Defence Manufacturing in India

The Assembly Line of Apache Helicopters; Courtesy - Boeing India.

Regional instability and sustained military posturing by its neighbours has mandated India for maintaining a combat-ready force for attaining unquestioned deterrence and to firmly maintain its regional supremacy. Even though the country boasts of having the third largest military force at its disposal, the combat effectiveness of the services has been a cause of concern for decades. The increasing hostilities across its operational horizon have now called for rapid modernisation of the military force.

While successive governments taking the helm at the North block have for years initiated several measures to add traction to the decades-old modernisation programs, results have however not been forthcoming. This is even as the country is spending well-over INR 3,00,000 crore for the upkeep of its armed forces. Even though the annual expenditure on the defence outlay is close to 13% of the country’s total annual expenditure, financial owes remain to be the single largest concern for the armed forces in realising results with their modernisation programs.

A brief analysis of the armed forces’ annual expenditure reveals that the forces are spending almost 35% of their annual outlay on capital acquisition. Even though, the country reserves a major part of its annual allocation for capital acquisition, results have remained far beyond satisfactory levels.

A study of the country’s procurement model reveals that a major part of the capital budget is being committed to the procurement of weapon systems and platforms from foreign designers and vendors. A recent report tabled by the Ministry of Defence had noted that the armed forces are sourcing over 60% of their requirements through imports. With imports amounting to almost US $ 6 Billion, India alone amounts to almost 15% of the world’s arms market. This import-saga of the country has been bleeding both the preparedness of the forces and the coffers of the country.

For decades, experts have quipped that localised design and manufacturing of the required weapon systems would largely reduce the financial burdens on the country’s coffers. Countries boasting of the mightiest military force all have a well established and thriving indigenous defence production hub. This has largely helped them in mastering complex technology and meeting the needs of their forces in a financially viable and time-bound manner.

INS Kiltan during its commissioning ceremony.
INS Kiltan during its commissioning ceremony.

India has earnestly tried for decades to set course towards attaining self-reliance in defence equipment manufacturing. It’s journey from the post-independence era to the current times, has witnessed its share of success and failures. India’s real tryst with indigenous production began earnestly in 1962, when the Department of Defence Production was set-up under the MoD with an aim to develop comprehensive production infrastructure in India. The Government of the day had promised that this would have unmatched signification both strategically and financially.

Since then, defence production in India has enjoyed a somewhat slow start. The mandate structured by the department of defence production has over the years led to the establishment of DPSUs (Defence Public Sector Undertaking) and a cluster of Ordnance factories, which even to date lead the charge in catering to the requirement of the armed forces. DPSUs and OFBs collectively today amount to a turnover of about INR 55,000+ crore.

To meet the requirements of the Armed Forces, the Government at its disposal has nine DPSUs and around 40+ OFBs. Coupled with efforts of the developmental agencies, these establishments have developed several path blazer technologies, which have went on to arm the country with potent and lethal weapon platforms. Each of the DPSU has expertise in a niche-technology area. Over the years, these establishments have rolled out platforms ranging from state-of-the-art combat aircraft, to stealth warships and submarines, to helicopters to strategic strike systems such as highly precise ICBMs (Inter Continental Ballistic Missile). The DPSUs working with global OEMs has resorted to licence manufacturing, where indigenous solutions have not been forthcoming.

Through the efforts of the local shipyards (DPSUs), the Indian Navy has been able to realise  its ‘Make in India’ dreams. Today, over 43 ships and submarines are under construction at various stages in Goa Shipyard Limited (GSL), Mazagon Dock Shipbuilders Limited (MDL), Garden Reach Shipbuilders and Engineers (GRSE) and Hindustan Shipyard Limited (HSL). Further, a major part of the sub-assemblies such as gears, shafts, propellers and hatches etc are being locally manufactured. Each of the newer ship being floated out by the shipyards feature higher degree of indigenisation compared to its predecessor. While the Navy has been successful in attaining 100% indigenisation in the hull component, it stands at 65% and 40% in the move and fight category respectively.

A batch of Arjun tanks rolling out for induction to the Indian Army; Source - DRDO.
A batch of Arjun tanks rolling out for induction to the Indian Army; Source – DRDO.

On the Aerospace front, the charge is being led by Hindustan Aeronautics Limited (HAL), which has been engaged to design and develop both aircraft and helicopters. The Bengaluru-based PSU has been successfully rolling out the Light Combat Aircraft (LCA) Tejas, Light Combat Helicopter (LCH), Advanced Light Helicopter (ALH), Sukhoi Su-30 MKI, Hawks and the Jaguars.

While BEL (Bharat Electronics Limited) has been contributing immensely with advanced electronic warfare systems, BDL (Bharat Dynamics Limited) has made huge strides in manufacturing missile systems. Midhani, one of the youngest DPSU, has successfully mastered the complex art of metallurgy and has provided sub-systems for strategic platforms. BEML (Bharat Earth Movers Limited), a key supplier of mobile platforms, has achieved great amounts of indigenisation in its platforms. OFBs have been striding forward to meet the requirements of the Army. The Ordnance Factories (OFs) have provided Indian Forces with rifles, ammunition, howitzers, air defence gun systems, ICV (Infantry Combat Vehicle) and MBT (Main Battle Tanks).

A new era in the country’s manufacturing history began soon after the millennium, when the Government of the day, decided to open doors for the private sector to participate in defence manufacturing. Till date, defence manufacturing was under the reserve category, thus, allowing only the DPSUs and OFBs to be part of the cycle. Since their advent to the niche-field, the private sector has gained a strong presence not only in the country’s supply chain but has made forays into the global chain.

Data available with the Government reveals that the Private sector in less than 15 years has made business of over INR 15,000+ crore. The maturing sector, which has made deep inroads into the multi-billion dollar defence equipment market, has already mastered the build-to-print phase and has shored up capabilities to take up projects in the build-to-specification categories. The recent boost by the Government has enabled several of the big tickets firms to scale up their capabilities thus allowing them to commence designing of technology from the scratch.

The Government has constituted several measures to support the growth of the private sector. Delicensing and the introduction of the IDDM category under the ‘Make in India’ initiative remain to be two of the most notable measures. The private sector is expected to attain a market share of at least 25% by 2020 as the sector rapidly boosts its infrastructure.

Inidan Aerospace model - The Tejas; Source - Arnav Pai.
Indian Aerospace model – The Tejas; Source – Arnav Pai.

Companies such as Larsen & Toubro (L&T), Tata Aerospace and Defence, Mahindra and Mahindra and Bharat Forge have been steadily receiving orders from all the three services. In fact, the Army has committed almost 30% of its capital acquisition to the private sector either directly or indirectly. Another major factor that promises to enhance the market share of these companies is sourcing of systems for the gigantic PSUs. For instance, Tata has a strong presence in almost all of the country’s aerospace programs. L&T has been playing crucial role in manufacturing missile systems, submarines and combat vessels for the forces. The ATAGS program for the maiden time will witness the direct involvement of the private sector in the defence manufacturing as Tata Aerospace and Defence and Bharat Forge have been nominated as the lead manufacturers for the system.

Further, companies such as Tata Aerospace and Defence and Mahindra and Mahindra have firmly established themselves at the centerstage of global OEMs’ supply chain. Tata Advanced Systems Limited (TASL) today is sourcing critical aerospace structures for Boeing, Lockheed Martin, Pilatus etc; With Mahindra and Mahindra being one of the only India companies with the capabilities to manufacture a complete aircraft, OEMs such as Boeing and Airbus have engaged it for manufacturing high-standard aero-structures.

The introduction and mandated off-set clause for defence deals has helped the private sector to implant themselves deeper in the manufacturing cycle. Opportunities emanating out of these programs have enabled companies such as Reliance Defence and Engineering Limited (RDEL) to not only gain business but to lay hands on allied technology.

While these big ticket companies form the core of India’s manufacturing capabilities outside the PSU stables, the periphery is formed by the much smaller bt yet promising MSME sector. Consisting of companies making a business in the range of $1-2 million, the MSME sector has emerged to be the true workhorses in helping India realise its self-reliance mission. 6000+ MSME spread across the length and breath of the country today account to almost 40% of production activities in PSUs and OFBs.

A BRAHMOS missile during a test launch; Courtesy - BrahMos Aerospace
A BRAHMOS missile during a test launch; Courtesy – BrahMos Aerospace

Further liberalised FDI (Foreign Direct Investment) policy and the mandated off-set clauses have paved the way for investments from global OEMs. Currently global vendors, who have backed several multi-billion dollar deals, have a pending obligation of $25 billion. This investment as and when ploughed into the Indian market will shore-up the capabilities.

The three sector combined together are accounting to a business of well over INR 70,000 crore, thus helping India rank amongst the top 15 defence equipment manufacturers. But as the requirements of the forces grows exponentially and the Government works towards adding pace to the programs, it is crucial that the manufacturing capabilities across all segments are given a boost.

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