Public versus private challenges

The struggle to bridge the gap between defence exports and imports raises questions about the viability of strategic partnerships

 

By Ajai Shukla

Business Standard, 5th Jan 24

 

Last Monday, at the  Defence Research and Development Organisation’s  (DRDO’s) 66^th Foundation Day celebrations, its chairman, Samir V Kamat, expressed happiness that the Ministry of Defence (MoD) had cleared the purchase of DRDO-developed weapons systems worth more than ~1.42 trillion. However, excessive jubilation would be premature since no order has yet been placed, nor has any money been allocated. All that has happened is the accord of an acceptance of necessity (AoN), which amounts to a green light from the MoD, marking the start of its long-drawn-out procurement procedure. 

 

This will involve the categorisation process, the issue of a “request for information” (RFI) and/or “request for proposals” (RFP), the evaluation of vendors’ responses, the trial evaluation process, the technical evaluation process, the evaluation of commercial bids by the MoD’s commercial negotiation committee (CNC) and the declaration of the lowest bid. 

This entire process is meant to be completed in two-three years, but actually takes anything from one to two decades. Many of the acquisitions that the current government claims credit for were actually initiated by the previous one, more than a decade ago. What the government can legitimately take credit for – and very vocally does – is the selection of more DRDO-developed systems than ever before. Prime Minister Narendra Modi’s slogan of “Aatmanirbhar Bharat” (self-reliant India) is most evident in the fields of defence production and weapons acquisitions.

 

Beyond the rhetoric, there is a need to empirically evaluate how the Make in India policy is performing. According to industry bodies, 80-90 per cent of all AoNs relate to Indian companies. Some 60-70 per cent of this amount is spent on defence procurement in the Indian Designed, Developed and Manufactured (IDDM) category – which is the most preferred procurement category in the Defence Acquisition Procedure of 2020 (DAP 2020). In real terms, the total annual purchase of defence equipment by the military adds up to about ~1. 08 trillion. Of this, about ~20,000-21,000 crore worth of weaponry is produced by the private sector. Amongst the noteworthy private producers are firms such as Bharat Forge, currently spearheading the Kalyani Group’s defence initiatives, which has a current turnover of ~1,400-1,500 crore and an order book backlog of ~4,500 crore.

 

As private companies such as Bharat Forge, Tata Advanced Systems Ltd, Larsen & Toubro and Godrej & Boyce, to name just a few, pick up production orders, they accumulate both expertise and a role in the MoD’s decision-making process. The first two companies, for example, having partnered the DRDO in designing and developing the Advanced Towed Artillery Gun System (ATAGS), are now competing for an order of 307 howitzers. Commercial bids have been submitted for 307 units of ATAGS and the guns will be manufactured in the ratio of 60:40, with the lowest bidder getting the larger order.

 

Another place the private sector is ahead is its growing role in the defence exports market. It has already made inroads with the sale of vehicles, platforms, guns, and small warships to regional countries. From defence exports worth ~4,682 crore in 2017-18, the figure jumped two-and-a-half-fold to ~11,000 crore in 2018-19. This year, exports will be in the region of  ~16,000 crore and – with sales growing of Brahmos cruise missiles, Pinaka multi-barrelled rocket launcher, ATAGS howitzers and, potentially, Tejas light fighters and Dhruv light helicopters – there is optimism that the MoD could achieve its ambitious aim, as stated in the Defence Production Policy of 2018 (DPrP-2018), of exporting defence products worth $5 billion (~35,000 crore) annually, by 2025. This level of export growth is essential for meeting the DPrP-2018 target of making India one of the world’s top five defence producers, with an annual defence production turnover target of $26 billion (~ 1.8 trillion).

 

Alongside this growth of defence exports, there is a need for a corresponding reduction in defence imports. On March 20, on the basis of data available till December 2022, the MoD informed the Rajya Sabha that defence imports had reduced from 46 per cent to 36.7 per cent since 2018-19. Further, in the preceding three financial years (FY19 to FY21) and the current financial year 2021-22 (up to February, 2022), out of a total 197 capital acquisition contracts signed for capital procurement of defence equipment, 127 were signed with Indian vendors, the MoD informed Parliament on March 25, 2022.

 

Even so, foreign purchases of sophisticated platforms continue to take place, as Indian platforms fail to meet global standards. For example, the Advanced Medium Combat Aircraft (AMCA), which is being designed as India’s home-grown, fifth-generation stealth fighter, has not yet been built with an adequate stealth profile. This could result in the Indian Air Force being left with no option but to accept a foreign alternative.

 

Another example being played out in public is in the critical domain of submarine warfare. Twenty years have elapsed since India signed a contract with France for six sophisticated, “air-independent propulsion” (AIP) Scorpene submarines, but the delivery of the last vessel is still being completed. The navy has now placed a repeat order for three more Scorpenes, which are to be built in Mumbai in an endeavour to keep the workmen occupied. 

 

Meanwhile, there is no decision on the acquisition of six more AIP submarines, which were to be built under the so-called Project 75-I. The Indian Navy continues to face a desperate shortage of submarines to protect the entrances to the Bay of Bengal and the Arabian Sea, but there is little sense of urgency in tendering to identify a global “original equipment manufacturer” (OEM) that will hand over production technology. Nor is there urgency in identifying a “strategic partner”, who will be responsible for absorbing technology from the OEM to build, test, maintain, overhaul and upgrade the six submarines that will emerge from Project 75-I.

 

At stake here is not just the six submarines of Project 75-I, but the viability of the “strategic partner” acquisition category itself. This was to be the chosen method for building AIP submarines, the future infantry combat vehicle, the naval multi-role helicopter, and other critical equipment. But for the MoD bureaucracy, there is intense discomfort in dealing with the private sector, which is evident from how much longer it takes the MoD to process a case with a public sector firm than with a private company. On average, it takes 15 months from the time a private firm’s bid is opened to the time a contract is awarded; in the case of a public sector firm, it takes barely four months.