MoD hopes to translate electronics success story and numbers to defence manufacture
By Ajai Shukla
Business Standard, 11th Aug 18
The new Defence Production Policy of 2018 (DPrP-2018), which is nearing finalisation in the defence ministry, is not overly ambitious says Ajay Kumar, the Secretary for Defence Production (Secretary DP). If anything, the targets it sets are too modest, he says.
Since March 30, the ministry has been evaluating several hundred responses that stakeholders submitted in response to the Draft DPrP-2018. Once that process is complete, the new policy will be notified, the defence ministry told Parliament on Monday.
Several defence industry experts are sceptical about the Draft DPrP-2018’s stated goals. They include making India (currently the largest importer of weaponry) one of the world’s top five defence manufacturers and a global leader in artificial intelligence and cyberspace. The policy aims to achieve self-reliance by 2025 in several weapon systems, including helicopters, fighters, warships, tanks and missiles; raising defence exports to $5 billion annually by 2025, and producing defence goods and services worth $26 billion by that year to create employment for two-three million people.
“The targets set in the DPrP are actually under-ambitious. The indigenous defence industry currently has a turnover of about Rs 70,000 crore (Rs 700 billion). Raising this to Rs 1,70,000 crore (Rs 1.7 trillion) by 2025 would require a CAGR (compounded annual growth rate) of just 13.5 per cent. That is achievable,” Kumar told Business Standard.
The Secretary DP’s optimism is understandable: his last assignment was in the Ministry of Electronics and Information Technology (MEiT), where he oversaw a phenomenal domestic manufacturing expansion.
“In the field of electronics, India manufactured mobile phones worth Rs 18,900 crore (Rs 189 billion) in 2014-15. By the end of this financial year (2018-19), mobile phone manufacture is slated to touch Rs 130,000 crore (Rs 1.3 trillion). That is a six-fold growth in four years, or 62.5 per cent growth, year-on-year,” says Kumar. “Similarly, television manufacture has grown at 40 per cent year-on-year.”
Kumar acknowledges there are major differentiators in defence, especially the Indian defence establishment’s limited ability to consume large production volumes. “Our defence capital budget is just under Rs 100,000 crore (Rs 1 trillion) this year. Assuming a CAGR of eight per cent, the capital budget will rise to Rs 1,70,000 (Rs 1.7 trillion) in 2025,” he said.
Although DPrP-2018 aims to indigenise key weapon systems by 2025, Kumar accepted that arms import will continue, albeit on a reduced scale. But, alongside imports, he says a growing share of defence manufacture would be exported to buyer countries.
“Even if the Indian military buys only Rs 100,000 crore (Rs 1 trillion) worth of defence equipment of the Rs 170,000 crore (Rs 1.7 trillion) we will produce in 2025, the remainder can be exported – and the export market is huge. Building large volumes for export will generate economy of scale, making our defence products cheap and attractive,” says Kumar.
When reminded that all our current defence exports are of second-rung weaponry, rather than state-of-the-art platforms, the Secretary DP says: “That is because we have mistakenly followed the route of manufacturing with “transfer of technology” (ToT) from foreign vendors, and no vendor transfers state-of-the-art defence technology. Since our weaponry does not incorporate the latest technology, it cannot compete in the global markets. We have to, therefore, embrace research and development (R&D) and start building and exporting front-line equipment.”
“Indian firms can compete in the global defence market. Just eight-ten countries dominate the defence industry. But there are 190 countries in the world, and they are all potential customers. Not all of them insist on high-end weaponry,” he said.
Kumar points out that China is amongst the world’s top five defence exporters, having captured large market shares in the less developed 190 countries.
According to the Stockholm International Peace Research Institute, China has sold arms to 48 countries, capturing a $6 billion share of the $100 billion dollar global arms trade.
Kumar argues that India could easily design and develop cutting-edge weaponry, with numerous Fortune 500 firms having established R&D centres here. “Companies like CISCO, United Technologies, IBM and Honeywell have their biggest, or second-biggest, design and development centres in India, which compete with R&D centres in their home countries,” he said.
“R&D is a fast-growing industry in India. We have birthed about 10-12 unicorns (privately held start-ups that are worth over a billion dollars) in the last decade,” said Kumar.
In a brave admission, the Secretary DP agreed that defence public sector undertakings (DPSUs) presented a culture challenge in scaling up production. “Every decision in a DPSU is a protracted process that consumes time. The rules provide managers with limited flexibility to make quick decisions. Our challenge is: how to galvanize growth in a PSU-dominated environment?” he added.