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Put Policy Framework in Place to Support Make in Inida in Defence

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When the 10th edition of the biennial, five-day Aero India held in Bangalore event, easily Asia’s biggest air show, ended on 22nd February 2015, two distinct takeaways were evident.


One, India is the flavour of the season in the world’s defence market and two, India needs to quickly put in place a policy framework that supports Prime Minister Narendra Modi’s strong pitch to end India’s dependence on defence imports.

The show witnessed over 300 foreign firms vying with each other to align with the government’s ‘Make in India’ campaign as they try and access the burgeoning multibillion-dollar Indian defence market. In terms of sheer numbers Aero India 2015 turned out to be big. Besides 54 ministerial and other high-level delegations from several countries that attended the event, the exhibition at the show saw participation of over 600 companies, including 295 Indian and 328 foreign companies. The US with 64 companies had the biggest presence at the event, in which 33 other countries took part. France was the second biggest participant with 58 companies, followed by the UK with 48, Russia with 41, Israel with 25 and Germany with 17, the organisers said. According to the organisers, nearly three lakh people turned up on the last two days of the show when it was thrown open to the general visitors.

The devil however lies in the detail. All the companies want to see change on the ground, in India’s often cumbersome and sluggish defence acquisition and procurement processes if India wants to overcome the tag of being the ‘single largest importer of military equipment and weapons.’

Narendra Modi, who became the first Prime Minister to inaugurate and attend the mega event, has promised major changes in the policy allowing greater private participation while firmly saying that ‘Make in India’ will get preference. New Delhi’s main suppliers of military equipment like the US, Russia, France, Israel and UK have all responded cautiously. However, they now await a policy that will clarify the terms and conditions of setting up units in India. If the Defence sector needs to align itself to the overall policy of ‘Make in India’ then a new initiative to encourage defence manufacturing is needed.

Defence Minister Manohar Parrikar, aware of the desire among big defence manufacturers, declared: “We are planning a separate policy on ‘Make in India’. It will be outside the existing Defence Procurement Procedure (DPP).” The separate policy is likely to be notified in the next financial year. It will have clarity on providing a level playing field – to the Ordnance Factory Board, PSUs, import partners and domestic private industry.

Prime Minister Modi in fact laid out the broad contours: “India can also be a base for export to third countries.” On the permitted level of Foreign Direct Investment (FDI) at 49 per cent, the PM virtually read the mind of the foreign companies who want majority stakeholding in plants in India. “This (FDI) can go higher if the project brings state-of-the art technology,” Modi has promised.

Modi’s pitch notwithstanding, it’s the policy framework foreign companies want to see. A senior executive of a foreign company said: “By setting up a unit here, are we expected to supply to only Indian armed forces or can we export to other countries?” Also, in case of exports, will the Indian government decide which countries can be the buyers, he asked. The other issue is transfer of technology (ToT). A thing like metallurgy of a jet engine may be a tad difficult to share. As of now, the public sector undertakings owned by the Ministry of Defence have the infrastructure of assembly lines, testing facility and skilled manpower, but it is the private sector that is more in tune with international best practices. “It will be no longer enough to buy equipment and simply assemble them here. We have been doing this in the past, without absorbing any technology or developing our own capabilities. In some areas, we are where we were three decades ago,” the PM said.

The Prime Minister’s intention is clear. He wants to make India self-reliant in defence manufacturing but it is easier said than done. The demand is huge across the three services. For instance, nearly 1,000 helicopters are needed for both defence and civilian sectors in the next decade. During the past decade, a project to acquire 197 new Light Utility Helicopters for replacement of Cheetah / Chetak has been scrapped three times. In August 2014, the Defence Acquisition Council, chaired by then Defence Minister Arun Jaitley, scrapped it almost four years after field trials between Russian Kamov-226T and Eurocopter AS 550 C3 Fennec had been completed. The MoD wants these 197 to be built in India.

Defence Minister Parrikar did announce a two-pronged plan. One to ramp up capacity of Hindustan Aeronautics Limited (HAL), a company owned by the Ministry of Defence and the second to invite foreign participation in collaboration with Indian companies. Former IAF officer Air Vice Marshal Manmohan Bahadur however has his doubts. In a stinging piece he wrote for a newspaper, AVM Bahadur said: “It is time to drastically reform HAL through a structured plan.

“Firstly, though HAL is not in the same league as Boeing or Airbus, it has a finger in all types of aviation and in space too; HAL needs to be restructured to become a true aircraft integrator, with many divisions hived out to make independent manageable firms. Thus, its engine divisions, accessories and helicopter divisions, which incidentally have had success in the Advanced Light Helicopter and Light Combat Helicopter programme, should be made independent entities; the space division could well be given to ISRO. Private players need to be brought in on a risk-sharing basis to usher in professional project management and accountability, a term alien to HAL’s work ethic and culture. Should HAL be running a helicopter training school and a management training academy in Bangalore? The government’s involvement, thus, needs drastic reduction with only a ‘golden share’ to be used in national interest,” he asked.

That’s a question the government must look at very seriously.

Meanwhile, many countries are making a beeline for India. Israel, France and the US are gearing up to take full advantage of the new energy in the top political leadership of India.

After years of secrecy, Israel’s security relationship with India was out in the open at the Aero India. For a decade now, Israel has emerged as one of India’s top three arms suppliers, along with the US and old partner Russia, but such transactions have been taking place in a shroud of secrecy, mainly because of India’s fear of upsetting Arab countries and its own large Muslim population.

But Modi and the BJP have long seen Israel as a natural ally against Islamist militancy. In fact, during the Aero India, Moshe Ya’alon became the first Israeli Defence Minister to visit India since the establishment of diplomatic ties in 1992.

“We used to have our relationship, security wise, behind the scene,” he said in a speech in New Delhi. “And now I am here ... in Delhi to meet Prime Minister Modi and other ministers.” “We see India as a partner and a friend. That is why we are ready to share technology,” he said, adding that he was looking for ways to upgrade the defence relationship.

Israel is not alone. The Defence Minister of France Jean-Yves Le Drian was in Delhi immediately in the wake of the Aero India show, mainly to try and rescue the mega contract for procuring 126 combat jets for the Indian Air Force. French aviation major Dassault had emerged the winner in a long drawn competition in 2012 but since then the process has slowed.

At the time of writing, Le Drian and Parrikar appear to have sorted out one of the key issues holding up the estimated US$ 15 billion deal to buy 126 Rafale fighter jets for the Indian Air Force. The deal, billed by some as one of the biggest defence procurements by any country in a long-time, has been on hold for almost a year over the issue of producing the planes in India.

Of the 126 jets, 18 are to be purchased ready-made from France. The rest are to be manufactured by HAL. Dassault was hesitant to guarantee the quality of the jets produced in India, since it does not control the process. More importantly, Dassault estimates that the jets can be produced faster, with fewer man-hours, than calculated by HAL, which can keep the cost down.

The same week as the French Defence Minister was in town, top Indian and US defence officials will meet in New Delhi to draw up a road map to fast-track the implementation of four projects identified for co-development and co-production and formation of a joint working group on aircraft carriers.

US Under Secretary of Defence for Acquisition, Technology and Logistics (AT&L), Frank Kendall, who is in India, will announce the name of the official who would lead the American side in this joint working group. The Indian side too is expected to name its lead, following which the joint working group would formally become operational.

The idea of co-operation in the field of aircraft carrier was first discussed in early September leading up to Prime Minister Narendra Modi’s US visit in September last year. “We laid the groundwork in September and October and then it became part of the (India-US) joint statement in January (after US President Barack Obama’s India trip),” the official said, adding that the working group would explore opportunities for co-operation in aircraft carrier capabilities and techniques in construction.

India is embarking on a next generation aircraft carrier construction and there are potentially multiple areas that would be of mutual interest in discussing it, the official said.

“We need to understand what they are interested in ... because of the complexities of the platform we are proposing a working group. What we are committed to do in this trip is to bring name forward that would be our lead on the US side from the US Navy to lead that working group. We hope to receive the name of India’s lead of the working group,” the official said.


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