made.

However, MSMEs like Alpha Design Technologies say that government-funded DTI should be created “primarily for use by MSMEs and start-ups. “Only nominal charges should be levied for use of the testing infrastructure, says Colonel (Retd) HS Shankar, who heads Alpha.

The private sector, in its feedback to the defence ministry, pointed out that tens of EMI/EMC laboratories are needed in India, given the proliferation of electro-magnetic emitters in defence equipment. One company says that German communications giant Rhode & Schwarz has cheaply built dozens of such facilities for China’s defence industry, under pressure from Beijing.

Rahul Chaudhry, Chairman of Defence Innovators and Industry Association, points out that creating DTI is not enough. The defence ministry would simultaneously have also to create the standards and compliance infrastructure essential for using it optimally.

Puneet Kaura, who heads Samtel Defence Systems, calls the DTI Scheme a “good step”, but says: “The defence ministry needs to speed up implementation so that industry can reap its benefits quickly.”

Separately, the MoD intends to promote the creation of DTI through an amendment to its offsets policy, a draft of which was released for public comments in May. The draft amendment proposes permitting vendors to claim offset credits for setting up new DTI for Indian defence industry.

Multipliers between two-to-three have been proposed for DTI, with higher multipliers allocated to test infrastructure in the recently-announced defence industry corridors in Tamil Nadu or Uttar Pradesh. A multiplier of three means an investment of $100 million would gain offset credits of $300 million.