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Challenges in Indigenisation

Part 5 -Contd from part 4:

It is a well known fact that the military applications are the primary focus of most technological research. With every new generation of new technology, the previous generation is released for industrial and consumer applications. In this context, it is most natural that no foreign OEM would provide Indian Armed Services with TOT of current technology. Whatever is sold is at least one or two generations old. In the case of old platforms like the Jaguar aircraft of the IAF, this would be three generations old. Hence, it is not such a daunting task for Indian companies to indigenise products of that generation, provided one is sensitized to the specialized performance requirements of this sector. This includes design, manufacture, qualification testing and certification to very stringent military standards that most non-defense organisations are not exposed to. This is all the more the reason for the Armed Forces to spot, recognize, nurture and grow private organisations that possess such talent and capabilities for meeting their own long term goals of self-reliance. Is this asking for too much?

The real challenge lies not among the MSMEs, but within the Armed Forces themselves. Even among the technically qualified and trained officers, how many of them are acquainted with the fundamental tenets of aircraft systems, leave alone their design, qualification and certification? Of course, they are only expected to use the products and platforms and not design them. But, if they are the nodal officers involved in indigenisation, should they not be empowered for it? And if they do get trained in whatever manner, would it not be a waste if they get transferred every 2 or 3 years to posts that has nothing to do with indigenisation? How many of them have had an intimate involvement in indigenisation of a complete LRU and appreciate the variety of problems faced by a vendor during the whole process? Has even one officer spent one complete day in an MSME engaged in defense indigenis pied-piper ation to get a first hand account of operations of an MSME? The very fact that RFQs quote a delivery period of 3 months for projects that normally take 3 years shows the disconnect with realities. With poor MSMEs that are attracted to the pied piper singing songs of ‘billions of dollars’, should we say any more?!

Military business is all about robustness, ruggedness, high reliability, high efficiency, high technology, miniaturization, sophistication, etc. that are far beyond the perception of most non-defense industries. They therefore need to be sensitized, trained, nurtured and then sustained and this is at least a 6 to 8 year timeline as per current status. So, if the DPM and DPP continue to stick to the L1 philosophy, it is a matter of time before everyone exits irrespective of whether they are successful or otherwise. Technological competence and track record are more important than just lowest cost and therefore the current L1 policy would by itself ensure that the competent get filtered out and the incompetent just fail. Who wins this game?

Attitudes and Habits

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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.

Make in India and 100% FDI in Defence: a double-edged sword?

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041116-F-MK974-081

The ‘Make In India’ slogan announced by a refreshingly new and agile PM of our country two years ago was lapped up by many Indian enterprises that were starved of economic activity. It was almost like a mouth-watering feast of desserts being brought to a buffet table with a million hungry people waiting for a meal. Then came the pronouncement of encouragement to indigenously manufactured equipment, platforms and arms for the Indian defence forces already starved from lack of capital acquisitions from foreign companies for over a decade. Next came the DPP2016 with the inclusion of a special category ‘IDDM’ to pronounce that Indian Designed, Developed and Manufactured items would get the highest priority in the defense procurement process. This was the cherry topping the dessert!

And now comes the announcement of 100% FDI in A&D, closely followed by the American offer of shifting the F-16 production line to India. So, is this the final serving of the customary ‘Paan beeda’ or is it a hangman’s noose after the last fulfilling meal for the Indian industry?!

I must have attended at least ten defense related conferences and seminars across the country in the last 12 months. In every one of them, one fact that came through very clearly was the mirage of Transfer of Technology from foreign OEMs. Senior representatives of the Armed Services, the DRDO and DPSUs, openly conceded that no ToT of any value was ever achieved over the last five decades. It was almost unanimously agreed that the only way towards military self-reliance was through indigenous R&D, design, manufacturing and lifecycle support. Everyone pointed to the success of ISRO in the face of sanctions and denials and how this could be achieved in other spheres of defense preparedness. It is therefore worthwhile exploring various scenarios that could emerge from the allowance of 100% FDI in A&D.

First of all, it needs to be appreciated that A&D industries operate with low volumes with production often taken up in batches. Hence, the employment potential is certainly limited compared to consumer/industrial product industries. When it comes to production of military platforms themselves (aircraft, helicopters, tanks, armoured vehicles, etc.), only 10 to 15 of these are made in a year. Almost all the systems and sub-systems are outsourced to a global supply chain that comprises specialized competences. Hence, even if a foreign platform manufacturer sets up an Indian operation, he would still import the systems and parts from his global supply chain. It is worth noting here that the systems and equipment constitute more than 70% of the lifecycle costs of the platform. Further, it is the systems that undergo periodic upgrades which are supplied by the OEMs. Hence, there is not much to be gained by the mere fabrication of the outer shell of an aircraft or tank if the expensive systems are also not manufactured in India. For this to happen, we need to create the complete ecosystem of Tier-1, Tier-2 and Tier-3 supply chain of Indian companies and these are far more important than the Integrator company. In the absence of such a holistic approach, we would only help foreign OEMs in increasing their participation in Indian defense procurements. This would go completely against the goal of ‘Self-reliance’.
It is seen that foreign OEMs who establish their Indian subsidiaries very often assemble their products using CKD kits imported from abroad. Since the imported parts and assemblies are produced on a global production scale, they would cost relatively lower than being manufactured here in smaller volumes. However, they are still marked as ‘manufactured in India’ just as Korean and Taiwanese consumer products assembled in India. Further, since this only involves screw-driver technology, there can be no benefit of either exposure or value addition to Indian employees. On the other hand, with no design and development costs to be incurred, these products can be priced lower than what Indian companies can deliver, thus killing Indian R&D and design organisations, including DRDO and DPSUs.
With long lifecycles of 40 years, all military platforms go through at least a couple of systems upgrades. If the foreign OEMs are included in the IDDM category just on the basis of their manufacturing plant located in India fulfilling the stipulated 60% indigenous content clause, then all the upgrades will have to automatically go to them with no participation of either genuine Indian owned companies or individuals. This is again a lost opportunity for Indian defense enterprises. This would ultimately lead to the demise of even the few Indian enterprises that have already shown signs of meeting the challenge of IDDM.
Almost all spare parts of platforms and equipment are now being imported from the OEMs abroad. Without a strong drive towards indigenization of all parts and systems, more and more spares will be continued to be obtained from abroad, channelized through the Indian subsidiaries with a ‘Made in India’ label. This serves neither the hunger for technology nor exposure to manufacturing.
In the unlikely event of a foreign OEM willing to manufacture a major chunk of equipment, systems and assemblies in its Indian factory and using them for meeting Indian defence requirements as well as exporting them back to the parent country, this would most likely involve use of automated machines and processes with little employment potential. While a small number of operators and technicians would find employment opportunities, they could gain some insights into modern manufacturing technologies. However, to interpret the nuances of such processes and technologies, leading to improvement of Indian design and development capabilities, it would need a more holistic exposure with smart and competent engineers involved in the operations. Would the foreign OEM do this?

Finally, coming to the offer of Lockheed Martin to shift their manufacturing plant of the F-16 fighter aircraft to India, it is a well-known fact that the F-16 was first manufactured for the USAF forty years ago in 1976 with subsequent versions being supplied to various NATO countries. The manufacturing plant is already planned for closure and so it is evident that the company is offering to relocate a scrapped and obsolete plant to India. This once again confirms what we get from foreign OEMs!

In the final analysis, does 100% FDI sound like a double edged sword or a dagger used for ‘hara kiri’?

Challenges & Solutions for Make In India in the A&D sector

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CHALLENG Defexpo 2016-title ES FOR MAKE IN INDIA IN THE A&D SECTOR

The ‘Make in India’ campaign seems to focus on ‘Build to print’ as per drawings supplied by a foreign OEM. While this may provide some short-term benefits, it will not lead to self-reliance in the long term. Experts in the A&D arena have openly acknowledged that the so-called ‘Transfer of Technology’ has never resulted in any provision of core technology other than basic manufacturing and maintenance documents. To be truly self-sufficient in this critical sector, we need to Create, Innovate, Design, and Manufacture in India through indigenous R&D.

Any entrepreneur desiring to design and manufacture for the A&D sector faces many challenges. These are:

Internal:

Lack of specialised domain knowledge and awareness of the stringent quality standards and military This is a result of the historical confinement of the domain within DPSUs for the last six decades with no access to the private sector.
Capability to design equipment to overcome harsh conditions imposed by extremes of temperature, humidity, altitude, vibrations, corrosive atmosphere, etc.
Competence to engage in technical discussions with certification authorities.
Multi-disciplinary domain knowledge that is essential for holistic design and manufacture.

External

Delays in all processes up to several years for even a small project. Tender bids are required to be valid for at least six months and often for 12 months.
Small volumes leading to problems in sourcing specialised components at competitive prices.
Uncertainty about future production orders for an indigenisation product.
Availability of trained workforce

While the responsibility to develop competency in the domain rests with the entrepreneur, the external challenges above are detailed as follows:

RFQ and tender stage:

One of the greatest challenges relates to lack of ownership and decision making in the DPSUs and the Armed Services. It often takes two years for a requirement to mature to an RFQ, even for ‘critically required’ LRUs, sub-assemblies and spare parts. The subsequent process of tender evaluation, price negotiation and order release takes at least 6 months. In many cases, orders are not released even after the L1 vendor has attended price negotiation meetings. These are highly demotivating to an entrepreneur. In most cases, technical specifications of the OEM equipment are not even available with the tendering agency and the RFQ states ‘Generation of technical specifications is a part of the indigenisation process’. If this is so, how does a bidder specify what he would deliver and how does the tendering agency evaluate the bid?

Small volumes

In most cases, annual quantities of specialised parts and equipment are in single digits. This makes purchase of specialised, military grade raw materials and components very difficult. These include even screws, nuts, washers, consumables, etc., that are used on airborne equipment. This imposes either very high costs on a small quantity, or a large inventory of unused materials.

Qualification Testing

Before the indigenised unit can be integrated into a military platform, it needs to be qualified by subjecting it to stringent life-cycle tests. This includes expensive EMI/EMC and Environmental testing that is only carried out in a few specially equipped laboratories. These tests can by themselves cost anywhere from Rs.6 to 10 lakhs.
Qualification tests are to be conducted in Govt. approved test agencies. While large corporates are able to afford investments in expensive test facilities within their organisation, MSMEs find it unaffordable. MSMEs therefore have to rely on external service providers such as DRDO or DPSUs. Time slots at such external agencies are very difficult to obtain for a private company. This hurts the progress of the projects leading to cost escalation. Reputed test houses in the private sector are far more expensive than govt. controlled agencies.

Serial Production

There have been many instances where no production orders have been placed after indigenous development of even a ‘critically required’ item that has been designed, tested and qualified by a vendor. This is a complete let down and one of the demotivators for design entrepreneurs to enter this sector.

Funding and cash flow

Funding for long gestation A&D development projects is just not available. Indian banks and funding agencies do not appreciate the value of research, design and development. While the present Indian Govt. has proposed to set up a Defence R&D Fund for MSMEs, the modalities of making this available to genuine entrepreneurs is yet to be formalised.

Availability of trained workforce

Trained workforce, especially design engineers, are simply not available due to disconnect between industry and the academia. This is even more severe in the specialised A&D sector.

Conclusions & Suggestions:

DRDO and DPSUs should facilitate domain specific knowledge sharing with A&D MSMEs to empower them to appreciate the intricacies and challenges of indigenous development.
Funding mechanisms for long gestation D&D projects need to be created on priority since this involves self-reliance in defence and aerospace. One method could be the award of rating points (similar to credit rating by CIBIL), proportional to the value of A&D related orders successfully executed by an MSME. The accumulation of points would indicate the maturity and capability of the vendor. These could be accumulated and monetised for obtaining special financing from Public Sector Banks, as well as for proportional reduction of monetary Performance Guarantees to the customers.
Establishment of virtual clusters of MSMEs linked to larger private companies or DPSUs/DRDO will result in an organised growth of MSMEs with specialised aerospace domain knowledge that can ultimately lead to complete indigenous equipment and systems development capability over time.
The same ecosystem can then be leveraged by the educational institutions for teaching as well as training the graduates in the field of A&D, within industries on live projects. Engineering colleges today teach the aeronautical subjects without even a physical contact with a live aircraft or engine.
Materials Bank to be established for easy availability of commonly used military grade raw materials and standard parts for MSMEs.
Establishing testing labs by the Government, exclusively for use by private MSMEs or by directing a priority allotment of time slots at govt. labs.
Excise duties, Service Tax and VAT (GST) should be exempted for all related inputs as well as the final product/services. It does not make any sense for duties and taxes to be paid from one Govt. account to another through the intermediary private vendor who has to also deal with the cash flow issue.

There is no dearth of technology and competencies among Indian private sector industries in undertaking challenging indigenisation projects. All they need is a friendly and supportive induction into the sector.

The original article appeared in the Defexpo 2016 Show Daily of Geopolitics Magazine on March 30, 2016.

MSMEs should scale up their capabilities

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Micro, Small and Medium Enterprises will have to scale up their capabilities to design and manufacture parts, sub-assemblies as well as complete products which requires a wide variety of skills, said G Raj Narayan, founder and MD Radel Group and Chief Mentor of Drona.

Speaking at a Plenary Session at the 103rd Indian Science Congress on Aims to focus on the Make In India initiative with particular reference to the Defence and Aerospace sector’, he said that MSMEs in India contribute more than 45 per cent of the industrial output and hence constitute a large section of the manufacturing chains of almost all products. He said that ‘Make in India’ opens up far more opportunities of raising their value proposition than being mere vendors to the large DPSUs.

Considering that less than 10 per cent of the engineers churned out of Indian colleges are found to be employable in the core engineering industries, imparting practical skills is the need of the hour for MII to succeed.
Institutions such as the Drona School of Engineering Practice, which orients engineers to practical hands-on exposure to high value engineering skills in an industrial environment, are the way forward.
The ‘Make in India’ is a paradigm shift from the past two decades of Indian obsession with IT and ITeS services during which manufacturing industries were allowed to collapse.

There appears to be a new found realization of the benefits of manufacturing A&D products in India for domestic consumption rather than import them.
However, ‘Make in India’ goes beyond just manufacturing, to design, innovate, manufacture and support in India.
Viewed holistically, this has profound implications across a wide section of businesses.
It involves huge numbers of creative engineers, technicians, professors, research scholars, sales, marketing and support staff, etc.
all of whom need to possess specialized skills, he added.

The original article appeared on UniIndia.

Designing, creating and innovating in India

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Prime Minister’s ‘Start-up India, Stand up India’ initiative can succeed only when the focus in our colleges shifts towards creating and owning intellectual property. Creativity is a talent nurtured right from childhood. Various types of arts, crafts and hobbies expose a child to a variety of skills that develop creativity. Design, per se, need not always involve either creativity or innovation. It is only when creativity is embedded into the art of design that innovation happens. Innovation can also result from a strong desire to find new or improved solutions to existing problems. However, this talent is reinforced by a creative aptitude. A combination of all these characteristics is what actually results in innovative designs, products and services—some of which can be revolutionary.

It is, therefore, obvious that innovative engineers cannot be created overnight. The process has to be part of an integrated system which includes parents, teachers, schools, colleges and industries—all of which encourage inquisitive curiosity with practical exposure, leading to development of interest, aptitude, skills and aspirations to excel as a practicing engineer.

The reason that barely 7% of the approximately 1.5 million engineers graduating every year in India are employable in core engineering sectors is the absolute lack of aspiration. They get into an engineering college—or a medical college, for that matter—only because of peer and parental pressure, and not out of desire or deep interest. If their ultimate evaluation is also based on rote-based learning and marks obtained, we are neither inculcating in them the “ability to learn” nor practical capabilities that are relevant to a prospective employer. “Learning to learn” and “learning to apply” should, therefore, be the cornerstones of education, be it engineering, medicine, accountancy or management.

Design, innovate & make in India: The Prime Minister is charming young students by ‘Make in India’ and ‘Start-up India, Stand up India’ initiatives. However, we need to not just make in India, but create in India, design in India and innovate in India, so as to create and own intellectual property. What we need is a solid design and manufacturing base to enable these initiatives to succeed. However, without competent engineers to drive these programmes, how can the campaigns even take off—whether in aerospace, defence or consumer sectors? For this, we need to skill our engineers not just as computer operators, but also as intelligent designers and engineers in practice.

The core of all these will be effectively addressing our flawed education system—right from primary school to the highest education. If we need to create, innovate and design, we need performing engineers, doctors and scientists who are capable of designing products, or can at least reverse engineer like the Chinese, and then innovate further.

Design & innovation: Design skills lie at the top of the pyramid, which include a variety of multidisciplinary abilities. Creative design requires the essential powers of creative, analytical and critical thinking.

Skilling cannot happen only in a college environment. Universities and engineering colleges need to tie up with industries to provide the engineers hands-on exposure to “live” projects within the industry.

So, what should be the action plan for educators? Or, in other words, how can engineering students create and innovate in the next year or two?

Foundation: Educators need to start the process with first-year students. The laying of strong fundamentals forms the foundation, on which the superstructure of “engineering practice” can be built. Fundamental concepts can be better grasped by students when they are explained with the help of simple, practical, everyday examples of theory.

Innovation: It is then possible to climb the ladder of innovation step-by-step, by teaching students how to think and create, starting with simple hands-on projects that are made by students as early as the very first semester.

Action plan for students: For students, the motto should be “empower yourself to learn”. It is not easy to overhaul the engineering education system. Yet we occasionally read about a handful of students who have created a gadget for the farmer, or a solar-powered vehicle, etc. How did these students achieve the same, in spite of being part of the same system? They educated themselves outside the “syllabus” and college routine. Engineering students need to read the latest journals, magazines and information online in the core sector of their choice—be it electronics, mechanical, chemical or any other. Project work today is considered a dreary chore, to be completed by hook or crook to qualify for a degree. So as to become a creative engineer, students need to break out of this mindset. They need to develop the interest to try and make simple projects themselves, learn from mistakes through analysis, and finally succeed in creating a simple project. This exercise itself is bound to provide a lot of pleasure and excitement, besides providing invaluable educational insights about the subject. Ultimately, these very habits—of keeping oneself abreast of developments, of working with one’s hands and trying out an idea in practice—are the ones that will stand them in good stead throughout their career. Indian students can certainly innovate and create in the next two years, by using their imagination and practical experimentation to create products and solutions for everyday life.

The original article appeared on Financial Express.

Is ease of doing business only for foreign investors?

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There is an urgent need to cut unnecessary costs that hinder Indian businesses. PM Narendra Modi has been travelling far and wide to invite foreign companies to invest and ‘Make in India’ with an assurance that doing business in India is going to be made far easier than it has been so far. From a foreign investor’s point of view, it is not the number of places that India goes up the bottom of the ladder that matters, but the actual position towards the top of that ladder that the Indian government intends to reach. But the more important question in every Indian businessman’s mind is whether this so-called ‘ease’ is only meant for foreign investors with Indian businesses continuing to suffer all the woes.

‘Make in India’, ‘Defence Indigenisation’, ‘Self-reliance’ and ‘Digital India’ are great slogans for creating the hype, and also causes the hungry Indian businesses to salivate. If our PM is serious about enabling and empowering Indian businesses to play in the competitive global market place, everything boils down to competitive costs, whether for local consumption or exports. Let us look at what these costs include. The adage ‘Time is money’ is certainly not understood either in our bureaucracy or government decision-making, and least of all, our honourable judiciary. ‘Delivery time is the essence of the contract’, says a purchase order of a DPSU that takes eight months to process tender bids for a relatively low value item.

‘Ease’ of Funding: ‘Funds, funds, funds’ is the cry of the most MSMEs across the country. Various glorified schemes exist on paper, but rarely made available even to the most successful of entrepreneurs with orders worth crores on hand. An MSME entrepreneur is expected to kneel and beg, and work through the maze of red-tape, only to get a few crumbs thrown to him while companies providing ‘good times in the sky’ get crores even if they are bound to result in NPAs. Private funds are available for budding startups — preferably in the online space— but for the manufacturing industry this comes at a significant cost.

‘Ease’ of Regulations: Tax authorities are accorded enormous powers that are often abused. The sales tax department goes around attaching banks accounts of assesses on flimsy grounds so that it can show inflated revenue collections even if these are bound to be refunded a few years later after judicial intervention. The businesses meanwhile, suffer a huge cost that is never reimbursed, not even the interest on the amount unfairly seized by the government.

Many MSMEs have faced this situation, and have had to take one of these three hard decisions, all of which involve significant financial costs: (a) bribe their way out of it (most MSMEs opt for this solution), (b) go through the lengthy judicial process (very few MSMEs have the courage and patience to go through this) or – for several entrepreneurs, the worst but only option—(c) take the financial hit and shut down. Why should assessment officers be empowered to execute summary assessments overruling evidence in spite of an assessee filing all the required documents? If there is no cost attached to such malpractices of the bureaucracy it makes merry at the cost of the entrepreneur.

Income tax and Central Excise departments are no different. Refunds are rarely made within three or four years leading to loss of interest which is a cost to the entrepreneur. The Legal Metrology Department too has joined the party, confiscating electronic white goods ridiculously classifying them as ‘packaged, commodities’ that require registration with the department.

‘Ease’ of Labour: What about costs imposed by outdated labour laws? Anything and everything can be contested in a labour court, even if an employer has abided by the laws. This leads to litigation costs as well as unproductive wages being incurred in one form or the other, besides fees to consultants and advocates. If labour reforms are only going to target garage operations with less than 40 workmen, does it mean that larger MSMEs will continue to face the woes of running a manufacturing establishment?

‘Ease’ of Infrastructure: Certainly not the least important, infrastructure costs add significant amounts. Shortage of electricity has been a perennial problem in Karnataka for decades, and businesses are forced to operate on DGs which imposes multiple costs if an employee needs to spend three hours travelling to work in a messy city such as Bengaluru, that is a cost due to unproductive time. By the time the much hyped ‘Namma Metro’ achieves full connectivity, it would itself be as congested as the Mumbai trains, which would be self-defeating.

Cost of urban land, provided to foreign investors at a fraction of what is charged to Indian MSMEs, makes the whole business proposition unviable. If any subsidised rates are offered, it comes with ‘hidden’ costs. The lion of ‘Make in India’ will continue to sleep, or subsist with low value addition ‘manufacturing’ using CKD kits of MNCs as long as we fail to look for holistic and long-term solutions involving both the State and Central Governments.

The original article appeared on Deccan Herald.

A stronger Make in India will beat the Chinese threat

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If India is to match China in both technology and scale, many bottlenecks will have to be removed. The idea of ‘Make in India’ is not just about internal development, but also effectively countering threats from the outside. In terms of both geography and potential, India’s biggest competitor today is China.

To compete with this economically powerful neighbour, India needs development on multiple fronts. While China has raced far ahead of India, today its manufacturing is slowing down, wages are rising and the labour force is dwindling. On the other hand, the Indian labour force is just coming of age. If we are to match China in both technology and scale, many bottlenecks have to be removed. Apart from the well-known issue of poor infrastructure, there are several areas that need to be tackled on a war footing.

Skills: It is estimated that by 2030, India will have the largest labour force in the world. Yet, the availability of a large workforce alone is not enough. Jobs also need to be created and most importantly, skills have to be developed. ‘Make in India’ seems like the perfect platform to absorb an annual 12 million-strong workforce with jobs. However, unless this workforce is equipped with the required skills, India will miss the bus again. China invested in education and is reaping the benefits. Consider this; in 2004, while China had only eight universities in the world’s top 500, and none in the top 200, the current respective figures are 32, and six. China’s universities are now second only to those in the US in terms of the total research output.

The correlation between the quality of education and the nation’s progress is obvious. The Indian government and the private sector should join hands to align education to practice by encouraging meaningful apprenticeships within industries by amending the Apprentices Act, 1961, to make it relevant in the 21st century.

Multi-pronged reform plan

Over the last two decades, China has striven to transform itself into the world’s second biggest economy, through a slew of reforms, including the mass reallocation of labour from low-productivity agriculture to high-productivity manufacturing. What motivated Chinese workers to slog day and night? This is partly answered by a sociological reason: the people of China and other nations in the Far East have always been disciplined.

A dose of strong-arm enforcement injected into oriental values ensured a disciplined work ethic. By combining worker benefits with relaxation of hiring and retrenchment norms in its labour reforms in 1995, China was well on the way to becoming a manufacturing powerhouse. While China does have unions, they are virtually, without exception, under the control of the All-China Federation of Trade Unions which is controlled by the government and the party (Communist Party of China). Collective bargaining, legal strikes or dispute resolution are non-existent. Here, in democratic India, the present labour laws impede industrial growth. Labour reforms are never easy, as there are multiple stakeholders involved, from workmen unions to politicians and the government.

How did China manage to develop absolute advantage in so many industries? The answer is simple — with the government’s whole-hearted help. State-owned banks give loans to local companies — large or small, at rates as low as two per cent, and local governments across China allocate cheap or free land. In India, funds are grudgingly provided to MSMEs at crippling rates of interest. The export subsidies and incentives granted by the Chinese government helped grow a vibrant manufacturing sector with thousands of small, medium, and large industries, focused on high-volume mass-manufacture aimed at exports. In addition, the market access available to China as a result of its WTO membership, contributed to its impressive trade performance. China also created barriers for imports to maintain huge trade surpluses. For example, products that have passed international quality certifications have to again undergo tests like the China Compulsory Certificate (CCC) for entry into the Chinese markets. Hence, today, China is the shop floor of the world.

In India, on the other hand, myriad rules, regulations and harassment are killing the manufacturing industry. The so-called incentives and subsidies for exports are so difficult to access through the maze of red tape, that manufacturing industries, especially the smaller ones, find them unviable. It is not surprising therefore, that a World Bank report ranks India at 130, and China at 84, out of 189 countries, in terms of the ease of doing business. As a result, Chinese products turn out to be cheaper than the local ones in spite of import expenses, though not necessarily better in quality.

The way forward

While India soared ahead digitally, the manufacturing industry was neglected. The government should now aggressively focus on building robust infrastructure from the foundation, providing support to the industries in the form of low interest loans and subsidies. However, the Chinese model of export-oriented industrialisation is not the way to go. Although China is at the helm of global exports, it is now struggling to boost internal consumption. India has the potential to become a thriving manufacturing hub. There are multiple factors in favour of India; it is up to us to leverage them and race ahead. If all the concerns of the manufacturing sector are addressed, we may well see India and China trading places in the future.

The original article appeared on Deccanherald.

In-house innovation

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Design capability is like a capital asset required to churn out high value returns. It is like a compelling fragrance as it spreads across domains. Design and manufacturing together produce a closed loop system of learning, improvement and further innovation. But, if you do not possess this asset, you are only providing low value manufacturing services while allowing an overseas designer to dictate terms forever.

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Design is a very strong capability since it allows continuous upgradation of products and processes. An ecosystem that encourages innovative design yields new technologies and products thereby leading to large-scale local manufacturing and overall economic growth. Design in India should therefore be the larger objective of Make in India.

Over the last 50 years, there have been many examples of indigenous design. Examples in the ’70s include the Sumeet kitchen mixie, the wet grinder, the Good Knight mosquito repellent and early models of washing machines. In the pre-reforms era, there were many truly Indian products for home consumption. Revolutionary inventions in Indian classical music—a traditional niche area—include Radel’s electronic tambura, tabla, sruti box and veena.

Cut to the present. Why are our large business houses importing simple appliances like bread toasters and electric irons from China? Even in the booming automobile sector, there is not a single vehicle in India that is fully indigenous in design, in spite of large private players having manufactured under licence for over five decades.

Many consumer and industrial products were earlier being manufactured here. Why did these industries turn into traders of imported commodities? Electronics was identified as a sector with high potential in the late ’70s. We missed many opportunities to create a vibrant electronics industry. Companies in the US and Europe offered to set up semiconductor fab plants but we refused. Malaysia, Thailand, South Korea and Taiwan accepted these opportunities and are now miles ahead of India. In the strategic defence sector, India has manufactured battle tanks and aircraft under license for over five decades but doesn’t seem to have learnt how to maintain and support these ageing platforms. On the other hand, in spite of sanctions, the Indian Space Research Organisation demonstrated our capability to experiment, learn and ultimately deliver. ISRO is now launching satellites for international clients at a fractional cost. This is the model to be replicated in defence as well.

The problems of designing and manufacturing in India include long delays for routine matters that result in hidden costs. Exorbitant taxes demanded by authorities, lack of uninterrupted power, water and other infrastructure and rampant corruption by police and tax authorities ensure that Indian entrepreneurs, with a few exceptions, are the least competitive in the world. The last straw for the entrepreneur is the outdated labour laws that encourage undisciplined workers to hold establishments to ransom.

There are no simplistic solutions. Governments need to drastically simplify procedures and cut the red tape. Employees and managers in organisations need to change their work culture and ethics. Chinese organisations execute orders in record time while employees of a typical Indian organisation take days to respond to an email. That’s how they get more orders than us.

The Indian education system, from the primary level, needs to teach students how to think and apply knowledge rather than crack exams. We can still become a manufacturing powerhouse with determination, a change in attitude and the courage of conviction. Time, however, is running out.

The original article appeared on The Week.