Make in India : Issues of Defence Sector

29.11.2017

Strategic Partnership Policy and Make in India: Both policies have been initiated in India by Modi government for local production of high-tech defence machines such as artillery guns, FRCVs, helicopters, fighters, submarines, etc. In SPP, a foreign OEM(Original Equipment Manufacturer) will collaborate with one or two Indian manufacturers taking the responsibility of design and development. However, both foreign as well as local company will be selected by the defence ministry and defence forces, and SPP will be limited for delivery of a specific number of the defence machines, a small number to be delivered in ready to use condition and the rest of the contract to be assembled in India by Indian partner with assistance including the sourcing of critical parts from the foreign partner and the rest outsourced in India. Value addition and job creation will be naturally very limited. But most important aspect of SSP is that it is limited to just one model that would be designed and developed by the foreign partner. What happens after the completion of the first contract. What happens to the investment made by the local partner in the setting up the plant thereafter? It is next to impossible to absorb, assimilate the technologies involved for keeping the model upgraded and developed at contemporary level in one project period. Similarly, the local partner will have to keep the critical components imported. I wish the negotiation to be changed for the OEM to set up a full fledged plant with an Indian partner to set up a plant in India that serves as the regional plant of the OEM with an access and possibility to manufacture the newest models too with contemporary technologies where the local partners participate in R&D of new machines and the local partner keep on developing critical parts too locally if it can be done cost competitively. Alternatively, let the OEM set up its local plant independently and serve India as well as export market from India, if it finds that it will be more cost competitive to manufacture in India in long run. With the typical delays in decision making, SPP will be a long enough time taking exercise to meet the country’s requirements. With a number of big companies such as Tata, Mahindra, L&T, Bharat Forge, getting into defence production with manufacture of critical components, if incentivised they can also grow easily as aggregators of the machines too.

Recently, the defence cleared a mega project to acquire 111 helicopters worth Rs 21,738 crore for Navy, the first proposal under the strategic partnership model to get approval. As part of the proposal, 16 naval utility helicopters (NUHs) will be procured in a “fly away” state from the selected foreign original equipment manufacturer (OEM) and the remaining 95 will be made by the Indian strategic partner in India. Who can be the Indian partners. https://economictimes.indiatimes.com/news/defence/government-clears-mega-project-to-acquire-111-helicopters-for-navy/articleshow/61365369.cms

Tata Advanced Systems Limited (TASL) and Bell Helicopter, a Textron Inc. company have an agreement to work together to develop both commercial and military rotary wing markets in India.

Mahindra Defence Systems Ltd have also signed a statement of intent with Airbus Helicopters of Europe to make military helicopters. The two firms had signed agreements to make helicopters in India, seeking to tap a military hardware market estimated to grow to $41 billion in seven years.As part of the plan, the two companies plan to set up a final assembly line in India, develop tier-1 and tier-2 suppliers and undertake extensive transfer of technology to achieve 50% indigenous content. Both the firms are already in business of supply of major critical parts of helicopters and fighters and are exporting to the world class quality level. Tata Group and Mahindra as on today appears to be one day the world class aggregators of helicopters and fighters, if the government wishes so. But who knows if the ministry and the defence forces will select them or prefer other new players such as Adani and Anil Ambani who have recently gone into agreements with the foreign OEMs.

21.11.2017

Tejas Story: The indigenously developed Light Combat Aircraft (LCA) Tejas has been inducted into the IAF in 2016. HAL has delivered only 5 of them by now. According to T Suvarna Raju, chairman and managing director of HAL, HAL has 20 IOC for Tejas, of which it will provide 11 to IAF by the end of this financial year. However, the FOC order will is expected to come by mid-2018. HAL has requested IAF to allow it to cut the material. It is necessary, as if HAL start now, the aircraft will come after three years i.e by 2020 . By 2020, the AON of 83 LCA is expected to be converted into a contract between the IAF and HAL. HAL has 20 IOC for Tejas, of which HAL will provide 11 to IAF by the end of this financial year. HAL will finish the supply of the 20 FOC by 2022. And only then it can go for the next 83. “We have kept things in place to produce eight and we are investing Rs 1,331 crore to increase the capacity to 16 deliverable a year,”said Chairman HAL Between the authorised number of Indian Air Force squadrons of fighters of 42, the available numbers of IAF squadrons are 31 at this time (gap of 11 squadrons that will increase only over time) to face the possibility of a war simultaneously at two fronts-Pakistan and China. Each squadron of the IAF has about18 aircrafts.

If Tejas is world class in performance and IAF agrees, why should it take so much time for IAF to order at least 6-10 squadrons at a time with continuously incremental addition of improvements integrating additional latest weaponry in fast moving era of technology upgradation. Why can’t an independent unit for Engines for fighters with full-fledged R&D come in HAL, as its engine constitutes a major percentage of the total cost. If India can develop its own cryogenic engines, why can’t it take up the task of developing engines, without which it will be difficult to attain the targeted production rates. I don’t agree with the Chairman HAL, when he added, “This is not like an automobile that today you give me a number and automatically I will give you the aircraft immediately. There is a lag, we require all the material to be procured and we need to make 10,000 odd components and put them together, and some components need to be bought from outside.” An Automobile of world class is not that easy to produce. But if there is an efficient managerial and technical talent, it is possible. Examples are Tata Motors, M&M, Eicher Enfield that could not happen with HM and PAL. Interestingly, last year 36 multirole combat aircraft (MMRCA)Rafale fighters from French company, Dassault were purchased at Rs 58,000 crore. If IAF is fine with order of 2 squadrons with Dassault, why can’t it order a quantity reasonable enough for manufacturing ease? I strongly believe that just like Chief Economic Advisor in Finance Ministry, the government must appoint Chief Defence Advisor who can advise the defence minister or PM with the best alternatives.

http://indianexpress.com/article/business/interview-with-hal-cmd-no-frozen-standard-of-preparation-of-lca-thats-where-delays-are-coming-4944113/ )

Tejas and beyond: How short the IAF is of fighters, what options it has now

Comment -“Govt. has not helped private company to get into manufacturing that it claims- Mahindra can already build small plain for short routes. Tata-Airbus collaborated to replace Army Avros. But Govt did not decision till now. However, if HAL would have a private company and wished to be become globally competitive, it would invested on manufacturing technologies, latest machine tools, jigs and fixtures to attain commercial viable aircrafts. India does not lack talent. It requires its right deployment. How would have all major manufacturing companies of the world and those of other sectors would set up their R&D and development centres in India. Moreover, the war that we are talking about will be fought differently with other than traditional strategies and methods. Those in decision making must have on the job.”

India Express has a report in November 21 issue: “The five LCA Tejas supplied to the IAF by Hindustan Aeronautics Ltd (HAL), Bengaluru, are part of a contract for 40 aircraft, 20 in Initial Operational Clearance (IOC) configuration, and 20 in the Final Operational Clearance (FOC) configuration. But the FOC for LCA Tejas is yet to be attained; production is a long way away. The Air Force is also committed to buying another 83 LCA Tejas, for which a Rs 50,000 crore contract is likely to be signed soon. These fighters will be the improved Mark-1A version, which is still in the design stage….

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