Traditionally, India has been plagued by highly unstable neighbours, with whom she has fought several high intensity wars and is currently involved in an unconventional war with non-state proxy players of her Western neighbour. These two taxing concerns have greatly hindered India’s mission to attain peace and tranquility not only along her borders and hinterlands, but across her primary areas of interest.
The security threat to India is omnipresent and is growing manifold, as regional players rub shoulders in an effort to gain regional supremacy. As India’s economic growth witnesses’ a steady rise and her role in the contested Indo-Pacific region grows, both as a regional power and net security provider, there is an increasing need to strengthen her military power to increase the preparedness of the Armed Forces to take on the emerging and future security challenges of the region.
At the heart of this mission to prepare the country’s military forces for future threats is the requirement to rapidly modernise the Armed Forces. This daunting task involves infusion of newer technology and more powerful weapon systems to arm the world’s second largest Army, the fourth largest Air Force and the fifth largest Navy.
To realise India’s military power ambitions at the earliest, successive Governments have been constituting countless measures to add traction to several of the multi-billion dollar high-stakes acquisition programs, which have been hanging fire for decades. Progress with the agenda, though, has largely been insignificant.
One of the most haunting reasons for the sluggish pace with which the modernisation programs have progressed has been the increasing budgetary concerns. Adding burden to these financial concerns have been the half-baked half-thought out procurement policies.
While newer policies with more robust procurement models are being introduced, little has been done towards addressing the financial woes. While various quarters have advocated for a drastic increase in the financial outlay for the country’s annual defence budget, the hands of the Government, though, are tied as various other critical developmental agendas are running the already overburdened state coffers bare dry.
With an allocation of INR 3,05,000 Crore, the Annual Defence Budget already amounts to about 11.0% of the country’s total annual government expenditure. The Capital Head, which handles the acquisition program and thus the modernisation agenda, with an allocation of around INR 1,03,000 crore amounts to about 34% of the total budget. But, this figure is still considered largely insignificant and sparsely enough to take forward even the already committed liabilities, let alone sustain efforts to launch any new high-stakes tender.
As the Ministry of Defence (MoD) and the Armed Forces contemplate actions to extract bang for the buck, at the centrality of its vision forward is to drastically trim the country’s dependency on foreign imports to meet the country’s military requirements. While India gained her Independence from the colonial British rule 73 years ago, it is worrying to note that her mission for independence from foreign countries to arm her Armed Forces has not been earnestly realised. Even to date, 60% of India’s defence requirements are imported from foreign vendors, effectively making her the second largest importer of defence equipment. This practice is extremely straining on the state coffers.
The efforts to wean off India’s foreign dependency was in fact launched decades back, and India in 2001, when opening up the defence manufacturing arena to the private sector, set up a target of being at least 70% self reliant by 2015. But as evident, that goal is far from being realised anytime soon.
When the NDA-II Government led by PM Narendra Modi took reins in May, 2014, one of its first and most promising agenda was a far reaching reform of the country’s military forces. At the top of this agenda was the promise to drastically modernise the Armed Forces, in an effort to deter increasing hostilities in the region.
As the Government went about charting the course for the modernisation agenda, realising the burden of the import route, the PM promised to take the proverbial bull by its horns. Encouraging defence manufacturing in India, the Prime Minister on August 15, 2014, addressing the nation from the ramparts of the Red Fort on Independence Day, said “I want to appeal all the people world over, “Come, make in India”, “Come, manufacture in India”. Sell in any country of the world but manufacture here. “Come, Make in India” and we will say to the world, from electrical to electronics, “Come, Make in India”, from automobiles to agro value addition “Come, Make in India”, paper or plastic, “Come, Make in India”, satellite or submarine “Come, Make in India”.
Working earnestly towards ushering in a new beginning to the manufacturing sector of the country, the NDA – II Government on September 25, 2014 launched the ‘Make in India’ initiative as a way to progress India’s manufacturing and economic might. From making India a manufacturing hub to raising the contribution of the sector to about 25% of the Gross Domestic Product (GDP) by 2025, the Make in India initiative was packed with some of the most symbolic visions.
One of the focus sectors the Government picked up right after the launch of the initiative was the ‘Defence and Aerospace’ sector, which with their high amount of imports became an obvious choice. Moreover, the country was in desperate need of the niche technology, which had been mastered by global OEMs.
For the Defence sector, the Make in India initiative was dubbed as a magic wand that would propel India ever closer to realising its mission of self reliance in defence equipment manufacturing. PM Modi, during Aero India – 2015, drawing broad strokes about the significance of Make in India initiative for defence manufacturing had said “We have the reputation as the largest importer of defence equipment in the world. That may be music to the ears of some of you here. But, this is one area where we would not like to be Number One! This is despite the fact that nearly 60% of our defence equipment continues to be imported.”
Lamenting about the missing manufacturing capabilities, the PM had said “We can never call ourselves a secure nation and a strong military power unless we develop domestic capabilities. This will also reduce capital costs and inventories. In addition, it will be a huge catalyst for industry, employment and economic growth in India. And, we are spending tens of billions of dollars on acquisitions from abroad.”
With the defence sector having the largest share of imports by value and a promising business prospectus, the Government placed the sector at the heart of the Make in India programme. The Government with the initiative aimed towards channelising the current global orders through the ‘Make in India’ model, which would entitle global OEMs investing and manufacturing in India.
The Government strongly believed that this investment would not only synergise the country’s defence manufacturing sector, but would also help the country’s overall economic growth, propelling India steadily towards the $5 Trillion economy mark.
Through the initial phases, the Government aimed towards reduction of imports by at least 20 to 25%, which alone would translate to savings of at least INR 10,000 crore and aid towards creation of at least 1,20,000 highly skilled jobs in India. For this, the Government decided on routing several of the off-the-shelf procurement cases through the MII initiative.
On a larger scale, the then Government set an ambitious goal of increasing the percentage of domestic procurement from 40% to 70% by 2019, meaning almost doubling the output of the country’s defence industry. Such a move, the Government hoped would bring down Indian Armed Forces’ dependency on imports by almost 50%, meaning imports would only amount to a minimalistic 30% of the total procurement amount.
The Government for attaining this ambitious target declared that all of the big ticket projects, which entitled payment of thousands of crores for OEMs, would effectively be routed through MII, mandating global OEMs to not only invest in India under the offset clauses, but would mandate them to manufacture a large part of the orders in India in partnership with Indian private and public sector undertaking companies.
Proposals for the acquisition of the Medium Multi-Role Combat Aircraft (MMRCA), modern submarines, Future Infantry Combat Vehicle (FICV) and naval helicopters, each one of which were valued at tens of thousands of crore, were all decided to be routed through the MII initiative. The Strategic Partnership (SP) model floated by the MoD under the Defence Procurement Procedure (DPP) – 2016 became the base model for the procurement of these multi-billion tenders.
DPP-2016, a policy framework, adding traction to Government’s ‘Make in India’ Dreams.
While the MII initiative was largely viewed as a measure to strength India’s defence manufacturing capability, the real tool introduced by the Government to energise the sector was through the notification of the Defence Production Policy – 2016, which was to be a policy framework facilitating ‘Make in India’ in defence manufacturing.
The DPP-2016 was aimed towards synergising the Indian defence industry and stimulating the capabilities of the industry. It was was also framed to remove all of the bottlenecks holding up procurement of strategically important equipment for decades. Promulgated with the support of all of the stakeholders, DPP – 2016 focuses on institutionalising, streamlining and simplifying defence procurement procedure to give a boost to ‘Make in India’ initiative, by promoting indigenous design, development and manufacturing of defence equipment, platforms, systems and subsystems. ‘Make’ procedure has also been refined to ensure increased participation of the Indian industry.
The police framework has worked towards instituting measure to enabling provisions for utilisation and consolidation of design and manufacturing infrastructure available in the country. Providing adequate flexibility in the procurement, the DPP has favoured swift decision making, provides for suitable timelines and delegates powers to the appropriate authorities to ensure an efficient and effective implementation of the procurement process, by all stakeholders concerned.
The Capital Acquisitions under DPP-2016 was classified as, ‘Buy’, ‘Buy and Make’ and ‘Make’. Under the ‘Buy’ scheme procurements are categorised as ‘Buy (Indian – IDDM)’, ‘Buy (Indian)’ and ‘Buy (Global)’. The three categories under the ‘Buy’ scheme refer to an outright purchase of equipment from either Indian or global vendors. This was largely aimed towards procuring equipment listed as an exigent need by the Armed Forces.
While Buy (Global) is outright purchase of equipment from global vendors, the Buy (Indian-IDDM)’ category refers to the procurement of products from an Indian vendor meeting one of the two conditions: products that have been indigenously designed, developed and manufactured with a minimum of 40% Indigenous Content (IC) on cost basis of the total contract value; or products having 60% IC on cost basis of the total contract value, which may not have been designed and developed indigenously. Buy (Indian)’ category refers to procurement of products from an Indian vendor having a minimum of 40% IC on cost basis of the total contract value.
Towards energising the indigenous manufacturing activities, the policy made provision for the ‘Buy and Make’ scheme, which is further categorised as ‘Buy and Make (Indian)’ and ‘Buy and Make’. These two categories provide provisions for the procurement of a specific platform in specific quantities outright from an Indian and global vendor respectively, in a Fully Formed (FF) state in specified quantities. This is to be followed by indigenous production in a phased manner through comprehensive Transfer of Technology (ToT), pertaining to critical technologies as per the specified range, depth and scope.
Further, under Buy and Make category, towards maximising indigenous production, approval would be accorded for procurement in appropriate ratio in either Fully Formed (FF), Completely Knocked Down kits (CKD), Semi Knocked Down kits (SKD) and Indigenous Manufacture (IM) kits; or a minimum percentage of IC on cost basis for the ‘Make’ portion of acquisitions under ‘Buy and Make’ category.
The biggest healing touch the Government provided through the DPP-2016 was the refinement of the ‘Make’ category, places emphasis on utilising the emerging dynamism of the Indian industry by leveraging domestic capabilities for fostering export capabilities in this sector. The ‘Make’ procedure outlined multiple objectives of self-reliance and impetus for MSME sector.
Under the Make category, only Indian vendors are eligible for participation under ‘Make’ program of acquisition. The Government to encourage indigenous research and development activities has under this category, stated that the successful development of a product under this scheme would result in acquisition, through the ‘Buy (Indian-IDDM)’ category.
The Make category is further divided into ‘Make-I & II’ sub-categories, where Make – I will involve government funding of 90% and the Make – II will involve industry funded projects for development of equipment or components which can be a substitute for technology currently being imported from global vendors.
The DPP – 2016 to increase the investment in the sector has also opened up doors for increasing the cap on Foreign Direct Investment (FDI) from the current threshold of 26% to 49% on an automatic route. The Government has also made provisions for 100% FDI funding through the Government route, which will be processed on a case-to-case basis, taking into consideration the niche technology being offered by the prospective investor. This streamlining of the FDI policy by the Government is aimed at helping goal of increasing the investment in the defence sector by at least INR 70,000 crore and also to achieve the turnaround goal of $ 1.7 Trillion by 2025.
SUCCESS OF MAKE IN INDIA IN NUMBERS!
After almost six years after the announcement of the initiative and the reelection of the Government, there is a need for a retrospective review of the progress and the success of the much talked about and celebrated Make in India scheme of the NDA Government.
For the Government with the MII initiative, especially in the defence sector, it is a bitter-sweet story. While the Government has strived hard, through efforts to bring about drastic policy changes to synergising the PSU-Private sector manufacturing capabilities, not much can be claimed as outright success by the Government.
Between 2014-15 to 2018-19, since the launch of the initiative, the Indian Armed Forces have concluded a record 180 contracts worth INR 1,96,000 crore with Indian vendors for capital procurement. Since the induction of the DPP-2016 acquisition model, the Government has routed these programs through the Buy (Indian-IDDM), Buy(Indian), Buy & Make (Indian), Strategic Partnership (SP) model or the Make categories of the capital procurement. Additionally, between 2016-17 to 2018-19, the MoD has accorded Acceptance of Necessity (AoN) to proposals worth INR 2,63,704 crore, with all of the projects set to be executed by Indian vendors.
Further, the Government has been successful in clearing about 44 projects worth close to INR 25,000 crore, which have been earmarked specially for Indian vendors. Of the 44 projects, at least 30 of them are for the acquisition of sub-systems for platforms already in service with the Forces. With the private sector now involved in the manufacturing of systems ranging from Auxiliary Power Unit (APUs) for Main Battle Tank (MBTs) to smooth-bore gun barrel for the T-90 MBTs, there has been a signifiant increase in the amount of indigenous technology present on these platforms. Prior to these contracts, the DPSUs, which were manufacturing these tanks, relied on global vendors for sourcing these sub-systems.
Taking a giant step towards levelling the playfield for the private sector, the Government has decided to reserve these projects for execution only by the private vendors. With each of the vendor expected to be awarded annual follow-on contracts, worth thousands of crores, as the current inventory is phased out in accordance to their service life, the private sector is expected to receive some much sought landfall.
The Government has also contracted 15 other small value projects worth about INR 5,000 crore with the country’s MSME sector. The contract again is for the procurement of subsystems, which were prior to these vendors being sourced through foreign vendors.
While there has been a staggering growth in the number of orders being concluded with Indian vendors, the Government is still far away from the goal of attaining the 70% goal it had set about to meet by last year in 2014. Even though a record number of orders are being accorded AoN and concluded, the orders being placed on foreign vendors is simultaneously witnessing a high-degree of growth.
While 150 capital acquisition programs worth a whopping INR 2,15,682 crore were concluded by the NDA Government, about 58 high-stakes tender amounting to INR 1,38,727 crore were awarded to foreign vendors.
Between 2014-15 to 2018-19, the total amount of capital orders concluded with the foreign vendors by-value has seen a drastic rise in comparison to the contracts concluded with Indian vendors. The contract conclusion with Foreign vendors, since the launch of the MII initiative, has witnessed an average rise of at least INR 5,000 crore in capital expenditure.
With many of the big-ticket MII projects failing to take off, the Forces are being forced to conclude acquisitions as a stop-gap measure, leading to a significant growth in the amount of contracts being awarded to foreign vendors on a Year-on-Year basis.
While the Army placed orders for thousands of assault rifles, after the bigger MII deal for manufacturing lakhs of these systems in-house didn’t fructify, the Air Force was forced to conclude a deal with France’s Dassault for 36 Rafale, this was because the big-ticket project for manufacturing 110 aircraft indigenously under the SP model has seen little progress.
One of the most successful project for the ‘Make in India’ initiative has been the manufacturing of the K-9 Vajra Tracked Self Propelled howitzer by Larsen & Toubro (L&T) in partnership with South Korean-based defence manufacturer Hanwha. L&T at its facility in Hazira, is indigenously assembling 100 of these howitzers under a INR 4,500 crore contract. Having delivered already 51 of the 100 contracted platforms, L&T claims to be close to indigenising at least 13 critical sub-systems for the platform. Going forward, the company is confident of drastically increasing the indigenous content on the platform.
A HOLISTIC REVIEW OF THE BIG TICKET PROJECTS BEING HANDLED UNDER MAKE IN INDIA INITIATIVE
Since the launch of the MII initiative, the Government has booked several programs, ranging from manufacturing MMRCA fighter aircraft to modern stealth submarines, through the MII initiative. Broad contours for the acquisition of these equipment, valued at over INR 3 Lakh crore, was set under DPP-2016.
Much of the programs are being handled under the Strategic Partnership (SP) model, which was launched in 2017. The SP model is aimed at designating a few selected Indian vendors as strategic partners (SP), who would be tasked with partnering global OEMs, for manufacturing their products locally in India, following the transfer of technology.
While several projects amounting to several lakh crores by value have been awarded clearance by the MoD, not one of the big ticket projects, which would entail thousands of crores in investment and creation of thousands of jobs, have been concluded.
Following the notification of the SP model, the ministry had revealed that the private sector will initially be engaged in manufacturing four strategically important defence platforms namely – Single-engine fighter aircraft, submarines, helicopters and armoured fighting vehicles. For years, the production of major defence platforms and equipment such as aircraft, submarines, helicopters and armoured vehicles in India were carried out solely by Defence Public Sector Undertakings (DPSU) and the Ordnance Factory Board (OFB). Private companies had for years pointed to the lack of a level playing field compared to DPSUs and Ordnance Factories (OFs).
While expert committees had noted that involvement of the private sector in the manufacturing of major defence equipment will have a transformational impact, the ministry has recently indicated that DPSUs may well be included in the SP model under certain categories. It is unclear as, to which of the categories will be opened for the DPSUs, but this comes within months of several OEMs raising concerns about the capabilities of the private sector. For instance, a top US aerospace manufacturer had in a recent event batted for the inclusion of HAL in the fighter contest.
P-75I Submarine Construction Program
Following the introduction of the SP Model, it was the Navy that had taken full charge of the modernisation drives. In an effort to enhance it’s under-water capabilities, the Navy within months of the introduction of the SP model had issued an RFI for the INR 45,000 crore worth Program – 75I.
The P-75I program, which entitled the construction of six modern stealth submarines, has witnessed five OEMs responding to the EoI of the Indian Navy. With the Defence Acquisition Council (DAC) recently shortlisting all five of these foreign OEMs and two Indian partners, the tender is set to proceed to the next stage, where the MoD will issue the formal RFP for the tender.
Larsen & Toubro (L&T) and state-run MDL are the selected Indian partners. While L&T will have to scout for a reliable partner for the tender, amongst DSME of South Korea, Spain’s Navantia, Russian-based Rosoboronexport and Germany’s TKMS, Naval Group of France has chosen to continue its partnership with the state-run MDL for the tender.
The Government, since the introduction of the SP Model, had maintained that the state-run DPSUs (Defence Private Sector Undertaking) such as MDSL and HSL will be allowed to bid alongside the private sector under the submarine construction segment.
The Navy under P-75I has been offered the Scorpene submarine by Naval Group and the Type-214 and Amur-1650 conventional submarine by German-based TKMS and Russia’s Rubin Design Bureau respectively. While DSME is offering its Chang Boho-class of submarines, a variant of the Type-209 platform, Navantia is offering its latest S80-class submarine for the high-stakes tender.
The contention is expected to be largely between Naval Group designed and MDL built Scorpene submarine, and Russia’s Amur-1650 platform, which is most likely to contest in partnership with L&T.
The Scorpene here have a clear lead given the fact that it features a high-degree of indigenous content, as they are already under construction in India under P-75 program.
With the RFP for the tender being scheduled to be issued in the third quarter of this year, followed by the selection process and trials of the platform, the tender can be expected to be concluded only by 2022. The first of the platforms will reach the Navy by 2028, if everything goes by the timeline.
Fighter Aircraft Acquisition
Indian Air Force (IAF), which is in-charge of guarding the country against aerial intruders, has been actively pursuing the prospectus of acquiring hundreds of medium multi-role combat aircraft (MMRCA)-category aircraft to replace its ageing fleet of fighter aircraft.
The IAF in July, 2018, issued an RFI for the procurement of 110 such fighter aircraft, which mandated that 94 of the aircraft be built locally in India and the rest 16 to be imported in fly-away condition.
Even though the Government had initially indicated that the program was confined only to the private industry, the program has now been opened for the PSUs following consultations with various expert committees. The RFI has made it clear that the Air Force has not confined the tender for a single-engine fighter. The foray of the twin-engine fighters has now increased the competition for the program.
The program had made great flutters in the global industry ever since the Government had forwarded an informal RFI (letter), with a scope for only yes or no reply, to several companies. Representatives of both Saab and Lockheed Martin had in Aero India – 2017 indicated that the ministry was pushing the program full speed ahead. A senior executive had quipped that “We are witnessing a new India here, it’s just not what we had witnessed in the past. We have a query every other week and this has assured us that the program may be concluded sometime early next year.”
Since the introduction of the RFI, all of the six global manufacturers, who had contested in the erstwhile MMRCA tender have reentered the fray, making the tender a redux of the prior MMRCA tender. While Dassault Aviation manufactured Rafale, Boeing’s F-18 Super Hornet, Mikoyan MiG-35 and Eurofighter’s Typhoon form the twin-engine pack, Lockheed Martin’s F-21 and Saab’s Gripen – E have emerged as single-engine platforms on offer to the IAF.
The Air Force having evaluated the offers of the global vendors is now preparing to release the EoI, which is expected to be sent to all of the manufacturers. Broad contours for the technical requirements and the impending trials are also being formulated in the Vayu Bhawan. The MoD is set to announce the fighter acquisition specific implementation guidelines for the selection of the local strategic partner.
The EoI and the selection of the SP itself is expected to be concluded only late this year. Following the current timeframes, it is certain that even if the Government is successfully in signing the contract by 2022-23, the first of the aircraft, acquired off-the-shelf, will join the fleet only in 2025. The first of the indigenously manufactured aircraft will be rolled out in 2026, with the final batch arriving as late as 2037.
Acquisition of Naval Helicopters
Another of the procurement case from the Navy’s stables progressing steadily forward is the case for the acquisition of naval helicopters under the SP model. The Indian Navy in August, 2017 floated two separate RFIs for acquiring 123 Naval Multi Role Helicopters (NMRH) and 111 Naval Utility Helicopters (LUH). Combined together, the RFIs, which are worth well over $15 Billion, had heralded the beginning for one of India’s biggest defence acquisition deal.
For the NUH tender, the Navy has already received responses from 5 Global OEMs and interestingly HAL has also submitted two bids, competing with its under-development LUH and a naval version of the ALH.
While Kamov is offering the naval version of the Ka-226T helicopter, which is to be inducted in large numbers to the Army, Sikorsky is offering its S-76 platform. The lead though is maintained by Airbus’ AS565 chopper, while Bell Helicopters’ B-429 and Leonardo’s AW159 choppers complete the fray.
Of the Indian companies competing for nomination as the SP under the program, Tata Aerospace and Defence leads the pack, followed by Mahindra Aerospace, Adani, Bharat Forge, Reliance and Lakshmi Machine Works. State-run HAL is also vying for the nomination.
The first of the 16 helicopter under the tender are to be built by global OEM and are to be imported in off-the-shelf configuration. The remaining 95 helicopters are to be manufactured in India.
With the EoI having been already issued to select the SP for the program, the announcement is expected due by DefExpo – 2020. Nomination of the OEMs and the release RFP is expected in the second quarter this year.
For the NMRH tender, the Navy has received response from Sikorsky, NH Industries (a consortium between Airbus and Leonardo), Airbus and Kamov. The fray is being led by Sikorsky’s MH-60R SeaHawk helicopter. The Navy is already pursuing the case for procuring 24 such MH-60R helicopters from the US under the FMS route.
Airbus with its H-225M Caracal follows the MH-60R up close. The fray is rounded up by NH Industries’ offer for NH-90 Sea Lion and Kanov’s Ka-27 platform.
The MoD is expected to set the ball rolling for the procurement case by issuing the EoI in the second quarter of the FY 2020-21.
Armoured Fighting Vehicles
One of the most least successful programs floated under the SP Model has undoubtedly been the case for the procurement of armoured platforms for the Indian Army. The Army under the SP Model envisioned to acquire 1,770 platforms in various kit combinations.
Though the Army released an RFI for the program in 2017, not much has progressed ever since. The crucial stage of the Army defining its technical requirements under the Provisional Staff Qualitative Requirement (PSQR) itself is pending. On the MoD’s front, sources have informed that the Ministry is struggling hard to set the case-specific contours for the acquisition of these platforms.
Named the Future Ready Combat Vehicle (FRCV), these platforms are to be the base for all of the Army’s future Main Battle Tank (MBT). Further, the Army plans to subsequently develop other need based family of variant platforms based on this design.
©Karthik Kakoor for LoS – The Article appeared in the February Print Issue of Our Magazine Life of Soldiers.