The Private Sector and Defence Production
-Baidya Bikash Basu, Researcher, IDSA
After independence, it was expected that a major portion of the country's industrial capacity would be reserved for the public sector. This was to encompass wholly the production of arms within the country. Defence production has been an essential element of defence policy in which the Government of India exercised both technical and political control over decisions. The Planning Memorandum (PM) of 1945 and the Industrial Policy Resolution (IPR) of 1948 and 1956 placed the munitions, aircraft and ship-building industries in the public sector under the control of the central government. In India, the justification for this type of investment arose because of the external security environment and the Congress government's often repeated policy of establishing a socialist pattern of society.1 Furthermore, the private sector had no capability to invest in defence production. It also lacked expertise. Instead, according to government policy, it was to be content largely with the production of components and spare parts of weapon systems.
At that time the private sector was mostly in trading, in small industries and in quick estimation projects. The private sector was not keen on large, long gestation-cum-fluctuating defence projects. Also, ambiguity and lack of clear policy existed in the Ministry of Defence (MOD) till 1965. The MOD failed to tap the civilian market for the supply of components and spares. The creation of a Department of Defence Supplies in the MOD in 1965 was to promote self-reliance in the supply of a wide variety of stores and systems for the armed forces.2
The engineering and manufacturing capabilities of the private sector during the crucial formative period were of high quality, meeting the complex and rigid engineering specifications demanded by the MOD. Worth mentioning here are the names of some of the leading industrial houses, such as Tatas, Birlas, Walchands and Thapars.3
The private sector's subordinate role has also been due to ideological and social reasons. There was a widespread feeling that it was improper for the Ministry of Defence to go in for collaboration with the private sector. Parliament did not permit any move in this direction. Secondly, in the area of defence production, profit making by private individuals in times of peace and war was considered undesirable.4
A number of factors have combined to cause some rethinking on the role of the Ordnance Factories (OFs)/Defence Public Sector Units (DPSUs) as well as the private sector. The economic and psychological effect of the crisis of 1991 desperately needed a structural change to revive the stagnant economy, a view that has been gaining ground in policy-making circles over the previous decade. The New Industrial Policy (NIP) of July 24, 1991, and the document on Economic Reforms of July 1993 stressed technological development and building of manufacturing capacities in areas which are crucial for the long-term development of the economy and where private sector investment is inadequate. The major objectives of the NIP '91 are as follows:
* to consolidate the strengths built up during the last four decades of economic planning and to build on the gains already made;
* to correct the distortions or weaknesses that may have crept into the industrial structure as it has developed over the last four decades;
* to maintain sustained growth in productivity and gainful employment; and,
* to attain international competitiveness.
The basic philosophy of the new policy has been summed up as "continuity with change."5
In pursuit of the above objectives, the government took a number of steps to dismantle the outdated control structure;
(i) Industrial licensing was abolished for all except a select list of hazardous and environmentally sensitive industries.
(ii) The separate permission needed by Monopolies and Restrictive Trade Practices (MRTP) houses for investment and expansion was abolished.
(iii) The list of industries reserved for the public sector was reduced from 18 to 6.6 In addition, private sector participation was allowed even in industries in the reserved list.
(iv) Access to foreign technology was made much freer.7
One additional factor has been the excess or idle capacity in the defence sector. Thus, it has been reported that 60 per cent of India's defence industries and DPSUs are using 50 per cent of their production capacity and the remaining 40 per cent are running at partial capacity. According to a statement made by the Defence Minister in November 1991: "Machines worth Rs. 40 crore were lying idle in our factories." And that he would have no objection in letting the private sector use these.8
The Defence Minister clarified that he wants..."the defence research 'organisations' to be more financially independent by generating their own funds by selling some of their research developments to the civilian sector. There are a number of new technologies developed by us which can find ready applications in industry. These can be spun off to raise resources" but he added that "only non-sensitive technologies will be allowed to be sold or licensed."9
The Defence Minister himself admitted that privatisation has a long way to go and that the government is actively exploring the prospects of bringing in private investments into this area. "Whatever infrastructure is already there will continue but no new investments will be made."10
Paradoxically, a second factor which may push the greater involvement of the private sector into the defence area is the feeling that military modernisation in India will mean a large acquisitions programme. Over the next ten years or so, the Indian Air Force will need nearly 400 fighter aircraft, the Navy will need nearly 60 warships and submarines (including an aircraft carrier, especially now that Pakistan will rapidly multiply its aerial maritime strike capabilities) and the Army will need nearly 1,500 main battle tanks to replace the 30-year-old Vijayantas and T-55s, besides other equipment.11 While the private sector cannot, obviously, produce these items, they can be encouraged in other areas so that the savings in these areas can allow the government to make purchases in the area of high-tech weaponry. Thus, Air Cmde Jasjig Singh argues:
"The role of private industry will be crucial to the success of self-reliance in defence. The private industry has always played a key role in the defence industry sector. During the early decades, the bulk of national industry was in the small scale sector and it was this sector that played an important role as sub-contractors and ancillary industry. The national industrial base has expanded into major areas of manufacture. It is, therefore, logical that the private sector should also step into the defence industry field in a larger way. The government will need to be more transparent in the matter to guide the expansion of the private sector into defence industrial activities. The defence forces now spend nearly Rs. 7,000 crores on equipment acquisition as part of the capital expenditure, besides another Rs. 8,000 crores per year on stores, including spare parts. This is obviously a significant market although the size of the individual item required may be small. There is clearly a role for the private sector which is essential to the success of the government's self-reliance initiative."12
The Role of the Private Sector in Defence Production
Private sector participation in defence production is seen by some as vital in order to make defence production more efficient and productive. Some see its participation as restricted to non-lethal equipment and materials. Others adopt a more gradualist view which sees increasing involvement of the private sector in the core areas as private industry matures.
The doyen of Indian strategic thinkers, syndicated columnist and former Director of the Institute for Defence Studies and Analyses (IDSA), K. Subrahmanyam, feels that:
"...the private sector's participation in this area of defence production would require huge investments on its part. Defence production has a long gestation period and certainly it will not bring in high demands. There is no continuous steady demand for defence products, especially armaments and weapons, unless the country is a super power or wants to export like South Africa, Brazil and Israel to sustain the defence industry. Continuous production runs, precision and profitability are the keys to success in this activity."13
Subrahmanyam is emphatic:
"In today's India the private sector is not producing any lethal equipment, but there are more than a lakh of small arms, especially AK-47s, AK-56s, AK-74s in the country. If the private sector comes into this area, it will add to the problem and the result will be weaponisation of society."14
He suggests that
"...the private sector should invest in R&D and it should acquire the R&D culture. There is a vast scope for civilian technology for defence production. The private sector should try to integrate the defence and civilian R&D, especially in the non-sensitive areas, like vehicles (common user vehicles--jeeps, jongas, Nissans, 1.5 tonner to 7.5 tonner Shaktimans heavy duty vehicles which are categorised as 'B' vehicles by the Army); engineering systems engines, batteries, power generators, textiles and clothing; simulator, medical and life saving equipment; metal, chemical and non-metal material; communication and software systems; security systems."15
According to Subrahmanyam:
"Licensed production does not encourage exports. Original producers are favoured. Indian foreign policy does not favour India to be a regular 'merchant of death' as is the case with other developed countries, having a flourishing defence industry."16
Air Cmde Jasjit Singh (Retd), Director, IDSA, sees an increasing role of the private sector in defence production:
"As the economy grows, there will be increasing industrialisation. The private sector's involvement is inevitable. At the very outset, the private sector should address the question of investment in defence production in a large scale manner or in a small scale manner. Worldwide production run in the defence industrial sector is getting thinner and government involvement has increased. Government's responsibility to control defence equipment production is on the increase both in the manufacturing process and selling process. Private sector's participation in defence production in the non-lethal area is a key factor. It should concentrate on components and sub-systems manufacturing and where there exists commonality with the civilian technology and defence technology, the private sector should be more responsive to get the best results. Industrial cities like Bangalore and Pune have private sectors contributing to defence equipment production which in turns has led to the economic growth of these two cities."17
Jasjit Singh reinforces the normative point made by K. Subrahmanyam:
"India cannot become a 'merchant of death' by exporting armaments and weapons like other developed countries. The government policies are realistic enough..."18
Defence analyst Rahul Roy-Chaudhury of the IDSA strikes a similar note in analysing the role of the private sector:
"A fundamental change has taken place and private sector participation is no longer just an option; it is necessary, as the traditional defence production industries like OFs/DPSUs are being forced to concentrate their activities in certain areas of production and leaving the rest to the private sector. The decrease of financial outlay in defence is the main reason. The OFs and DPSUs cannot produce many items and they should not because they can be bought from the civil sector. It will benefit the civil sector."19
Roy-Chaudhury firmly supports the views expressed by Subrahmanyam and Jasjit Singh. He suggests that
"...the greater involvement of the private sector should be in the non-lethal area. There should be clear-cut policy guidelines for the private sector to produce certain items as also for the OFs/DPSUs. This will help in sorting out 'confusion' and 'indifference' on the part of the private sector and the OFs/DPSUs."20
Gp Capt Pravir Das (Retd), Senior Advisor of the Confederation of Indian Industry (CII) coordinating the privatisation drive is of the view that
"...private sector participation is of key importance in defence production as the Indian industry can manufacture military hardware and spares. The armed forces are very keen for private sector involvement to reduce dependence on foreign purchases and on the OFs/DPSUs which operate at less than 50 per cent of their capacity. Integration of the private sector with the OFs and DPSUs in building a knowledge-based R&D will boost modernisation. It will be an added impetus. However, a lot depends on the government. Nothing has changed in a significant way after liberalisation. The Ministry of Defence is still looking for 'bits and pieces' towards the private sector."21
Gp Capt Das believes that private sector involvement can go much further, even into lethal equipment:
"Indian industry is well-equipped to compete with the foreign companies. The possibility of setting up joint ventures can be in the dual use technology area, due to the liberalisation policy where the government will be the major controller or regulator. The huge requirements of the armed forces can be met by the private sector only if there is no restraint from the government's side. Opening up defence production in all areas (lethal and non-lethal) will be the first step to exploit Indian industry in the dynamic environment of today."22
A conscious effort has been made by the Ministry of Defence for greater private involvement in defence production since 1988:
"The policy of the government now is to use the infrastructure and capability available in the civil sector to manufacture defence items excluding lethal and sensitive equipment. Components, systems and sub-systems for military hardware are being produced by the private sector. These include hydraulic shock absorbers, tracks, traversing mechanisms, piston assemblies, power supply systems and road wheels for the Infantry Combat Vehicles (ICVs). Fuel injectors, water pumps and electrical equipment for the automatic loading system of the T-72 Main Battle Tank (MBT)."23
In addition, the private sector is supplying sophisticated batteries for the Kilo class submarines. Standard Batteries of Bombay is the pioneer in this area, contributing towards self-reliance and import substitution. Initially, it produced indigenous batteries for the Foxtrot class submarines.24
Cmdr B.C. Chatterjee (Retd) makes a point:
"Indian private sector companies manufacture components and sub-systems. They are not allowed to produce lethal equipment. Probably, the government fully cannot trust the private sector to produce lethal equipment. However, as the Indian private sector companies have progressed a lot into the hi-tech areas of design and development, it is considered necessary in the interest of the country to off-load a selected part to the selected industries. To begin with, this may be a trial order which will help in establishing and expanding the Defence Technological Industrial Base (DTIB)."25
Defence equipment production is a complex process and is of national importance. A very senior Indian Army official points out: "The government should allow increasing participation by the private sector in the area of defence production. In this way, it would command the respect of the Indian industry. The private sector must note the peculiar things in defence production:
"Very stringent specifications;
Very high quality and precision;
High degree of assurance;
Non-economical in nature.
"Clearly the private sector should address the question of quality and keep its profit percentage low, as in the defence area the government is the buyer. The internal situation in the country and repeated espionage activities do not favour participation by the private sector in lethal armaments production. However, a beginning has been made and for the private sector in defence equipment production, the sky is the limit. In some areas, their performance is more than satisfying like transport, electronics and electrical components, communication materials, textiles and clothing, software, metal and non-metal components, mechanical and machinery components. The private sector have the state-of-the-art technology and are keen on gaining access to the new field of defence technology. However, the private sector treat defence orders as an addition to their turnover. This is the reason the armed forces find it difficult to switch over to the private sector even in areas where they have sizeable capacities."26
Another very senior Indian Army official notes:
"Private sector and defence, i.e., Indian armed forces, must understand each other's language to negotiate and to deal. The armed forces should reach out to industries to meet their requirements by involving them in developing a sound and strategic partnership, providing information and guidance, raw materials, drawings, designs, land and funds well in time. The industry then should adequately provide performing equipment made to industrial standards, fit to operate in extremes of temperature, humidity, shock and vibration. Here, the industry should ensure the desired performance--a mandatory requirement by the armed forces, i.e., the users. This approval will undoubtedly make the industry more responsive in providing defence equipment based on detailed specifications and state-of-the-art engineering and technological standards."27
The impression one gets is that the private sector's involvement in the non-lethal equipment production is welcome. Establishing credibility on quality, meeting supply schedules depending upon factors such as state-of-the-art technology, infrastructure, manpower and efficient marketing, the private sector can build up its capability in producing non-lethal defence equipment. To me, involvement of the private sector in non-lethal defence equipment production is vital. For security reasons, the government is not permitting the private sector to produce lethal defence equipment. No doubt, it is a sensible policy. It is a fact that the 39 OFs and 8 DPSUs together have contributed significantly in developing a fairly strong and sound DTIB. Indian defence industry is well established, surviving on domestic defence orders. Clearly, the private sector can play a leading role in collaborative ventures, especially in R&D, developing advanced technology which will benefit the nation's armed forces and civilians as well.
The Private Sector and Defence: The Outlines of Partnership
The growing interest in the private sector's participation in defence is indicated by recent events. In 1994 and 1995, the armed forces and industry collaborated in putting up an exhibition-cum-seminar on defence partnership. The CII and the Indian Army geared up to launch a strategic partnership aimed not only at sorting out hardware, but also cutting down imports of defence equipment to the extent possible. The CII represents most of the major private companies and is an influential organisation in India. The Indian Army and CII organised their strategic partnership meeting, a two-day seminar-cum-exhibition termed "Army Industry Partnership" or AIP'95 on September 14-15, 1995, in New Delhi. Earlier the CII and Indian Air Force jointly organised an exposition-cum-seminar on indigenisation of the Air Forceó"INDAIR'94 was held in New Delhi from November 15-16, 1994.
The CII has proposed a "Corpus Fund" for indigenisation projects, from where an entrepreneur could avail of an interest free loan to initiate trial development of the products. The entrepreneur at a later date could contribute a percentage of the income earned from this indigenisation effort to the said fund.28 The indigenisation effort would be a joint venture initiative between service headquarters and the prospective entrepreneurs, involving a consortium of entrepreneurs, private and public sector units, and the end user committed to cooperate and collaborate in such ventures.29
To achieve a more meaningful involvement of the civil sector in defence production, a two tier mechanism was created in 1985. This comprises an Apex Body chaired by the Secretary (Defence Production and Supplies) and three discipline-wise functional groups chaired by the Joint Secretary (Supplies). The private sector is represented on the Apex Body and the functional groups through nominated representatives of major federations and associations of industry. This body has proved very useful for mutual appreciation of each other's problems. To the extent possible, an indication is given to industry of specific areas in which the private sector can play a constructive role.30
Two other efforts of the Government of India in the 1980s to encourage private sector participation in defence production clearly deserve mention here. The first is the defence exhibition named DEFEX'88 at Khadki in Pune, where the private sector responded overwhelmingly. The exhibition reflected the extent and strength of the civil industrial base in India. The second is the deliberate decision taken by the Government of India to shed the manufacture of hundreds of low technology items to the private sector and for their procurement ex-trade. The 1980s was an era of resource constraints. This single measure at one stroke gave a tremendous boost to private sector participation.31
The need, therefore, is to find out whether industry in India is capable of producing high grade components and sub-systems required by the Indian armed forces in general. The production of these materials and components will reduce the dependence on foreign producers and will boost the indigenisation process. The process of indigenisation means the ability to produce locally items that are usually imported. The process of indigenisation is not just the process of "reverse engineering," i.e., the copying of a foreign product. Reverse engineering does help to get design specifications right; but only when these design specifications are improved upon is the product truly indigenised. It is essential to have the necessary infrastructure for this. Infrastructure refers to technology both in terms of design and production capacity along with raw materials and trained manpower. Indigenisation is easier if standardisation of components and material is carried out beforehand. This will result in manufacture of components which can be used on a variety of equipment. Standardisation will necessarily result in economy of efforts and easy availability of spares.
In the indigenisation process, 10 technical committees in the Department of Defence Production have been set up. The role of these 10 committees is to identify the scope of indigenisation for aircraft items, armament items, electronic items, engineering items, marine items, medical items, general items of stores, vehicles, infantry-combat vehicles and for vehicles produced by the Vehicle Factory, Jabalpur. As of December 31, 1995, these 10 committees have developed indigenously and placed orders for a total of 93,620 items and the estimated production cost of these items will be about Rs. 3,600 crore. In addition to these 10 committees, eight empowered committees have also been set up for doing more indigenisation. For armament stores, there is a committee which has identified 2,761 items for indigenisation. Similarly, an empowered committee for Army vehicles and engineering stores has identified 415 sub-assemblies for indigenisation. The third committee is for electronic stores for the Army which has identified 22 items for indigenisation. For the Navy, there is another empowered committee which has identified 55 major assembly items and 250 other assembly items for indigenisation. The fifth empowered committee on air defence equipment has identified 1,470 items for local development. The next committee is for aircraft items. In this committee, 33,281 items have been identified for indigenisation by the Air Force and Navy. The seventh empowered committee is for indigenising flying clothing and lubricating oils for the Air Force. Twelve items of flying clothing and 49 type of lubricating oils have been identified by this committee for indigenisation. The empowered committee for indigenisation of the 155 mm Howitzer "gun" has identified 3,105 items. In terms of value of the above items, a whopping 67 per cent comes from the private sector which amounts to Rs. 2,412 crore.32
Dr A.P.J. Abdul Kalam (Scientific Advisor to the Raksha Mantri) envisages a period of ten years to achieve an acceptable degree of self-reliance in defence supplies, by increasing the indigenous content from 30 per cent to possibly 70 per cent by the year 2006. The next step will be to minimise the import of major systems by inducting indigenously developed and manufactured systems in a progressive way. The private sector and the public sector both need to invest in R&D. This will reduce one-third of the time and about 30 per cent of the cost. Dr Kalam adds that the support cost is approximately three times the original cost of equipment.33
Areas where the private sector can participate and where indigenisation is feasible are indicated below in a broad way:
A. Chemical and Non-Metal Materials
2. Rubber and plastic
3. New non-metal materials
1. Iron and steel works
2. Basic metal industry
4. Machinery and mechanical components
C. Electrical Material
2. Power generator units
3. Electric cables
4. Electric engines
D. Textiles Clothing and General Utilities
E. Software and Systems Engineering
2. Electronic components
5. Security systems and radars
The private sector companies have already contributed to some areas of the country's defence enterprise. In the missile programme, for instance, Prithvi is the final product of 42 companies, and 15 of these are privately owned.35 For Agni, nine private units have helped. The Department of Defence Production and Supplies has enlisted 7,000 private sector firms to produce 3,500 items.36 Private sector companies like Tata and Ashok Leyland in the transport sector in the heavy-duty vehicles sector (1 tonner to 6.5 tonner graded as B Vehicles), as per Controllerate of Quality Assurance (CQA) standards, Mahindra and Mahindra in the light commercial vehicles sector with their multi-utility tough jeeps, Royal Enfield Motors with their flagship standard Bullet in the two wheeler sector have been enduring brands. Greaves has been the source of mechanical and electrical power engines, hydraulic equipment and accumulators.
Asia's first aero-type manufacturer to be awarded the ISO 9001 quality certification, Dunlop, manufactures tyres for IAF planes. Its other products are tubes and flaps of various sizes. Larsen & Toubro has entered the defence field. Perhaps the best example has been its high performance technology in hydraulic and electric drives. The Missile Carrier Launcher (MICA) for the anti-tank Nag missiles, the Multi-Barrel Rocket Launcher (MBRL) for Pinaka rockets, and the Trishul Air Defence Missile Launcher show the capabilities of Larsen & Toubro in system conceptualisation, detailed engineering, manufacture and system integration. Larsen & Toubro also manufactures engineering equipment and spares for the Caterpillar and heavy fabricated machine components including grey iron castings. Godrej and Boyce's product is alloy steel castings. Kirloskar Cummins produces fuel systems, hydraulic coupling and fuel filters. Kirloskar manufactures cylinder liners, grey cast iron alloy steel, and non-ferrous castings in machined and non-machined conditions. Kirloskar Oil Engine makes thin-walled bearings and bushes.
Hindustan Motor's sturdy Ambassador has successfully carved a niche in the defence and civilian sectors. Its other products are hydraulic systems and sub-systems for heavy vehicles and major structures of hull and turret produced in the earth moving equipment division. Bharat Forge manufactures forged components such as crank shafts, connecting rods, axle beams and tubes. Escorts provides shock absorbers, pistons and gear boxes. Austin Engineering makes ball rollers, taper rollers and roller bearings. Fenner India manufactures fan belts, oil seals, '0' rings, shock absorber seals and suspension bushes. Finolex Cables manufactures auto-cables. The all-terrain bicycle bears the name of the company, Atlas.37
In the electronics sector, Larsen & Toubro's products are: oscilloscopes, recorders, signal conditions, logic analysers plus ACC ultrasonic flow detectors, function generators, electronic trivector meters, electro surgery units, ultrasound equipment, patient monitoring system and ECG equipment. Greaves Semi-conductors manufactures semi-conductor devices such as zener diodes, switching diodes, small signal transistors and power transistors. Kirloskar Electric manufactures power equipment, control equipment, panel transformers, tank-electronic assemblies and sub-assemblies. Advani Oerlikon manufactures DC thyrister converters (0.5 HP to 500 HP), high voltage rectifiers (125 KV peak to 1,800 MA), high current rectifiers (50 to 10,000 A, 0-400 V), DC motors, generators taco-generators, amplidyne and high frequency converters. Crompton Greaves makes lithium sulphur dioxide cells and batteries of all types. Amco Batteries manufactures battery secondary lead acid, both M.T. and W.T. types of various ratings. Keltron Crystals specialises in quartz crystals in the frequency range 1 mhz to 125 mhz. Ericsson India Pvt. Ltd. manufactures 15 line SWBDs, bayonet coupler line cables, black boxes and coaxial junction boxes. The products of GEC Alsthoms are: programmable synthesised signal generators, RF power meters, microwave frequency counters, digital transmission analysers, radio communication test sets and wide band watt meters. Optel Telecommunications produces advance Ruggedised Fibre Optic (RFO) cables which are lightweight and flexible, suitable for long distance transmission under rugged field conditions. The Himachal Futuristic Communications (HFCL) group manufactures microwave radios, pair gain systems, optical line termination equipment and telephones.38 That is not all: Honey Well Defence (HDIL) is the only company to indigenise extended cold weather clothing systems, portable breathing equipment, cold water immersion protection, lightweight wet weather protection, fire fighting protection, chemical and biological warfare protection.39
In the Aero India '96 (the international air show organised by the Department of Defence Production and Supplies, Ministry of Defence), several Indian companies have benefitted from participating in it. This new focus will encourage them to actually develop innovative R&D which will reduce the reliance on imports. Kumaran Industries manufactures high-precision machines for India's LCA and its Kaveri engine and the space programme. High Energy Batteries has indigenously developed fibre technology nickel cadmium batteries which perform much better than the conventional nickel cadmium ones. The company supplies batteries for the Mirage-2000, Jaguar, Sea Harrier, Ilyushin 76 and helicopters. Notably the development of wing and tail navigation lamps for the Mig-21, landing lights for the Sea Harrier and LCA by J.S. Lamps has proved itself to offer its best to defence production.40
Many private sector industries are involved in the Integrated Electronic Warfare Programme. The Defence Research and Development Organisation (DRDO) laboratories and the private sector have undertaken R&D activity.41 This will reduce the import content of electronic systems. Technology is crucial to the country's weapon modernisation. The MOD can locate advanced technologies particularly "dual-use" technology in the private sector and it can even collaborate and exchange ideas as the Pentagon in the US is doing using the Internet sites.42 This "communication through technology" right from the R&D stage to final production needs planned adjustments and highly skilled personnel which happily our country has.
A more summarised view of what the private sector is producing for defence can be obtained from the following figures. Thus, in the vehicles discipline, the total number of products is 696 and of the registered firms 2,698.43 In the electronic discipline, the registered firms are 226.44 The total number of products in the general stores amounts to 19,398.45 Ideally, it would have been useful to indicate the total turnover of the private sector in defence, but these figures were not made available. However, as noted earlier, the extent of indigenisation in the private sector envisaged under the 10 technical committees amounts to Rs. 2,412 crore and 93,620 items.46 This gives us a better picture of the scale of private involvement in defence production and certainly it suggests a much larger role than perhaps most people are aware of.
Procedures, Problems and Prospects
If the partnership between the Ministry of Defence, the armed forces and the private sector is to move forward, the business world must understand the way the forces come up with their operational requirements. The forces take into account threat perceptions, research and development levels, indigenous design appellation and in-service experience of existing equipment systems. The services staff state their operational requirements independently.
It would be useful here to review the case of the Army. Long-term policy formulations in the case of the Indian Army are expounded systematically through the General Staff Policy Statement (GSPS).47 The GSPS is issued for the following purposes:
* To serve as a policy guide.
* To guide procurement actions and disposals.
* To guide scientific research and development.
* To guide various in-house agencies in gathering intelligence regarding developments relevant to the policy within and outside the country.
The GSPS is drafted with the assistance of various agencies, namely, the User Directorate, Directorate General of Military Operations, Directorate General of R&D, Directorate General of Military Training, Directorate General of Quality Assurance, Directorate General of Ordnance, Directorate General of Electrical and Mechanical Engineering and production agencies. The approving authority of the GSPS is the General Staff Equipment Policy Committee (GSEPC). The contents of the GSPS are broadly as given below:
A. Background leading to the aim of the statement generally includes:
1. Brief outline of the existing policy, reasons for a new policy.
2. Reasons for change, for new operational and tactical concepts, development in technology, any in-service shortcoming with the existing equipment systems, etc.
B. General policy, exhaustive operational and tactical concepts to have a role in the future:
1. Special requirements dictated by terrain and climatic conditions.
2. Electronic counter measures and electronic counter-counter measures.
3. Concealment and disguise.
5. Reliability and maintainability.
7. Development effort and available time-frame.
8. Development and production cost.
9. Use of commercial designs.
10. Repair concepts.
13. Life expectancy.
14. Any other major constraints.
C. Long-term policy: R&D, possibility of indigenisation, content, financial resources.
D. Qualitative requirements for a particular equipment to accelerate the R&D process to meet the critical requirements.
The GSPS, it should be noted, is generally revised and reviewed at least once in five years.
The long road to product approval demands strict attention to the users' recommendations. Combat concepts, technological developments and user trials are the main basis for formulating General Staff Qualitative Requirements (GSQR) by the User Directorate. Once again, the various agencies, namely, Directorate General of Military Operations, Directorate General of R&D, Directorate of Quality Assurance, Directorate General of Ordnance, Directorate General of Electrical and Mechanical Engineering of the Navy and the Air Force (if commonality exists) are involved.
The broad contents of GSQR are:
1. Likely deployment of the weapon system.
2. Physical, technical, functional characteristics.
3. Number of prototypes required for trials.
4. Probable time-frame.
5. Initial and recurring requirement.
6. Reliability and maintainability parameters, for instance, standardisation. i.e., maximum testing at various stages by the users gives the user better satisfaction in all types of environment.48
The exhaustive GSQR is forwarded through the Directorate of Weapons and Equipment for approval by the GSEPC. The GSQR is now clear and crisp, ready to be released to R&D to explore the possibility and develop competence ensuring efficiency and reliability, thus keeping exhorbitant costs significantly under control. In a similar manner, Air Staff Qualitative Requirements (ASQR) and Naval Staff Qualitative Requirements (NSQR) are formulated by the User Directorate.
Obviously, a very important part of defence procurement is quality of equipment. The selection of competent, quality conscious and committed vendors is a vital step in assuring the quality and reliability of the stores procured for defence use. Vendor Assessment and Vendor Development, Vendor Rating and "Registration of Manufacturers for Defence" are vital.
The Directorate General of Quality Assurance Organisation (DGQA) is responsible for quality assurance of the defence stores produced by Ordnance Factories, Private and Public Sector Undertakings and those items procured through import. Some of its salient functions are:
1. Quality assurance.
2. Indigenisation of imported equipment and spares.
3. Cataloguing, standardisation and preparation of technical documentation.
4. Pre-contract and post-contract services to indentors.
5. Specification control and Authority Holding Sealed Particulars (AHSP).
6. Vendor assessment.49
The DGQA Organisation is a part of the Department of Defence Production and Supplies, and it is structured into the following seven technical disciplines.
4. Engineering Equipment.
5. General Stores.
6. Naval Stores.
7. Warship Projects.
Each Technical Discipline is headed by a Director and is structured as under:
1. Technical Directorate at Headquarters.
2. Technical Committees for Indigenisation.
3. Controllerates/Authorities Holding Sealed Particulars.
4. Quality Assurance Establishments.
5. Proof Establishments (Armaments only)50
The Controllerate/AHSP, besides being the authority for holding sealed particulars in respect of items of the concerned discipline, is also responsible for maintaining quality standards of defence stores through closely monitoring the activities of the Quality Assurance (QA) Establishments. In addition, they provide technical guidance to manufacturers and technical committees for indigenisation of imported stores.
The QA Establishments, located in the major industrial centres in the country, provide QA/acceptance inspection cover in respect of various stores under technical directions and control by the concerned AHSP. DGQA establishments are equipped with laboratories consisting of modern and state-of-the-art test facilities in order to carry out their functions.
Given the changes in economic policy, the growing concern with defence affordability, the growing feeling among experts that private sector involvement can expand, the experience that the private sector already has in producing defence items and the various acquisitions procedures outlined above, what are the prospects for the private sector? In broad terms, there is a recognition that the Indian private sector has the potential. At the same time, the government has a very elaborate decision-making machinery for coordinating production and procurement from the private sector. It exercises strict supervision over manufacture and quality control and also has a say in pricing of defence products.
The seminars in New Delhi in 1994 and 1995 showed that there is an awareness of various weaknesses and shortcomings in the defence production system and in the private sector.
Brig N.K. Arora comments on the major weaknesses of the present system of private sector involvement and production in defence. First, unlike the steel and cement industry, there is no defence industry in the corporate sector and there is no corporate body to coordinate the needs of defence and industry and act as a medium of interaction for both. Second, concentration of authority is in the hands of one agency without adequate responsibility and there is a lack of accountability. Conversely, there is a lack of delegation of authority commensurate to the delegated responsibility and accountability stemming from the ingrained British thought that a subordinate cannot be trusted. Third, there is no proper association between the trade or manufacturing units, PSUs and the Directorate General of Ordnance Factories (DGOF) at the R&D stage and at the stage of field-fitment trials, which is further compounded by the fact that there are too many agencies involved in the gamut of procurement. Fourth, the procedures of procurement are complicated with the concept of government procurement being based on lowest cost. Finally, procedures are very expensive on the time factor.51
Brig Arora has also given the following suggestions towards improving the existing system. First, he feels the government must encourage the corporate world to step forward and take up production of defence needs by simplifying procedures of procurement and payment. Second, a corporate body like the CII may be nominated to be the focal point in coordination of the needs of defence and industry. Third, it may be imperative to accept the procurement rate commensurate with quality and not on "lowest quotation basis", but with ISI specifications wherever they exist finding acceptance in defence, at least for non-lethal stores. Brig Arora is of the view that if this idea is accepted, all that it needs is a two-line government order.52
N. Nigam summarises the problems from the point of view of the private sector as he contemplates greater defence involvement. First, the private sector is not allowed to participate in the armament industry even though the field is wide open to foreign companies and, accordingly, there is hardly any armament industry in the country with design capabilities in this vital sector despite the fact that India boasts of the largest pool of technical, scientific and skilled manpower. Second, purchases from abroad have created jobs overseas and denied multiplier effects in the country's economy while import of equipment being paid for in foreign currency is also leaving its impact on our economy. Third, indigenisation has been limited to substitution of imported spares. Fourth, administrative lead time to finalise an order is excessive and bears no relation to the production time given to industry. Finally, Nigam feels there is an unnecessary and avoidable worry regarding security of information while dealing with Indian companies.53
Nigam proposes various possible solutions between industry, the Ministry of Defence and the armed forces, that is, the users. A time bound programme of suitable directives for induction of weapon systems and equipment of Indian origin, starting with 50 per cent of requirements and going up to 100 per cent in the next 5-10 years, can be set up. Defence equipment can also be shifted to licensed category as against reserved category. Moreover, industry should be involved in armaments, sensors development and production at par with PSUs. Furthermore, the GSQR should be kept within achievable and technologically feasible range with funding and time-frame being mutually agreed upon between the armed forces and industry. Nigam feels that the administrative set up needs to be revamped to facilitate purchases from Indian industry with procedures being reviewed and made user friendly and transparent. Review of internal systems by the armed forces is also necessary to ensure that failure of any Indian system is not penalised more than that of imported systems. Prototypes can be evaluated at the design/mock-up stage and be cleared by the appropriate authority for production. This would reduce the cycle time for realising a weapon system. Finally, there is a need for non-critical OFs to be reviewed with no cost plus order being given to a PSU or an OF unless similar facility is being extended to a private sector company and a realistic, factual cost comparison is done between the competing private sector companies, OFs and DPSUs.54
Maj Gen Pran Nath highlights a number of broad problem areas which the Ministry of Defence, the armed forces and private industry together must attempt to deal with. Maj Gen Nath lists six areas:
1. Commonality of goals.
2. Mutual understanding of strengths and weaknesses.
3. Long-term commitment.
6. Sharing of failures and achievements alike.
First, it is well known that the OFs/DPSUs and the private sector industries have different goals. The former stress national security above all and the latter stress commercial gains. Here, there arises a need for closer interaction and understanding of each other's point of view to arrive at a common goal. Second, in today's scenario, the OFs/DPSUs and the private sector industries only know each other's weaknesses. Their strengths should be exposed and need to be exploited to achieve mutual goals. Third, both should develop a common strategy spanning a long period of time. Defence items' production requires a long gestation period. This strategy then should be reviewed or altered as necessary. Fourth, "confidentiality of any significance resides in the actual employment of the equipment and system in battle and not in its capacities which are known worldwide," argues Maj Gen Pran Nath. Opening up of the system and striking a proper balance in providing essential details of military hardware, software and procedures is urgently required. Fifth, the most demanding factor in defence production is investment. On the whole, the development of modern hi-tech defence equipment constantly requires a very high degree of fundamental and applied research. Initial R&D efforts would also require huge financial support. The potential for joint ventures exists with OFs/DPSUs in the areas of hardware, software and skinware development. There has been a little or no attempt in this direction. Finally, the OFs/DPSUs and the private sector should involve themselves in experimentation and developing defence equipment in the totality of defence requirements. In this venture, where collaboration and cooperation lead to innovation or failures, the OFs and DPSUs should be prepared to accept both.55
The liberalised policy since 1991 has led to competition in all sectors except defence. The possibility is recognised by officials and others but there is little inclination on the part of the government to identify and publicly address the dilemmas. Till date, there is no clear government policy formalising an alliance and strategic partnership between the armed forces and private industry. The strategic partnership, as a whole, could bring large numbers of men and material together to ensure effective management, i.e., development and production, financial stability and competition, risks and benefits to defence.
There is a vast scope for civilian involvement in defence production. Civilian industry has made rapid strides, often outstripping the defence sector. The private sector can contribute in developing defence items and prove itself in re-engineering and inventing for the future. Initiative from the government can integrate defence and civilian R&D, especially in non-sensitive technologies like transport and communications, electronics, advanced batteries, environment friendly dual use technology, software systems, metal and non-metal materials to provide strength and stealth to the armed forces.
In the beginning of any partnership, complex problems on various issues are bound to occur. Private sector industries initially may need to be provided with inducement options including government guaranteed loans. There is a need to strike a balance between secrecy and openness in this important area. The private sector and the government should coordinate on project selection and a vigorous project evaluation programme will ensure high quality. The government should act as a catalyst in harmonising the public and private interests and creating incentives for the private sector to participate in defence production in selected areas.56
The private sector is governed by cost-benefit costing and management approach. Its entry will have an impact on defence R&D expenditures in the long run. It will reduce the excessive costing that the government justifies. As of now, there is a lack of mutual trust and cooperation between the government and the private sector. It needs to grow beyond the letter and spirit of contractual terms to a living and breathing, interactive partnership for the interests of both.
1. Lorne J. Kavic, India's Quest for Security--Defence Policies, 1947-1965 (Berkeley, California: University of California Press, 1967) p. 126. Also see n. 2 in Kavic, p. 126 and Jagdish N. Bhagwati and Padma Desai, Indian Planning for Industrialisation (London: Oxford University Press, 1970), pp. 140-142 and Raju G.C. Thomas, The Defence of India--A Budgetary Perspective of the Strategy and Politics (Delhi: MacMillan India, 1978, p. 117.
2. Raju G.C. Thomas, Ibid., pp. 118-120.
3. Ibid., p. 120.
4. Ibid., p. 121-123.
5. Bimal Jalan, India's Economic Crisis--The Way Ahead, (Delhi: Oxford University Press, 1991, pp. 1-13, pp. 216-226.
6. INDIA, 1995--A Reference Annual, Publications Division, Ministry of Information and Broadcasting, GOI, p. 516. Economic Reforms--Two Years After and the Task Ahead--Discussion paper, GOI, Ministry of Finance, p. 7. These 6 industries are: (i) Arms and Ammunition, Defence Equipment, Defence Aircraft and Warships; (ii) Atomic Energy, (iii) Coal and Lignite; (iv) Mineral Oils; (v) Minerals specified in the schedule to Atomic Energy order; (vi) Railway Transport.
7. Economic Reforms--Two Years and the Task Ahead--Discussion paper, GOI, Ministry of Finance, Ibid., p. 8.
8. Maj Gen V.K. Madhok (Retd), "Toning Up Defence Production--Why Armed Forces Must Pay Interest," USI Journal, October-December 1993, p. 473.
9. Times of India, New Delhi, June 16, 1992, p. 11.
10. Ibid., pp. 11-13.
11. Air Cmde Jasjit Singh, "Defence Industry Towards Greater Self-Reliance" AIP'95 Proceedings, p. XI.
12. Ibid., p. XII.
13. Interview, New Delhi, February 4, 1996.
14. Interview, New Delhi, February 4, 1996.
15. Interview, New Delhi, February 4, 1996.
16. Interview, New Delhi, February 4, 1996.
17. Interview, New Delhi, June 13, 1996.
18. Interview, New Delhi, June 13, 1996.
19. Interview, New Delhi, February 13, 1996.
20. Interview, New Delhi, February 13, 1996.
21. Interview, New Delhi, March 2, 1996.
22. Interview, New Delhi, March 2, 1996.
23. Interview, New Delhi, March 1, 1996.
24. Interview, New Delhi, May 2, 1996.
25. Interview, New Delhi, May 2, 1996.
26. Interview, New Delhi, February 28, 1996.
27. Interview, New Delhi, March 11, 1996.
28. "Strategic Partnership for Strengthening National Security and Prosperity," AIP'95 Souvenir (Background paper), p. 6.
29. Ibid., p. 6.
30. Brig B.N. Rao, "Defence Production in the Private Sector," USI Journal, April-June 1991, p. 192.
31. Ibid., pp. 192-193.
32. Sixth Report of the Standing Committee on Defence, 1995-96 (10th Lok Sabha), MOD--Defence Policy, Planning and Management, New Delhi: Lok Sabha Secretariat, March 1996, pp. 33-34.
33. Statement of Dr A.P.J. Abdul Kalam (SA to Raksha Mantri), CII Communique Special Issue, New Delhi, January 1995, pp. 2-3.
34. Jordi Molas-Gallart, Military Production and Innovation in Spain, (Switzerland: Harwood Academic Publishers, 1992), p. 151.
35. Hindustan Times, Sunday Magazine, September 24, 1995, p. 5.
36. K. Santhanam, "Defence Production and its Contribution to Indian Economy," IDSA Seminar on The Economy and National Security, New Delhi, April 6-7, 1995, p. 4.
37. Compendium of Registered Firms, Vendor Directory (Vehicles), Controllerate of Quality Assurance Vehicles, GOI, MOD, Ahmednagar, 1995.
38. DGQA Directory of Firms (Electronics), Controllerate of Quality Assurance Electronics, GOI, MOD, Bangalore, December 1995.
39. Interview, New Delhi, October 16, 1995.
40. Hindu, Delhi, December 6, 1996.
41. Eighth Report of the Standing Committee on Defence, 1995-96, (10th Lok Sabha) MOD, New Delhi, Lok Sabha Secretariat, March 1996, p. 17.
42. Defense News, November 4-10, 1996, p. 10.
43. n. 37.
44. n. 38.
45. S.P. Chakbrabarti, "Technology Participation of Civil Industry in Defence Production," AIP'95 Proceedings, pp. 250-251.
46. n. 32, pp. 33-34.
47. Col Kanwal Mago, "Essential Features for Conceptual Development Phase of Military Hardware with Specific Reference to Trials for Acceptance in the Indian Army" AIP'95 Proceedings, pp. 165-167.
48. Ibid., pp. 166-167.
49. AIP'95 Souvenir, n. 28.
51. Brig N.K. Arora, "Review of Procedure and Need for Change," AIP'95 Proceedings, pp. 52-53.
52. Ibid., p. 53.
53. N. Nigam (Head, Defence Division, L&T Ltd) "Equipping the Indian Army--An Industry View," AIP'95 Proceedings, pp. 2-3.
54. Ibid., pp. 3-4.
55. Maj Gen Pran Nath (Retd) (Vice President Defence HFCL Group), "Political Areas for Strategic Partnership and Participation of Indian Industry," AIP'95 Proceedings, pp. 6-7.
56. Jacques S. Gansler, Defence Conversion--Transforming the Arsenal of Democracy, (Cambridge, Mass, USA: MIT Press, 1995), pp. 171-177.