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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?

D&D, Profits and Sustenance

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Part 4 – contd from Part 3:

There is a misplaced belief that Indian companies do not invest in R&D. The terms ‘Research & Development’ or ‘Design & Development’ are often misunderstood and used inappropriately. In the context of indigenisation efforts of the private sector, especially MSMEs, ‘Design & Engineering’ should be the more appropriate term. It is a well accepted fact that Indian MSMEs are highly innovative, enterprising and come up with unique solutions to various problems. Innovative ideas could range from a simple tweaking of a design or reverse engineering of a foreign OEM product. All these activities involve considerable D&E focused on the specific product. The only problem is that private industries do not have the habit of monitoring and accounting such expenditure under a separate head called ‘R&D’. This is due to the fear of the tax-man not allowing these costs as expenditures and treating them as capital investment (which it certainly is) and should result in repetitive long term returns over a period of at least 5 years. In the case of MSMEs indigenising complete LRUs or sub-systems, there is certainly a high indigenous D&D content whose risk is justified only if there is a likelihood of repetitive bulk production orders. The expected Return on Investment (ROI) has to be linked to the risks of D&D. ROI is also linked to the quantum of sales of the product over its lifecycle. Hence, the economic viability of indigenisation has to be based on future bulk production orders from the Armed Services. This is where a serious flaw exists in the indigenisation programmes of all Armed Services and DPSUs. They either do not know what their future requirements are or do not wish to reveal it. In either case, it is almost impossible for a private industry to assess whether there is any worthwhile business potential.

Yet another misconception among the Armed Services is that they have reimbursed the D&D costs to the Vendor at the end of successful completion and hence the vendor is fully compensated. They do not seem to appreciate that D&D cost is very different from the lifecycle value of the product realized. Total value realized from consumer and industrial products over their lifecycle would be more than 100 times their D&D cost. In the case of the specialized A&D sector, lose-lose it should be even higher due to the high value addition of the products. Hence, choking a vendor by not providing him serial bulk orders at least for a few years would amount to killing him without sustainability. This leads to a ‘lose-lose’ situation with both the successful vendor gradually dropping out of business and the Services losing a successful vendor, who could have multiplied his initial success into many more successful projects and graduating to higher levels of technology.

Profit was considered a dirty word in our country till recently. While it has turned decent, it still retains a gray shade among the Armed Services and DPSUs. How much or profit is ‘decent’ and how much is to be considered ‘profiteering’? Any B-school would teach that profit is all about maximization at every opportunity. Even in the background of a patriotic national sense connected with indigenisation of weapons and systems, profits allow the industries to grow and diversify multi-dimensionally. Ultimately, this becomes a national asset since the industry in involved in achieving self-reliance of defense equipment. In the absence of profits realized through repetitive sales, the industry would turn unsustainable. This appears to be the present state of MSMEs engaged in defense indigenisation. Only those who have an alternative revenue stream in a different domain are able to sustain their business even though the A&D sector is a drain on the other stream.

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.

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.

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

Time to lift MSMEs from ‘garage-type’ operations in defence

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Medium, small and micro enterprises (MSMEs) in the defence and aerospace sector can be ‘game changers’ by contributing their bit to the Prime Minister’s ‘Make in India’ call, but fear they may end up in ‘garage-type operations’ if the required support is not extended.With modern technology in their hands and an instant connect with global trends, what MSMEs need most is credit support and hand-holding by bigger players in the sector.

“There are immense capabilities in MSMEs in aerospace and defence, but they are restricted to being vendors for low value-added services”.

One way to tap into the huge talent pool could be to have special classification of “defence MSMEs’, with special funding and support mechanisms, such as exclusive clusters tied to bigger players in the sector, such as PSUs and the Tata’s.

What has raised hopes among MSMEs in the sector is the ₹100-crore technology fund announced by Prime Minister Narendra Modi. The feeling we get is that a part of this fund will be apportioned to critical projects that involve technology, indigenisation. Also, about a 75 per cent grant for design development… if that happens, it will be great news.

“If India is serious about being self-reliant in defence production, it needs to nurture and offer an enabling ecosystem to MSMEs,” unless this is done, India may have to face “crippling effects’ of over-reliance on imports, which often leads to buying outdated foreign technology.

“In the so-called technology transfers that happen, they only give drawings, no design. And most often, the technology that is given is outdated, at least two generations down, and they make a couple of billion dollars,”

India needs to develop technology on its own. It has the expertise and knowledge, all it needs is mapping of MSMEs in the defence sector and offer credit support.

Armouring India: Indigenisation of India’s Defence needs

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A look at the feasibility of complete indigenisation of India’s defence needs

India is the largest importer of defence equipment in the world. It is therefore evident that the domestic industry is not being optimally utilized to meet the country’s defence requirement. Currently, the domestic defence production is met by 41 factories of the Ordnance Factory Board (OFB) and nine Defence Public Sector undertakings (DPSUs) under Department of Defence Production with various units across the country. In addition to this 194 industrial licenses have been issued to 121 private sector companies.

The buzzword today is indigenisation but this is more a fashionable word than work-in-progress. While we jump on to the bandwagon of indigenisation let us truly understand the concept. Indigenisation starts with identifying critical equipment and systems that are being imported”, and then to either reverse engineer these products or design them from scratch using our own knowledge and expertise.

Over the last five decades, the Indian Government has been pursuing the acquisition of new technologies as part of manufacturing licenses from foreign companies. While this has resulted in valuable exposure to the manufacture of state-of-the-art products, as in the case of the Mig-21 and Su-30, Transfer of Technologies (ToTs) have rarely included design technologies of the manufactured product. What is transferred is only the manufacturing technology. It is therefore up to the Indian partner to either reverse engineer or decipher the technology behind the design in order to lead to future indigenous designs.

Technology to manufacture is distinctly different from the technology involved in design. Manufacturing of various parts and systems involves mechanical fabrication and machining, assembly of electronic modules and equipment, testing and qualifying to rigid and stringent quality standards. Very few industries in the private sector have exposures to such specialised standards and processes as are applicable in defence equipment. Hence, the need of the hour is to attract more private sector enterprises, more particularly the MSMEs, to this field.
With the competitive growth of the Indian MSME environment, many of whom have highly sophisticated machineries and equipment, and possess specialised expertise in their own small areas of operation, there are many examples of truly outstanding firms who are now manufacturing industrial parts and equipment not only for Indian consumption, but also exporting them to prestigious companies globally.

The technical competence of Indian MSMEs is therefore no longer under question. What is required is a nurturing environment of trust and support going much beyond the token recognition by way of annual awards by the government or trade and commerce bodies.

Tweet this: “MSMEs need only to be empowered with the right kind of exposure and training to raise their capabilities to the demanding and specialised needs of the defence industry”.

Such MSMEs will then graduate over time to developing their own products and processes that would contribute to the creation of a large matrix forming the supply chain for indigenous integrators such as the Jaguar aircraft. PSUs or even the large private sector organisations in the years to come.

The question of value arising from foreign collaborations and ‘manufacturing under license’ can be answered in comparison to the automobile sector in India. The entry of Suzuki and Honda into the country for license manufacture of their vehicles in a collaborative venture with Indian private companies, introduced not only the Indian consumer to high quality, state-of-the-art, re-liable and trouble-free vehicles, but also to modem manufacturing methods, machineries, human skills and management systems. The Indian private sector companies have proven their mettle in absorbing not only the manufacturing technology but also in developing their own design skills.Thus, resulting in their ability to leap-frog and compete by themselves in the global market. Indirectly, this has also spurred the establishment of a supply chain of ancillaries and parts manufacturers of global standards. Thanks to this, a healthy ecosystem of the indigenous automobile industry is firmly in place. This is what needs to be replicated in the defence sector too.India is, and will continue to be, an attractive market for defence related sales for foreign manufacturers.

However, it is certain that no other country would be willing to transfer critical, cutting edge technology to India, with the risk of losing their de-fence superiority as well as financial returns. The solution clearly lies in factoring in all these aspects, and pooling of all resources and the best minds in the military, the public sector, the private sector, the academia and R&D organisations across the country in a strategically planned and executed partnership. The political leadership only needs to set the rules of the game and a level playing field in a transparent system.

Tweet this: “Innovation and indigenisation are literally two sides of the same coin. Innovation is triggered automatically when one is forced into a corner”.

This was amply proved by both DRDO and ISRO in the manner they overcame sanctions and denials of technology and critical parts for their projects. This should give us the confidence that the same can be replicated in other de-fence and aerospace projects.
The MoD, Government of India, should act as a facilitator and enabler in such a way that it stimulates innovation in both design and manufacture of defence related products. In fact, the establishment of a separate category of “Defence MSME” through a qualification and evaluation process would by itself lead to their entitlement to financial grants, tax rebates and lower lending rates for private players successfully developing indigenous defence projects.

This calls for innovative methods of identifying prospective enterprises, evaluation of their skills as well as growth capabilities, special and exclusive funding schemes, training programmes and other support for rapid growth of such enterprises. In short, such companies need to be nurtured in the interest of the country quickly achieving self-reliance.

Tweet this: “Indigenisation and self-reliance in defence technology is no cakewalk and requires dedicated scientists, technocrats and entrepreneurs”.

The user agencies and armed forces need to appreciate this and lend a very supportive hand even when either the performance is slightly below target or delays are encountered.After all, no organisation takes any pride in failures and would certainly like to take up the challenge to improve further and cross the ‘finishing line’. As India has demonstrated in the automobile sector and space technology, Indian defence industry can not only increase the scale of its operation to cater to the domestic requirement but also export to the global market. The export of the ALH Dhruv helicopters, though limited in number, proves this capability.

The new Government headed by a down-to-earth and highly progressive Prime Minister, Narendra Modi, has shown signs of a few bold initiatives, that have set a clear direction towards massive indigenisation of defence procurements in the years to come. Public-private partnerships should be the best way for-ward to reach a win-win situation for everyone concerned. This will pave the way for the best talent to be attracted towards this industry consequently leading to industry meeting most of the needs of our defence forces.

Indigenisation – the only way forward

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The success of the indigenously developed Mars Orbiter Mission of ISRO has taken everyone by surprise, more so because it was achieved at a tenth of the cost of similar projects abroad. The fact that India is the only country to have achieved success in its maiden attempt at Mars, makes this even more creditable. Do these facts not provide enough proof of the technical competence of our engineers and scientists? If one concedes this fact, it is evident that we also have the capability to design and produce our own state of the art military equipment and aircraft.

“While a problem in a space program only causes a disappointing delay, the same in the defence sector could become a critical factor in the security of the country”.

A commonly attributed reason to the low cost of the Mars mission is that Indian manpower is far less expensive than in many other countries. However, a lesser known fact contributing to the success is that many sub-assemblies and parts were outsourced to private companies, including MSMEs. This resulted in a synergy that saved time, money and effort.

However, the difference between space projects and defence equipment is that the latter are strategic and crucial. Any problem in the smallest part – either lack of supply or problem in performance, becomes critical. While a problem in a space program only causes a disappointing delay, the same in the defence sector could become a critical factor in the security of the country. This is why indigenisation forms the core of establishing a strong and reliable military capability to counter any threat.

What is indigenisation? The capability to design, develop and manufacture equipment within the country, using our own skills and resources, constitutes indigenisation. The capability to maintain and repair these, as well as equipment sourced from abroad, makes us self-reliant. Not depending on foreign suppliers for anything, makes us self-sufficient.

Since we attained independence, we have depended on foreign suppliers for our defence requirements. Irrespective of West or East, we have suffered due to supplier pressures – denial of spares for political reasons, high cost of spares, delays and lack of transparency in technology transfer, etc. By not taking proactive steps toward indigenisation in the early years, by constantly ignoring the warning signs of equipment repeatedly failing over many years, we have reached an alarming situation today where the armed forces are left with obsolete and failure-prone equipment.

“By not taking proactive steps toward indigenisation in the early years, by constantly ignoring the warning signs of equipment repeatedly failing over many years, we have reached an alarming situation today where the armed forces are left with obsolete and failure-prone equipment”.

A combination of factors is responsible for this situation – the manufacturer (the PSUs in this case) developed aircraft, battle tanks, etc. with the limited technology at their disposal. However, the armed forces had a mistaken perception that ‘only the best with the latest technology’ would be good enough to effectively thwart the enemy (in spite of the lowly Gnat fighter aircraft comprehensively defeating the so-called ‘superior’ Sabre jets and Star fighter in the 1965 and 1971 wars). They were unwilling to accept the indigenously developed products. This in turn led to a stand-off and ultimately a de-motivation of the industry.

On the other hand, the industry too, did not put in sufficient efforts to assimilate technology from licensed projects and leap-frog to the contemporary state of the art. For example, the MiG-21 aircraft, that was manufactured under license from the USSR since the mid-60 did not lead to either sufficient transfer or assimilation of technology of its systems and sub-systems. HAL continued to import and use a large number of sub-systems and parts over decades without any efforts at indigenisation or reverse-engineering. In another case, significant disruptions were caused in the maintenance of the AN-32 aircraft due to the break-up of the Soviet Union. This could have been avoided if indigenisation of the majority of parts, sub-systems and equipment of these aircraft were initiated simultaneously with the induction of the aircraft into the air force. Such indigenisation efforts would also ensure a sizeable quantum of business to the local industry over the entire life-cycle of the aircraft and ensure timely support especially at the end of life.

The PSUs and armed services are still sending many equipment and their sub-systems to the OEMs abroad for repairs, incurring huge cost in foreign exchange. A viable alternative would be to encourage qualified MSMEs to undertake such repairs. This would provide an opportunity to the Indian industry to familiarize itself with the technology as well as find innovative, cost-effective and indigenous solutions. Radel Advanced Technology, Bangalore, has already demonstrated the feasibility of this model by repairing some of the electronic modules used on the Jaguar aircraft. The process of undertaking repairs also provides a very effective stepping stone for indigenous design and development of products.

“…lack of clarity in the rules and implementation of offset guidelines have been impediments in the successful establishment of offset partnerships”.

The Kelkar Committee on review of Defence Procurement Procedure has recommended an integrated approach involving Users, Ministry of Defence and the Industry. The Committee recommended that DRDO should concentrate on projects requiring sophisticated technology of strategic, complex and security-sensitive nature. However, R&D for high technology that is not security-sensitive, should be outsourced to private sector with shared cost. Further, a minimum order quantity is also recommended, to sustain the financial viability of the development effort.

The defense offsets policy of the GoI, where a foreign vendor has to mandatorily procure 30% of his order value from Indian sources, is expected to provide an opportunity for indigenization of parts and assemblies. However, lack of clarity in the rules and implementation of offset guidelines have been impediments in the successful establishment of offset partnerships. The Government needs to act quickly to address this issue.

Combinations of all these measures are required for the successful implementation of indigenization programmes across the defense sector, which are well within the reach of Indian industry.

The original article appeared on IndianDefenceReview