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Making ‘Make-in-India’ Move in Defence Production

Amit Cowshish is a former Financial Advisor (Acquisition), Ministry of Defence and Consultant, Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Click here for Detailed Profile
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  • April 08, 2015

    The ‘Make-in-India’ drive of the government has created a conceptual parallax in so far as the defence manufacturing sector is concerned. Foreign companies, and even governments, seem to view it differently from the way it is being seen by the Indian industry. The lack of clarity about the policy underpinnings of this amphibolous trope lies at the root of this dichotomy.

    The Ministry of Defence (MoD) has had its own make-in-India policy in the form of the ‘Make’ procedure since 2006. Notwithstanding the fact that not a single project has taken off till date under this procedure, its aim is “to ensure Indigenous Research, Design, Development and Production of capabilities sought by the Armed Forces in prescribed timeframe while optimally utilizing the potential of the Indian Industry” as “it would also achieve self reliance in Defence Equipment” (sic).1

    The emphasis of the Defence Production Policy of January 2011 is also on the Indian industry as the primary vehicle for achieving self-reliance in defence production. This is evident from its objectives, which are:

    to achieve substantive self reliance in the design, development and production of equipment/ weapon systems/ platforms required for defence in as early a time frame as possible; to create conditions conductive for the private industry to take an active role in this endeavour; to enhance potential of SMEs in indigenization and to broaden the defence R&D base of the country.”2

    In keeping with this policy drift, a new paragraph was added to the Defence Procurement Procedure (DPP) 2013, which states that:

    Preference will be given to indigenous design, development and manufacture of defence equipment. Therefore, whenever the required arms, ammunition & equipment are possible to be made by Indian Industry within the time lines required by the Services, the procurement will be made from indigenous sources.”3

    DPP 2013 also laid down a hierarchy of procurement categories: Buy (Indian), Buy and Make (Indian), Make (Indian), Buy and Make, and Buy (Global). These categories are arranged in a decreasing order of preference.4 As is quite obvious, only Indian entities can compete in the procurement programmes classified under any of the first three categories. Indian companies can also participate in the Buy (Global) tenders. And under the Buy and Make category, foreign companies are required to transfer technology to an Indian entity for manufacturing the equipment under the ‘make’ portion of the Buy and Make cases.

    While seeking approval-in-principal – or Acceptance of Necessity (AoN), to use the official jargon – for placing a procurement programme in a particular category that figures lower down in the hierarchy, it is now necessary to provide justification for not choosing any of the categories that precede the proposed category.

    The reference to the ‘Indian industry’ in the DPP and ‘private industry’, as well as ‘SMEs’ (small and medium enterprises), in the Defence Production Policy implies Indian companies ‘owned and controlled’ by Indian citizens and other Indian entities.

    All this policy baggage goes to show that the effort so far has been to energize the Indian domestic industry to reduce dependence on imports. The purpose of the ‘Make-in-India’ initiative, on the other hand, seems to be to invite foreign manufacturers to set up manufacturing bases in India. This was the unmistakable message of the prime minister’s maiden Independence Day speech on 15 August 2014.

    The official ‘Make-in-India’ website does not throw much light on the policy underpinning of the campaign. But the general tenor of its content shows that the aim is to attract global companies to undertake the manufacture of their products in India.

    The problem, however, is that the exhortation to global firms does not seem to be in tune with the objectives of the defence production policy and the procurement procedure that the MoD has been following for the past several years.
    That being the case, the ‘Make-in-India’ initiative is clearly in conflict with MoD’s policy of indigenization of defence production by promoting Indian industry. The question that arises is: how do global companies fit into the scheme of things? What do they make in India and how do they sell what they make?

    Global companies and other investors are unlikely to bring in foreign direct investment (FDI) and chip in with transfer of technology only to end up becoming minority stakeholders in some joint venture. It is not clear if this is how the government expects ‘Make-in-India’ to play out in the defence production sector, but surely this is not how global companies and foreign governments would like it to play out.

    Conceptual clarity about ‘Make-in-India’ is, therefore, the sine qua non for the success of the ‘Make-in-India’ initiative, the core conceptual issue being: what is new that it offers to the Indian industry, global companies and foreign governments? Within the category of the Indian industry, clarity is required as regards the role expected to be played by the big players, the SMEs and the public sector, apart from the Defence Research & Development Organization (DRDO) and how these roles would be synergized.

    The second issue concerns the procedure for tapping the defence market. As of now, the only procedure in place is the Defence Procurement Procedure, which is built around five procurement categories, including the ‘Make’ procedure. This document pre-dates the current ‘Make-in-India’ initiative and may, therefore, not provide the answer to many new issues that have arisen as regards the role of the Indian industry and foreign companies/governments.

    For example, it does not answer the question whether manufacturers, including Indian companies, can take the initiative to make something on their own volition or should they wait till the MoD comes out with a Request for Proposal (RFP)? Manufacturing a product suo moto is fraught with the risk of being unable to sell it.

    These new issues have arisen even as the old ones are yet to be resolved. The Indian industry has been having problems with the procurement procedure laid down in the DPP, including the ‘Make’ procedure. Foreign and Indian companies have been having problem with the offset guidelines.

    All these procedures have been under review for more than two years now. While it is absolutely necessary to complete the review immediately, it is equally important to evolve appropriate procedures to be followed by global companies and foreign governments desirous of entering the defence manufacturing sector in India under the emerging circumstances.

    The third issue concerns the creation of an industry-friendly eco-system. This is important for the Indian industry as much as it is for foreign companies. India fares poorly on all parameters that constitute the global index of ease-of-doing business, in which it figures at the 142nd position. Everyone understands that improving the eco-system is a difficult and time-consuming inter-ministerial task, but what is difficult to understand is the absence of a conspicuous roadmap for completing this task.

    Lastly, a loosely articulated idea of making India a defence manufacturing hub cannot work unless it is backed by a comprehensive blueprint, efficient procedures, meticulous implementation, trained and responsive manpower, continuous monitoring and quick decision-making. MoD will have to do something about all this, especially its decision-making structures and processes and put in place a system of free and frank dialogue with the industry without whose active support it cannot realize the objectives of ‘Make-in-India’ in defence.

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

    • 1. Defence Procurement Procedure 2013, Ministry of Defence, Chapter III, Paragraph 5.
    • 2. Defence Production Policy 2011, Ministry of Defence, Paragraph 2
    • 3. Defence Procurement Procedure 2013, Ministry of Defence, Chapter 1 Paragraph 20a
    • 4. Ibid.

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