Tag Archives: Indian Avionics SME

Attitudes and Habits

Part 2 (Contd from Part 1): Old habits die hard. When a child gets used to spoon feeding, it will resist eating by itself. This applies equally to the Armed Services. Having got used to being fed by foreign OEMs with machines, equipment and their spare parts for over six decades, the easiest and simplest method to re-arming is to go back to them. These are buying habits that even we as individuals acquire, don’t we? So, it needs a monumental effort to change those habits. Moreover, how many of us are aware of ‘Life Cycle Costs’ and how many of us take that into consideration when buying durables? ‘Baadme dekha jayega’ (‘We’ll see later’) would be the common refrain. So is the case with the Armed Services. To be fair to them, they are always so desperate for new procurements to replace old and ageing ones that they just have to go ahead and buy whatever is offered to them. In such a scenario, indigenisation is the last thing on their mind. Add to this our obsession with anything ‘phoren’ over a ‘desi’ stuff, you get almost the entire picture.

Management theory states that resistance to any change is a natural human trait. So, if one has been buying weapons and arms from abroad for the last 50 years, he or she is part of a system that allows it to continue since it has the least resistance. People in charge of planning, budgeting, procuring, inspecting and using the items are all used to it and wont ask ‘why?’. On the other hand, if somebody says he wants to get it from an Indian vendor, all hell breaks loose. Questions like – “Why change?”, “How do you know the Indian stuff works?”, “Who will guarantee its performance?”, “How do you know it would last at least a year?”, “Who will take responsibility for this decision?”, “Who will certify the technical specifications when we dont know what the foreign OEM is supplying?”, etc. Just a few of these are enough to kill any enthusiasm about indigenisation within the Armed Service.

On the other side of the fence are the thousands of private industries who have been attracted to the ‘billion dollar’ annual procurements highlighted by the pied pipers of the bureaucracy and Armed Services. Nobody tells them about, leave alone train them on the highly stringent quality and certification standards that need to be met. This is somewhat like a kid that has been persuaded to get into the shallow end of the swimming pool by the coach who then invites the student to swim towards him while he himself surreptitiously keeps moving towards the deep end! Once the student has gone out of the shallow end, he has no option other than to thrash around and hope to somehow reach the nearest handrail. The only difference between the two scenarios here is that in the Defense arena, the ‘coach’ just disappears after leading you in. Certainly not an enjoyable situation. But, why does this happen? One, nobody cares. Two, nobody takes ownership for either indigenisation or nurturing of ‘vendors’ with the larger objective of achieving self-reliance. Three, officers in charge of indigenisation get transferred to other posts across the country leading to loss of continuity. Four, a DRDO or DPSU, which does not have to participate in tenders and attain L1, offers to take up the job and so the Armed Services are obliged to give them the order even if they are 20 times costlier. Five, the need for the item just disappears due to bureaucratic delays. The list can go on and on.

Does the poor vendor survive or drown?

Watch this space to know more.

Defence Procurement: Truth vs Hype

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This article was presented at a Seminar by CII on ‘Make in India for Indian Air Force through Innovation & Indigenisation – Season 2’ on 23rd May 2017 at Delhi. Specific instances are cited, where the clauses in the Defence Procurement Manual have been breached in letter and spirit in actual practice.

DPM 2009 – THEORY vs. PRACTICE

Introduction: The term ‘Self-reliance’ has been a fashionable term of Prime Ministers and defense ministers over the last six decades. Yet, we continue to be reliant as ever on foreign OEMs for supply of critical weapons and systems. Apart from the financial burden, the intangible risk of blockage of spares and support due to international political posturing is even greater. Without true indigenization, self-reliance is impossible.

Today, the DPM 2009 is breached in both letter and spirit. DPM 2009 highlights the need for support and encouragement to indigenous manufacturers with D&D capability. In actual practice, this is rarely experienced. It also suggests that DPSUs & DRDO align their procedures accordingly. This does not appear so.

One of the glaring obstacles to successful indigenization is the lack of a collective approach. Aerospace and Defense (A&D) is a highly specialized technology sector with a veil of confidentiality that prevents familiarisation to private industries. Hence, induction of the private industry can only happen if there is adequate knowledge sharing with opportunities for exposure in either DPSUs or the BRDs of the IAF. While this is reflected in some of the paragraphs of DPM 2009, it appears to focus predominantly on procurement from foreign OEMs with only Chapter 15 being devoted to Indigenous D&D. Issues with reference to the specific paragraphs of DPM 2009 are listed below.

Para 2.4.4 – “Indigenous firms should be given all support to produce and supply quality goods”. This does not start and end with periodic seminars and workshops on Indigenisation, but should result in more practical support such as provision and access to airworthy grade raw materials, standard parts, processes, etc. either directly from the BRDs or through a DPSU. There should also be technical knowledge sharing on a ‘need to know’ basis.

2.5.2c – “Exemption from EMD and waiver of Security deposit for MSMEs” – PBGs and Warranty BGs are still insisted by many of the maintenance bases/depots. BGs are issued by banks only against deposits. Hence, this money gets locked up for over 18 months since the BGs roll over from a Security deposit to a Performance/Warranty BG. MSMEs getting into multiple projects cannot afford to lock up precious finances. Refer suggestion under Para 15.2.4.

3.2.5 – “Inter-Services and inter-departmental Acceptability of Registration” – This is meant to be applicable across all Services. However, it is seen that each BRD within the IAF, leave alone other Services, has its own Registration process.

7.10.3 – “Guidelines for levying of LD” – LD needs to be seen in the context of the specific procurement. Firstly, LD needs to be applied only when there is a definite hardship and cost suffered by the buyer, especially in case of routine and repetitive procurement of standard and proven parts. However, application of LD for the indigenous D&D of any item taken up by an Indian industry appears to be contradictory to para 2.4.4. While there is provision for waiving of LD, this is very rarely exercised due to fear of adverse audit comments.

11.2.2 – Repair Contracts – This is primarily aimed at foreign OEMs. However, the same terms are also applied to Indian firms, especially MSMEs, who take on very challenging tasks at very high financial risks at their own cost. Repair of obsolete parts and equipment of foreign origin are tendered for Indian enterprises only when the foreign OEM stops support. In such a scenario, the IAF has no other alternative than to attempt local repairs. Hence, it is neither fair nor encouraging for an Indian MSME to be penalized with LD, PBG & WG for successful execution of the job. Even in the case of unsuccessful attempt, the Indian vendor has already incurred a sizeable loss through expenditure in the process. Further, it is worth recognizing the value of undertaking repairs of foreign OEMs. Repair is one of the best and economical methods of demystifying and deciphering specialized technologies. Access to the inner parts of equipment reveals details of state of art manufacturing technologies, types of components and raw materials used, multi-disciplinary design techniques, methods of ruggedisation, maintainability features, etc. that can be effectively used for indigenous D&D.

11.3.2 – “Unforeseen repairs – Missing parts, PCBs, etc.” – Except in the case of a repeat order, all repairs of OEM equipment would certainly have many unknowns and hence unforeseen issues. In most cases, OEMs do not supply detailed technical documents other than basic guidelines on disassembly and re-assembly. Hence, the 60 days period as a limit for identifying and intimation of unforeseen repairs appears unrealistic, at least for repairs of LRUs. This needs to be made more industry friendly so that it is a win-win situation for the IAF and the industry.

11.8 – Warranty for repairs – It is highly unfair to seek a Warranty on repairs of aged and obsolete equipment since many of the parts other than the repaired part may sequentially fail due to its excessive age. Failure of such aged parts may also consequentially lead to failure of the replaced part. Hence, this is a grey area of the DPM that needs improvement.

13.8.5 – “Data sharing between Services” – This never seems to happen even within each Service, leave alone between them. There is an urgent need to implement this since successful indigenization or repairs in a particular domain (communication/ hydraulics/ controls/ pneumatics/ guidance/etc) can be put to quick and effective use for the benefit of both the industry and the Armed Services, due to similarities in platform systems.

CHAPTER 15 – INDIGENOUS Design & Development

15.1.2 – “Economic viability of indigenization to be established based on likely requirement for 3 to 5 years”. Further refers to “economies of scale so as to make it commercially viable …”. Strangely, many RFQs issued by the BRDs do not even indicate future requirements. A D&D RFQ for qty. 1 or 2 is absolutely meaningless and displays a complete lack of understanding of ROI for private industries. Further, this also makes a mockery of a tender process since bidders can exaggerate the unit price and lower the D&D cost so as to still achieve L1. However, they stand to make higher profits on future production, whenever that happens. This actually works against the interests of the buyer and the Govt. Hence, the evaluation criteria for L1 should include at least the first batch of future supplies which should also be specified in the RFP.

15.2.1c – “Development contracts may be placed with two or more contractors in parallel. EOQ may be placed on L1 contractor”. When future quantities cannot be clearly predicted, only L1 would get the order. However, to keep the option of allowing additional contractors in case of higher quantities, the design of L1 could be used by any other vendor against payment of a royalty. The Royalty amount should be specified as part of original tender bid.

15.2.3 – NCNC contracts – This is one of the most dangerous options for an industry for two reasons.

The buyer is never under any compulsion to procure the developed product on some pretext or the other since there is no commitment.
As price is not pre-negotiated, IFA can insist on an RFQ for bulk supplies and the NCNC vendor could lose the bulk production bid negating the whole purpose of undertaking development at his own cost.

15.2.4 – DPM 2009 states that “Deposits and EMDs need not be insisted from reputed companies”. This option is rarely exercised even with MSMEs with proven track records in A&D sector. A scientific and transparent system of rating MSME vendors based on successful completion of prior projects can be easily implemented. Such rating can be used to either reduce or completely exempt the MSME from EMD or Performance/Warranty deposits. The rating can also consider failures and delays to derate the MSME thus making the system very dynamic. Ideally, this rating system should be common and universally applied across all defense services.

15.3.2 – Design – IPR for indigenous design should be held by the firm developing it. Customer should provide a “Non-Disclosure undertaking” and should not provide the same to any other indigenous supplier.

15.10.2 – Acquiring Manufacturing Drawings – This para makes no mention of IPR for the design realized by the vendor. True value of IPR lies in the recurring profits resulting from long term bulk production and not in the actual design cost. Hence, the IPR ownership should not be transferred to the Services, but should remain with the D&D organization. Alternatively, a royalty amount can be negotiated as part of the tender bid. This topic was discussed at one of the seminars held in Delhi a year ago and Govt. representatives had largely agreed with this argument. As stated in above Para 13.3 and 15.1.2, future quantities are not always stated. Further, insistence of submission of design is neither universally applied nor stated in the RFQ. The matter raises its ugly head only at the successful delivery of the product and at that stage no MSME would have the ability to take a legal stand on this issue since payments would be withheld. This matter therefore needs better clarity in statement.

Miscellaneous Issues:

The concept of IDDM should be brought into DPM and given primacy over all other forms of procurement.

Local Taxes and duties – Exemption certificates, etc. – Services should pay all duties and taxes based on documentary evidence of actual payment. Vendors should not be subjected to harassment by Local governance bodies.

Registration and Categorisation: The matter of registration and categorization of products and services has been misinterpreted by some of the Buyer agencies. It was contented that registration was valid only for the specific type of product/services that the MSME has already delivered. This is incorrect. Eg; An organization with competence and proven track record in electronics should be permitted to bid for any electronic equipment as long as some competence in reverse engineering or design exists.

Conclusion : DPM 2009 needs to be improved further through active and collective participation of all stake holders that includes the Armed Services, DPSUs, large and MSME private sector companies.

Defence Procurement Procedure’s new avatar inspiring; some players seek more tweaking

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The much-awaited changes to India’s Defence Procurement Procedure (DPP) were announced last month. This was in line with the promise made by Defence Minister Manohar Parrikar, after he took over the reins of Ministry of Defence in November 2014. The new look DPP, set to take shape in the next two months, gives major impetus to the Narendra Modi government’s flagship Make in India mission. It has some inspiring elements to boost Indian private companies to undertake research and development in the aerospace and defence (A&D) sector.

One India elicited the views of some of the private A&D players to capture the mood of the industry, which has always felt that enough is not being done to win their hearts. Here are the excerpts from a series of interviews we did recently. Offset mechanism not working in interest of country G Raj Narayan, Managing Director of Radel Advanced Technology (P) Ltd, has been a visible voice in the last couple of years in various A&D forums. He says it was clear from the beginning that the offsets mechanism wasn’t working to the interests of India. “The insistence of the foreign OEMs to dilute the same on the pretext of ‘not finding capable Indian partners’ was only an indirect method of preventing any exposure to Indian companies on related technologies. The only way to improve our state of self-sufficiency is to develop R&D in-house and design from whatever technologies we are presently exposed to (LCA, Jaguar & Mirage), and then move upwards to higher levels indigenously,” says Raj. According to him, the raising of the offset applicability to acquisitions of Rs 2000 crore and above is irrelevant. “The higher preference to ‘indigenously designed, developed and manufactured’ items certainly makes more meaning than the vague ‘Make’ and ‘Make & Buy’ categories. This is a confirmation of the preference for Indian products which needs to be applauded. Further, the focus on enabling and empowering R&D as well as supporting MSMEs through funding is a huge step forward. Though this could still throw up problems in distinguishing between ‘mature and capable’ MSMEs and ‘raw’ MSMEs, proper processes could certainly be set up to ensure that the right company get the right amount of funding appropriate with its track record and status,” Raj added. Radel’s ongoing projects for various military programmes include, auto-selector bomb release system, speed switch, anti-collision lights, cockpit control unit and ground test rigs of various aircraft and helicopters. Introduction of IDDM a good move Puneet Kaura, MD and CEO, Samtel Avionics, says that the introduction of a new category — Indigenous Design Development Manufacturing (IDDM) – is a welcome move. “We welcome the move to introduce the IDDM category in the DPP as it will back companies like us who have proven competencies in indigenous design, development and manufacturing. Furthermore, the announcement of funding by the government for R&D purposes will help build a technology base in the country,” says Puneet, among the early players in the A&D sector. He said the growth of the Indian defence industry has been marred by delays. “The new DPP addresses this through a definitive step to cut down the delays in procurement by reducing the time lag between AoN (acceptance of necessity) and the tender or request for proposal (RFP),” says Puneet. Samtel through its joint venture with HAL, has been developing MFDs for Su-30 MKI within its facility in Greater Noida. The Samtel-HAL JV has already delivered 125 sets of MFDs for Su-30 MKIs. Will boost investments and better quality of products According to Rajeev Kaul, MD & Group CFO, Aequs, told One India that that take on LI policy in the new-look DPP is a positive step. “L1 policy is a bold move and it credits the capability of the bidder. This would encourage quality consciousness and boost investments in better quality products,” says Rajeev. Aequs has been supplying main landing gear shackle for the B787 programme. Aequs manufacturing facilities are located in Belagavi, Bengaluru, and Houston. Offset limit should be brought back to Rs 300 crore Col H.S. Shankar (Retd), CMD, Alpha Design Technologies Pvt Ltd, feels that increasing the offset applicability limit is a retrograde step and will deny Indian industry, particularly MSMEs, large chunk of their work content. “It is our view that offsets (with Rs 300 00 crore and above limit) was working satisfactorily (except for few glitches at MoD) and benefiting Indian Industries enormously. This will be a big blow to Indian industries. The limit should be reviewed and brought back to Rs 300 crore. He said the MSMEs/FICCI had listed many suggestions to the DPP Review Committee, but they were not accepted. “We wanted the ‘Make’ category to be split into two categories: ‘Make’ large industries with higher limits and ‘Make’ MSMEs with a limit of funding up to Rs 500 crore per project,” says Col Shankar. Commenting on the ‘strategic partners,’ the veteran A&D expert felt that it was a retrograde move of brining in ‘public sector mentality’ into private sector by reserving few big players in private sector. “This is a back door entry for big private sectors – something which Kelkar Committee had recommended as ‘Udyog Ratnas’ in 2016 and rejected and not implemented by successive governments,” says Col Shankar. MSME categorisation limits for A&D products must go up Naresh Palta, CEO (Aerospace), Maini Group, said the government funding of 90 per cent for indigenous R&D will spur domestic products and technologies. He also felt that ‘accepting offers in single tender cases’ would remove major hurdles for industries developing niche products. However, Palta felt that the DPP’s new avatar is silent on measures for SME segment. “We want the new policy to increase MSME categorisation limits up to Rs 150 crore for A&D projects specifically. Further taxation relief to Indian products vis-à-vis imports, for level playing. We are still unable to compete our products in the domestic requirements with imported ones due to higher duties and taxation incident,” says Palta.

The original article appeared on One India

How do you integrate SMEs into the Indian Aerospace and Defence ecosystem?

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Let me ask a question myself, what is an ecosystem? The ecosystem is one that encourages the growth of a particular sector of industry or product. So the ecosystem includes either the creation or existence of the infrastructure which includes again for design and manufacture, the manpower trained to handle the technologies involved, facility for training the manpower, test facilities, certification, processes, a supply chain, availability of specialised raw materials if there are any, and so on – it can be expanded without much of a limit. So the ecosystem as applied to the aerospace and defence includes the inclusion of all these parameters. And with particular reference to the aerospace sector which uses very specialised aluminium alloys, titanium alloys, rivets, nuts and screws that needs to be of special grade or tested grade and certified as airworthy. Now if we don’t have any of these present within the country, then the ecosystem is missing. Even in the case of availability of trained engineering manpower, we don’t have the ecosystem where you have either aerospace engineers or mechanical engineers trained for working or operating in the aerospace sector. So we don’t have the availability of these various kinds of resources in the country and therefore the aerospace and defence sector in the country is unable to grow to the extent that it needs to grow. This is where the creation of ecosystem is extremely important and therefore the Government is the one that needs to address these by setting up of laboratories, test facilities, training institutes or may be even incentivising SMEs or large organisations to conduct training programmes, seminars, workshops etc etc. And this is where the Government has to play a very major role in incentivising and facilitating the growth of the aerospace and defence sector in this country.

Is ‘Technology Transfer’ required for Indian Industries to succeed in MakeInIndia?

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I am one of those who believe that we do not need any transfer of technology at all. In the past we had transfer of technology as part of projects that we got from British, Russian the French and many other countries. These were for the licensed manufacture of aircraft, transport aircraft, fighter aircraft, battle tanks and trucks, for example Tatra. But then we have not taken the additional steps of extracting information and knowledge that we have got, that we have paid for, and then taking the next few steps to develop them and create our own technologies. There is no rocket technology or rocket science involved in routine equipment, be it a communication equipment, navigation equipment or power plant.

The only area where there is high tech science involved is in the design and manufacture of advanced jet engines that are required for a jet aircraft. If you leave that aside, all the other equipment and systems that go on board on aircraft or battle tank are available with us. If we have been able to put satellite around Mars or If we have been able to land a satellite on to the surface of the moon then what is it we lack?

It is only the question of applying the science that we learned, and designing our own products, trying them out, if there have been deficiencies, use the knowledge gained and improve upon it, and then reach the ultimate goal of having our own equipment, systems as well as the platforms. This is what we need to do and there is absolutely no need for us to go out of this country seeking transfer of technology. After all, what is the technology we receive from abroad? They are only manufacturing technology for manufacture of an aircraft or its shell and stuffing it with equipment then that are imported from abroad. So we need to develop the equipment and systems that go on to the shell, and thereby increase the indigenous content of our platforms rather than go out again and get the technology for manufacturing of the shell, be it a 4th generation or 5th generation aircraft or battle tank. We need to look inwards and get the technology that is available within ourselves whether it is in our educational institutions or in R&D labs, for the manufacturing establishment. All we need to do is put our heads and hands together to solve our own problems.

Make in India Campaign and Indian SMEs: The Fine Line

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The biggest highlight of the year for the aerospace manufacturing industry and Indian SMEs without any doubt has been the announcement of the ‘Make in India’ campaign by our Prime Minister Narendra Modi. Not only has it galvanized the industry in India, but it has also given a renewed confidence to foreign player,s resulting in increased interest from foreign investors to invest in local manufacturing. The Make in India initiative has given new hope to the Indian SME sector and has come as a boost to the sagging morale of Indian SMEs and Manufacturing industry. After the introduction of the Make in India campaign, the industry has started seeing visible changes to the functioning of bureaucracy across the country.

The Union Government has been making all the right noises and is also demonstrating the willingness to take all steps to improve the economy on every front. Works and policies initiated and proposed by the new government in its first few months in power have been very encouraging for the aerospace manufacturing sector.

Several Indian SMEs have overcome the long gestation period associated with the Aerospace & Defence sector and now look to take a leap forward with more prestigious projects.

Tweet this: “The Make in India’ campaign, both in the industrial as well as the A&D sectors, is bound to open up huge opportunities for SMEs with strong design and development capabilities. Radel hopes to capitalize on these and grow into a nationally recognized organisation.”

The successful flight testing of an in-house designed product of Radel in a Jaguar aircraft of the IAF, leading to its certification for regular use in all Jaguars, was the high point of Radel’s performance in 2014. Radel hopes to repeat the above success with another product, which is currently under an advanced stage of testing for the IAF, in 2015. Overall, Radel hopes to grow by at least 60 percent and look for opportunities in the global A&D market.

Demand creation is also a big expectation. While consumer demand will get generated with inflation getting under control, it is critical to jump-start infrastructure, which can and should be the engine of growth for some years to come. Big steps like labour reform and land acquisition would be areas of high importance. They might get addressed this year if the stakeholders come together to work towards the common good.While it will be incorrect to expect all of that to happen in one year, it is encouraging to see a clear sign of a strong beginning of this cycle in 2015.

Indian SMEs set to battle it out for Rs 18,000 crore defence pie

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A $3 Billion opportunity for Indian SMEs and Defence MSMEs has been created by Defence Procurement Policy 2013 and the Make In India Campaign. Numerous offsets in the three wings of the armed forces are expected to be executed in the next five years.

According to defence MSMEs, the two key initiatives have opened up an estimated Rs. 90,000 crore business opportunity, identified as the offset opportunity for defence players in public sector undertakings (DPSUs) and also for the MSME sector over the coming five-year period. It is reported that prospective business worth Rs.72,000 crores has emerged from IAF (Indian Air Force), with the Indian Navy presenting another Rs.13,500 crore possibility. The prospect from the Indian Army would be around Rs.4500 crore. In the last few years the total value of defence offsets contracted in the last few years is valued around Rs.28,800 crore. The Indian Air Force has signed contracts worth approximately Rs.21,600 crore, the Indian Navy worth Rs.5,064 crore and the Indian Army Rs.144 crore.The MSME sector could expect business worth of Rs.18,000 crores, which would be 20 percent of the Defence sector’s overall projection.

The most promsing area that should encourage SMEs in the defence segment is the indigenous manufacture of parts and
sub-assemblies to replace obsolete original equipment (the MRO sector). It includes the design, development and manufacture of complete equipment as a replacements. Serious efforts have to be made to attract SMEs into this obsolescence management sector. In turn, SMEs should rise to this occasion by raising their standards of quality and reliability of parts and assemblies that are manufactured by them, as supplies to larger players. Large organisations can then outsource in parallel to multiple efficiently managed MSME organizations.

This kind of involvement will certainly reduce the cost and the time of execution of projects, which are chronically plagued by delays today.