Issues in Co-Development and Co-Production of Defence Equipment

The Make-in-India campaign puts a premium on co-development and co-production of defence equipment in India. In a bid to promote such projects, the Ministry of Defence (MoD) included two specific provisions in the Defence Acquisition Procedure 2020 (DAP 2020) which governs capital acquisitions for the armed forces and the Indian Coast Guard.

This is not a new concept, though. The Defence Procurement Procedure (DPP) 2006 recognised Foreign Direct Investment in the Indian defence industry for co-development and co-production as one of the several ways in which the foreign vendors could discharge their offset obligations. All subsequent DPPs contained analogous provisions.

Co-development and co-production projects were undertaken even prior to DAP 2020 promulgation. The BrahMos supersonic cruise missile, manufactured by BrahMos Aerospace—a joint venture of India’s Defence Research and Development Organisation (DRDO) and Russia’s NPO Mashinostroyeniya, is a prime example.

The specific provisions in DAP 2020, though, are meant to enable the armed forces to initiate co-development and/or co-production proposals like any other acquisition proposal. However, the relevant paras in DAP 2020, encapsulated below, are too cryptic to give a clear picture of how these projects are to be conceptualised, executed, and financed.

The DAP 2020 provides that the ‘cases where it is proposed to co-develop a product/ equipment offering transformative/unique/niche technology; or a futuristic equipment/ platform with a foreign country; or where co-development is likely to benefit ongoing indigenous projects in India, ….. will be progressed under an IGA/specific Project Agreement….’.1

The DAP 2020 also permits the armed forces ‘to work with a foreign entity to co-produce equipment/assemblies/sub-assemblies/spares’, if the project aims at import substitution, the equipment to be manufactured is unique, or helps in making India a manufacturing hub or boosting defence exports, or it has the potential to produce equipment that could be used by the Indian armed forces in future.

Such projects can be undertaken on a single vendor basis if no other country is willing to participate in the project or where the shortlisted vendor offers higher technology transfer and indigenous content in the locally produced equipment than the other vendors.2

Conceptual differences

Conceptually, co-development projects are distinct from co-production projects, while some of them could also be mixed co-development-cum-production projects. Typically, co-production would not involve development of a new technology or product. Such projects only need an agreement between the technology provider and the Indian manufacturer for transfer of proven technology and related wherewithal.

Most of the capital acquisitions under categories like Buy (Indian), Buy and Make (Indian), and Buy (Global – Manufacture in India) would qualify as co-production projects in some form or the other. Projects under the Make category or the Strategic Partnership Model too are fundamentally co-production projects, though some design and development may also be involved.

In the circumstances, it would be normal for co-production proposals to be initiated by the armed forces and processed as per the procedure laid down in the DPP 2020. The other two types of projects, however, are on a different footing as development of new technologies, or even new products, constitutes the core of such projects. The sheer complexity of these projects, which may also entail an element of research and design, requires them to be treated differently.

DRDO’s Role

The DRDO is best suited to steer these projects, irrespective of whether the collaboration involves only the private sector entities, or both the public and private sector entities, with or without DRDO being a party to it.

Unlike the civil and military personnel who deal with normal capital acquisition cases, the DRDO scientists do not get rotated every few years. They have years of experience in working with the Indian and foreign industry at every stage from conceptualisation of projects to commencement of production. It can, therefore, provide the much-needed continuity in stewardship of the projects by utilising its managerial expertise even if it is not directly involved in technology or product development.

In what was the first event of its kind, the 155 mm x 52 calibre howitzer used this year for the ceremonial 21-shot salute at the Red Fort on the Independence Day is a prime example of DRDO’s expertise. This Advanced Towed Artillery Gun System was successfully developed by it in collaboration with Bharat Forge Limited and Tata Advanced Systems Limited as the eventual manufacturers.  

Identification of projects

It is unpropitious to leave it to the armed forces to initiate these proposals. The criteria for undertaking such projects are so expansive, and the need of the armed forces so pressing, that almost all major acquisition proposals can easily be fitted into this category, making intra- and inter-service prioritisation very difficult.

These projects require a top-level push, though even that has had little success in the past. In 2018, for example, India and the US had agreed on two ‘pathfinder’ projects for the joint production of a helmet-mounted digital display and a biological tactical detection system under the Defence Trade and Technology Initiative (DTTI), but not much is known about what happened to these projects thereafter. The US had also unsuccessfully offered to make fighter jets in India.

These examples illustrate how difficult it is to bring these projects to fruition, even when these are primarily for co-production and the dialogue takes place at the highest levels. Leaving the proposals to be initiated by the individual service headquarters could mire them in bureaucratic tangles at any one or more of the intermediary stages through which they must pass before even being accepted in principle. 

Challenges

The trickiest part of these projects, especially the ones that entail collaboration with the foreign entity, is estimation of the cost of technology development as a part of the feasibility study. This is important because even if the technology development is not to be funded by the MoD, this cost will eventually be borne by it as a part of the buying price of the product. It is unknown if an appropriate and universally acceptable costing methodology is in place.

It is equally important that there is a reasonable certainty of the co-developed product being bought by the MoD to make the project commercially viable for the development-cum-production agency. Dogged by perennial shortage of funds for capital expenditure—estimated by the Fifteenth Finance Commission to be Rs 5,27,491 crore for the financial years 2023–24 to 2025–26,3 success of the co-development-cum-production push in DAP 2020 would depend on the confidence MoD inspires in the potential partners as regards future budgetary allocations.

Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrrikar IDSA or of the Government of India.

• 1. “Chapter II: Acquisition Procedure for Categories under ‘Buy’ and ‘Buy and Make’ Schemes”, Defence Acquisition Procedure 2020, Ministry of Defence, Government of India, para 127, p. 60.
• 2. Ibid., para 128, p. 60.
• 3. “Chapter 11: Defence and Internal Security”, Report of the Fifteenth Finance Commission, Volume 1, Main Report, October 2020, Table 11.5, p. 340.