Saturday, 28 March 2020

Indian start-up QNu Labs debuts on global quantum computing stage

QNu Labs becomes the world’s fourth company to develop deployable security against quantum attack

By Ajai Shukla
Business Standard, 28th March 20

An Indian company called QNu Labs aims to be a global player in the futuristic field of quantum computing, after becoming the world’s fourth company to build a deployable “Quantum-Safe Security” product.

Only three companies worldwide can boast of such an achievement. Quantum-Safe Security is regarded as a relatively small, billion-dollar niche in the overall field of quantum computing, which could soon be a trillion-dollar industry.

The Bangalore-based QNu Labs has matched global firms QuintessenceLabs, ID Quantique and Toshiba in developing Quantum-Safe Security solutions. These safeguard sensitive data by upgrading conventional network encryption to foil “hacking” attempts from hostile quantum computers. In the emerging era of “quantum supremacy”, hackers using quantum computing can quickly crack contemporary encryption algorithms.

Quantum computing relies on vastly enhanced computing capacity to quickly crack problems that would take conventional computers years to solve. 

The benefits of supercomputing were highlighted last fortnight in the context of the global Coronavirus pandemic, when IBM’s Summit supercomputer quickly identified 77 chemical compounds that might form the basis of an eventual drug against the virus.

A quantum computer could do the job far faster. Last October, Google’s Sycamore processor – a quantum computer – performed a calculation in 200 seconds that would have taken the world’s most powerful supercomputer 10,000 years to solve. 

India’s government has announced its intention of becoming a global leader in quantum computing. The 2020-21 Union budget allocates Rs 8,000 crore towards this end.

But quantum computing also has a dark side. Its computing power can quickly overwhelm (“hack”) the encryption that protects data and communications in critical systems such as military and nuclear command networks, government agencies, banks, financial institutions and power grids.

“We at QNu anticipated that the power of quantum computing, in the wrong hands, has immense destructive capability. So there is a need for Quantum-Safe Encryption (or Quantum-Safe Security) to safeguard networks against malevolent quantum computing,” says Sunil Gupta, one of the four co-founders of QNu Labs.

The Bangalore-based QNu Labs, which describes itself as a “true research & development-led, intellectual property-focused quantum player”, believes that the current public-key encryption method is highly vulnerable and is a huge Indian security weakness. 

“Hackers carry out ‘harvest now, decrypt later’ attacks, where they can copy and store encrypted data and decrypt it at a later stage with quantum computers… QNu Labs intention is to protect data at a national level,” says the company.

With critical networks now looking at Quantum-Safe Security solutions to ward off break-in attacks from quantum computers, this niche will become a $25 billion industry within three years, say industry experts. 

Eyeing that market segment, QNu Labs has recently launched a “Quantum Random Number Generator” called Tropos and “Quantum Key Distribution System” called Armos, which it says is fully resistant to hacking attacks from adversarial quantum computers.

The national security establishment is clearly interested in QNu Labs’ expertise. Potential adversaries like China’s People’s Liberation Army are developing sophisticated capabilities to hack into, and paralyse, Indian command and infrastructure networks.

QNu Labs has given technical briefings to the National Security Agency and the Defence R&D Organisation (DRDO). The company has signed a memorandum with Bharat Electronics Ltd (BEL), in case quantum-safe security systems are required to be built in the future through a public sector entity. 

“We have about 14-15 critical trade secrets, which we will safeguard as our own intellectual property. We have filed four patents already and will be filing nine more for our technologies,” says Gupta.

QNu Labs was incorporated in 2016, after being incubated in Indian Institute of Technology, Madras. Gupta says the Coronavirus pandemic will restrict the current year’s turnover to $250,000 (Rs 2 crore) but, with his products ready to hit the market, the target for 2020-21 is $5 million, $15 million for 2021-22 and $30 million for 2022-23.

The four co-founders own the company, along with some angel investors who are high-net worth-individuals (HNIs) interested in deep technology. Funds are also being raised from venture capitalists. Signalling its global ambitions, QNu Labs has incorporated a subsidiary in the US in October 2019, called QNu Inc.

Thursday, 26 March 2020

Military leads from the front in war against coronavirus pandemic


By Ajai Shukla
Business Standard, 26th Mar 20

On Wednesday, the first day of the 21-day countrywide lock-down that Prime Minister Narendra Modi announced on Tuesday to contain the Coronavirus (Covid-19) pandemic, a military facility in Jodhpur received 277 Indian evacuees flown in from Iran and placed them in quarantine for the next 14 days.

The military has already housed over 1,200 patients so far in temporary medical facilities at Manesar, Hindan, Jaisalmer and Jodhpur. These included evacuees from Wuhan and Japan, who were discharged after observing full quarantine protocol.

“Of the over 1,200 evacuees, medical staff and air crew kept in these facilities till now, only one case of positive Covid-19 has been reported so for. This does not include another case reported from the IAF facility in Hindan,” stated the ministry of defence (MoD) on Wednesday.

“In addition to the above, more Army medical facilities at Jhansi, Binnaguri and Gaya are kept at standby with a additional collective capacity of 1,600,” said the MoD. 

The military is mobilizing to play a central role in holding patients exposed to the Covid-19 virus. Most countries seriously impacted by the virus, including China, Italy and the US, have pressed their militaries into service. 

In New York city, US Army engineers are converting New York City’s main convention centre – the Javits Center – into a 1,000-bed hospital. 


The patients quarantined in Jodhpur on Wednesday include 273 pilgrims to Iran, including 149 women and six children. They were transferred on Air India flights from Delhi to Jodhpur and then taken to the medical facility, “which has been designed not just for isolation but also mental and physical wellness, which includes various activities including sports,” said the MoD.

Meanwhile, the Indian Navy has set up a quarantine camp at Vishakhapatnam, which is fully equipped to quarantine nearly 200 personnel. In addition, the navy has set up isolation facilities at its premier hospital, Indian Navy Hospital Ship (INHS) Asvini, at Mumbai.   

The naval base at Kochi, which houses the Southern Naval Command headquarters, is coordinating with Kerala state health officials and Ernakulam district administration to use civilian hotels/resorts as quarantine facilities for Indian nationals, says the MoD. 

The Ordnance Factory Board (OFB), which produces arms, ammunition and equipment for the military, has separately designated 285 beds as Covid-19 quarantine facilities. These include 40 beds in Jabalpur, thirty beds each at Ishapore, Cossipore, Khadki, Kanpur, Khamaria and Ambajhari; 25 beds at Ambernath and 20 beds each at Avadi and Medak.

The OFB is utilizing its facilities to try and manufacture personal protection equipment and face masks, in accordance with a pilot order placed by HLL Lifecare Limited, a public sector unit under the Ministry of Health and Family Welfare.

While the army continues functioning normally on the borders, officers posted in headquarters – who amount to 40 per cent of the overall cadre -- have been asked to function from home. 

Sunday, 22 March 2020

Aerospace industry struggles to deal with Coronavirus


By Ajai Shukla
Business Standard, 22nd Mar 20

The novel Coronavirus disease (COVID-19) pandemic is creating ripples across the global aerospace components industry, with red lights flashing over its two most fundamental characteristics -- global supply chains that move materials and components rapidly across borders; and fabrication facilities with large numbers of employees working in close proximity. 

India is directly impacted, as a growing player in the global aerospace industry. Several hundred small, medium and large Indian firms manufacture or assemble over Rs 10,000 crore worth of aerospace components annually for “original equipment manufacturers” (OEMs) such as Boeing, Airbus, Lockheed Martin, Bell Helicopters and others.

Boeing alone sourced over Rs 7,000 crore worth of components and services last year from over 200 Indian companies. Airbus, in turn, sourced over Rs 4,500 crore worth of components and services from over 45 Indian companies.

Indian aerospace suppliers, from large corporates such as Tatas and Mahindra, to medium-sized high-tech manufacturers such as Dynamatic Technologies, cater to a common imperative: supplying top-quality components to their respective OEMs within a rigid time schedule.

Interfering with this now are disruptions relating to COVID-19, including delays or non-arrival of raw materials and inputs, disrupted financial flows and growing absenteeism amongst production line workers.

Indian firms are searching for answers at three levels: government assistance in managing this situation; assistance and clarity from the OEMs they supply; and internal measures to contain the pandemic.

From the government, there is little support or clarity. It was hoped that Prime Minister Narendra Modi would announce financial support, such as low interest loans, moratoria on loan repayments, corporate tax cuts and direct cash transfers to workers, the way the US government is envisaging.

However, in his address to the nation on Thursday, Modi was silent on these issues, merely urging citizens to stay at home for the coming weeks.

Nor have Indian aerospace suppliers been clearly advised by their OEMs about what to expect. A question that remains unanswered is: Will OEMs expect deliveries according to contracted schedules; or are delays now acceptable?

In the absence of clarity, Indian firms are reading the global tealeaves. Airbus shut down production this week for four days on orders from the French government. This could continue, with French workers unions urging the company not to resume production on March 23, when the deadline expires.

But Airbus insists that “any supply chain disruption is only temporary. “With the global spread of COVID-19 we are constantly expanding our global supply chain monitoring in order to widen and strengthen our early visibility, anticipation and mitigation capabilities. As of today, we are able to mitigate and contain the effects of COVID-19 inside our industrial system, without impacting aircraft deliveries,” stated Anand Stanley, president of Airbus India.

Boeing is equally sanguine. “We are having extremely frequent communications with our suppliers multiple times a day. We do this is by having individuals from Boeing located regionally, and even in the sites and production facilities of our suppliers to help navigate the challenges that might cause shipping disruptions,” stated Salil Gupte, president of Boeing India.

Indian suppliers, however, say the OEMs are not sharing what the situation is in their own facilities overseas, or with suppliers in other countries. 

“We haven’t asked them for any help or financial support yet. But we have alerted them to the possibility of delays. So far, they have just heard us out, but they have stopped visiting our facilities,” said an Indian supplier who asked not to be identified.

Asked whether there would be production line shutdowns in the US, Gupte of Boeing said: “We don’t really know. We will follow guidelines issued by the US government and the World Health Organisation. Most important for us is the health of our colleagues in our supply chain. Boeing’s guidance is that anyone who can work from home, should. But in factories, we recognize there are people working on site.”

“In the long term we think aerospace is going to be a very strong industry. We recognize there will be disruptions in the short to medium term. We have to stay in close contact with our suppliers,” said Gupte.

Meanwhile most Indian aerospace firms have already implemented precautions, short of closing down production lines or cutting shifts. Biometric attendance has been scrapped and the temperatures of workers coming on shift are checked with temperature guns. Shop floors and offices have sanitizers and hospital grade hand-rubs at entry points and stock masks and medical supplies. 

Some, like Dynamatic Technologies, have been innovative in holding a “Townhall meeting”, where top executives have interacted with employees to reinforce workplace awareness of COVID-19. The firm is also sponsoring employee street plays that disseminate “dos and don’ts” for combating the virus. 

[ENDS]

Saturday, 21 March 2020

New draft defence procurement policy unveiled, aims to boost indigenisation

DPP-2020 (being unveiled in photo) proposes to incorporate “leasing” of equipment as a new acquisition category

By Ajai Shukla
Business Standard, 21st Feb 20

Defence Minister Rajnath Singh on Friday unveiled an updated Defence Procurement Procedure – 2020 (DPP–2020), the procurement manual that has, for the last 18 years, governed the purchase of weapons and equipment from the defence capital budget.

DPP-2020, which is still in draft form, aims to promote higher indigenous content in defence equipment manufactured in India, including under licence from foreign vendors.

DPP-2020 proposes to raise by 10 per cent the indigenous content stipulated in the current procedure, DPP-2016, for various categories of procurement. For example, if DPP-2016 currently mandates an indigenisation level of 50 per cent for acquisitions in the “Make” category, DPP-2020 will raise that to 60 per cent.

“A simple and realistic methodology has been incorporated for verification of indigenous content for the first time,” stated the MoD.

In another measure designed to promote “Make in India”, DPP-2020 introduced a new procurement category, entitled “Buy (Global – Manufacture in India)”.  For equipment bought from the international market, with the intention to subsequently build it in India with technology transfer, this category stipulates a minimum indigenous content of 50 per cent of the value of the contract. 

To meet this difficult indigenisation requirement, only the minimum necessary numbers would be bought from abroad in ready-built condition; while a larger number would need to be manufactured in India. 

This category would be given a higher preference than the current “Buy Global” category, which involves buying equipment built abroad.
  
In another innovative addition, DPP-2020 proposes to incorporate “leasing” of equipment as a new acquisition category. Leasing involves periodical rental payments to the lessor country/company, which works out cheaper than buying the equipment outright, which requires huge capital outlays. 

“This [leasing] will be useful for military equipment not used in actual warfare like transport fleets, trainers, simulators, etc,” stated the MoD.

In fact, India already leases one of its most potent naval combat platforms from Russia – the nuclear propelled attack submarine, INS Chakra. The new DPP will provide a policy framework for more such leases.

DPP-2020 also proposed to introduce a new chapter for procuring software and systems related projects. “In such projects, obsolescence is very fast due to rapid changes in technology; and flexibility in the procurement process is required to keep up with the technology,” stated the MoD.

Another new DPP chapter is proposed to deal with “post contract management”, which lays down clear guidelines for issues that arise during the contract period, which typically last for several decades in defence contracts.

DPP-2020 also proposed to introduce a comprehensive new chapter for the “Make” category of procurement. This deals with equipment designed and built by Indian defence companies, especially start-ups and innovators, and weapons realised through research projects of the Defence R&D Organisation (DRDO).

In a measure that will be welcomed by both Indian and foreign defence firms, DPP-2020 proposes that “field evaluation trials”, in which the military evaluates the equipment before approving it; will henceforth be conducted by specialised trial wings. “The objective of trials will be to nurture competition rather than elimination [of a product] for minor deficiencies,” stated the MoD.

The new policy also proposed new offset guidelines that encourage foreign vendors to discharge offset obligations through building and exporting products rather than components. The policy proposes higher multipliers for procurement from small industry and from units established in the two Defence Industrial Corridors in Tamil Nadu and Uttar Pradesh. 

The new policy proposes to widen the scope of “product support”, to include contemporary concepts in vogue in modern western militaries. According to the MoD, these include “Performance Based Logistics, Life Cycle Support Contract, Comprehensive Maintenance Contract, etc. to optimise life cycle support for equipment.”

Speaking at the release in New Delhi, Rajnath Singh said, “Our aim is to make India self-reliant and a global manufacturing hub… [We must] strengthen ‘Make in India’ initiative, refine ‘life cycle support’ of procured equipment and platforms and hasten the defence acquisition process by further simplifying the procedures and reducing the overall procurement timelines.”  
  
The draft DPP-2020 was prepared by a ministry of defence (MoD) committee headed by its acquisitions chief, Apurva Chandra. The committee was set up in August 2019.

The draft of DPP 2020 has been uploaded on the Ministry of Defence (MoD) website (https://mod.gov.in/dod/defence-procurement-procedure) for further suggestions from all stakeholders by April 17.

Thursday, 19 March 2020

MoD okays largest “Make in India” order for 83 Tejas Mark 1A

Each Tejas Mark 1A fighter to cost Rs 310 crore, making it a Rs 26,000 crore contract

By Ajai Shukla
Business Standard, 19th March 20

The Ministry of Defence (MoD) cleared an order on Wednesday for 83 Tejas fighters in an enhanced, more capable configuration, called the Tejas Mark 1A. The order, which will be executed by Hindustan Aeronautics Ltd (HAL), is worth about Rs 26,000 crore.

The Indian Air Force has already ordered 40 Tejas Mark 1 fighters, of which HAL has built and delivered 16. Now, with the Defence Acquisition Council (DAC) clearing the acquisition of 83 more fighters, HAL’s Tejas production line will be fully loaded for another five years.

“While orders of 40 Tejas aircraft had been placed with HAL in initial configurations, DAC paved the way for procurement of 83 of the more advanced Mark 1A version of the aircraft from HAL by finalising the contractual and other issues. The proposal will now be placed for consideration of Cabinet Committee on Security (CCS),” stated the MoD on Wednesday.

“This procurement will be a major boost to 'Make in India' as the aircraft is indigenously designed, developed and manufactured with participation of several local vendors apart from HAL,” stated the MoD.

As Business Standard reported earlier, the IAF and HAL have fixed the price of the Tejas Mark 1A at about Rs 310 crore per fighter. 

According to the agreed production schedule, HAL will begin delivering the Tejas Mark 1A fighters 36 months after the contract date. If the CCS clears the contract by mid-2020, the IAF will receive its first Tejas Mark IA in 2023.

With HAL’s Tejas production lines gearing up for delivering 16 fighters each year all 83 Tejas Mark 1A fighters would be delivered by 2028. 

At that stage, the IAF would be flying two squadrons (40 fighters) of Tejas Mark 1 and four squadrons (83 fighters) of Tejas Mark 1A.

The next stage in the Tejas programme would be to start manufacturing and inducting the Tejas Mark 2.

Girish Deodhare, chief of the Aeronautical Development Agency (ADA) – the Defence R&D Organisation agency responsible for the Tejas programme – described the Tejas Mark 1A as a bridge between the Mark 1 and the Mark 2, which will be bigger, more powerful and more sophisticated than the Mark 1 and Mark 1A.

The Mark 1 and 1A fighters are both light fighters, powered by the General Electric (GE) F-404 engine. The Mark 2 will be a larger, medium fighter which will incorporate the more powerful GE F-414 engine.

Deodhare told Business Standard that the “all up weight” (maximum take-off weight, with fuel and weapons) of the Tejas Mark 1 and Mark 1A is about 13.5 tonnes. However, the Mark 2 will take off with 17.5 tonnes, enabling it to carry more fuel and an 85 per cent higher weapons load.

While ADA is in charge of the Tejas programme, HAL is developing and building the Mark 1A. ADA will pitch in too, by contributing its expertise in avionics, flight controls, aerodynamics and structural analysis. 

HAL has been directed to build five new operational capabilities into the Mark 1A, including “active electronic scanned array” (AESA) radar, with multi-tasking capability that would give it a clear combat edge over other fighters in the region.

While the initial Tejas Mark 1A batches will field imported Elta AESA radar, later batches would incorporate the indigenous Uttam AESA radar, which DRDO is developing. The Uttam radar has already completed 11 successful test flights on a Tejas prototype and ADA says about two more years of flight-testing is needed before it is certified and ready for production. 

In addition, the Tejas Mark IA is being upgraded with an Israeli Elta “self-protection jammer” (SPJ), which confuses incoming missiles. Each Mark 1A fighter will carry a SPJ on a pod under its wing, enhancing its survivability.

The new Mark 1A will also incorporate a digital flight control computer with significantly higher processing power. That will allow ADA to add advanced capabilities in the flight control system.

Tuesday, 17 March 2020

HAL turnover to cross Rs 20,000 crore; but unpaid IAF dues of Rs 17,000 crore means HAL needs bank loans to pay employee salaries

 
IAF officials says we actually owe HAL only Rs 13,600 crore; claims that MoD delays in clearing payments

By Ajai Shukla
Business Standard, 17th March 20

Hindustan Aeronautics Ltd (HAL) announced on Monday the payment of interim dividend of Rs 33.25 per share, entailing a payout of around Rs 1,000 crore, mainly to the government.

HAL is also poised to scale another summit this year, with its operational turnover for 2019-20 on track to exceed Rs 20,000 crore – for the first time ever.

However, HAL has to take a bank loan to pay its interim dividend. That is because its finances are deep in the red due to huge unpaid dues from the Indian Air Force (IAF), by far HAL’s biggest customer.

Business Standard learns the IAF’s outstanding dues, which are for aircraft and services already delivered, is likely to be around Rs 17,000 crore – only a little less than its entire year’s turnover.

Contacted for comments, the IAF did not respond. However, senior air force officials, speaking on condition of anonymity, argued that the outstanding dues to HAL are not more than Rs 13,600 crore. Furthermore, say the IAF planners, it is the defence and finance ministries that are holding up payments to HAL.

This unpaid bill reflects a rising trend that is evident in HAL’s annual reports. In 2016-17, the IAF’s unpaid dues to HAL amounted to Rs 3,995 crore; in 2017-18 it rose to Rs 6,751 crore; in 2018-19 it more than doubled to Rs 13,939 crore; and is likely to rise this year by another Rs 3,000 crore.


With HAL lacking money for day-to-day production, design and development, and even to pay salaries of employees, the once cash-rich defence public sector undertaking (DPSU) has had to turn to the banks for loans. HAL’s last two annual reports paint a picture of financial decline: Bank balances dropped from Rs 8,345 crore in 2016-17, to Rs 6,433 in 2017-18, to Rs 101 crore last year. This year, it will be in the negative.

Meanwhile, borrowings have steadily risen. HAL’s annual reports reflect borrowings of Rs 950 crore in 2016-17, which dipped slightly to Rs 764 crore the next year, before zooming to Rs 4,058 crore in 2018-19. This year, HAL is learnt to have already borrowed over Rs 8,000 crore and this is on course to rise by another Rs 1,500 crore for running expenses and dividend payouts. 

It is unclear why the IAF has not been clearing its dues to HAL, even while making payments on schedule to foreign vendors such as Dassault. Every financial year since 2017-18, the IAF has been allocated the lion’s share of the military’s capital budget: a 40 per cent share in 2017-18 (Rs 34,917 crore); 40.5 per cent in 2018-19 (Rs 36,481 crore); 42.5 per cent in the current year (Rs 44,869 crore). 

For the coming year, the IAF has again been allocated 40.5 per cent of the services capital allocation, amounting to Rs 43,282 crore. 

The company’s Annual Report for 2018-19 takes note of the outstanding dues, but states in its “Significant Accounting Policies” that: “Debts from Government departments are generally treated as fully recoverable and hence the Company does not recognize credit risk of such financial assets. Impairment on account of expected credit loss is being assessed on a case to case basis in respect of dues outstanding for a significant period of time.”

Even if the IAF’s debts are fully recoverable, there are significant financial penalties that HAL is paying as a result of its disrupted cash flows. Prior to 2015, HAL’s hefty cash reserves generated income for the company. Today, its balance sheet reflects a growing “cost of finance”: Rs 10 crore in 2016-17, Rs 28 crore in 2017-18, Rs 170 crore in 2018-19 and, apparently, an even larger figure in the current financial year.

It is unclear what HAL’s board is doing to deal with this now endemic problem. A decade ago, the DPSU would have encountered no enquiries, since it was wholly government-owned. Now, however, with disinvestment having placed shareholding partially in public hands, the board is responsible for protecting the financial interests of public shareholders.

HAL has not responded to queries from Business Standard.


HAL: In the Red

(Rupees crore)

2016-17
2017-18
2018-19
2019-20*





Revenue from operations
18,554
18,624
19,894
20,500
Payments due in (mostly IAF)
3,995
6,751
13,939
17,000
Bank balances
8,345
6,433
101
Negative
Borrowings
950
764
4,058
9,500
Cost of finance
10
28
170
Not known

(Source: HAL Annual Reports)
*  Estimations for year ending March 31, 2020

Sunday, 15 March 2020

Two major Russian arms deals likely next week, weaponry worth $15 bn in Moscow pipeline

Brazilian soldiers carrying the Igla-S missile (courtesy Wikipedia)

By Ajai Shukla
Business Standard, 15 March 20

On Wednesday, the ministry of defence (MoD) will clear the purchase of one, and possibly two, Russian weapons systems, taking orders in the Moscow pipeline to above $15 billion and underlining Russia’s status as India’s premier arms supplier.

The Defence Acquisition Council (DAC) – the MoD’s apex procurement body, headed by Defence Minister Rajnath Singh – is poised to clear the purchase of the 9K338 Igla-S missile system for a sum of $1.3 billion.

India will buy 800 launchers and 5,175 Igla-S missiles, which fall in the so-called “Very Short Range Air Defence System” (VSHORADS) category.

The VSHORADS procurement has been mired in controversy. The Igla-S is a 16-year-old missile system, first built in 2004, which the Russian military replaced in 2014 with the newer, far more capable, 9K333 Verba missile.

After the MoD announced in November 2018 that it had chosen the Igla-S over the other two VSHORADS on offer – Swedish firm Saab’s RBS-70; and the Mistral, offered by European consortium, MBDA – Saab shot off four letters of protest to the MoD alleging foul play in testing.

However, internal MoD evaluators ruled that testing had followed procedure. In a reply to Saab that Business Standard has reviewed, the MoD wrote the “case has progressed as per provisions of Defence Procurement Procedure (DPP) with level playing field to all the participating vendors.”

Apparently, the MoD feels the Igla-S met India’s needs and Rosoboronexport’s price of under $1.47 billion makes it a value proposition compared to Saab’s tag of $2.6 billion and MBDA’s offer of $3.68 billion.

Russian industry sources say that, when the Indian tender was floated in 2010, they had only the Igla-S to offer since the Verba was not ready. In 2014, when the Russian military introduced the fourth-generation Verba, Rosoboronexport offered to replace the Igla-S with the new missile. But the MoD said the DPP did not permit this change. 

Consequently, the Indian military will get an obsolescent VSHORADS that will be almost two decades old by the time it enters service, and almost fifty years old at the end of its service life cycle.

Furthermore, since the 2010 tender did not specify any “Make in India” stipulations, production of the Igla-S will take place mostly in Russia.

VSHORADS are the ground forces’ last defence against attack from enemy ground strike aircraft. At the apex level, the IAF is responsible for air defence, which it does by bombing enemy airfields to prevent combat aircraft from even taking off. Those that do manage to enter our airspace are engaged with the IAF’s fighters and missiles. However, some enemy aircraft still sneak through to attack ground troops, who protect themselves with VSHORADS.

The MoD is also racing against time to bring before the DAC the long-delayed proposal to build 197 Kamov-226T helicopters for an estimated $2 billion. This is being touted as a “Make in India” initiative, with the choppers being built by a joint venture (JV), Indo-Russian Helicopters Ltd (IRHL). The biggest stakeholder in the JV is Hindustan Aeronautics Ltd (HAL) with a 50.5 per cent stake, while Russian Helicopters has a 49.5 per cent stake.

However, there will be only limited indigenisation. The inter-governmental agreement (IGA) between New Delhi and Moscow permits Russian Helicopters to deliver the first 60 helicopters in flyaway condition. The next 40 helicopters would be shipped as kits from Russia to be assembled in India. Only after that would indigenisation pick up momentum over the last 97 choppers.

The VSHORADS and Kamov-226T contracts will supplement the on-going purchase from Russia of S-400 air defence systems ($5.43 billion), AK-203 rifles ($1 billion), Krivak III frigates ($2 billion), BrahMos anti-ship missiles ($2.6 billion) and a supplementary order for 18 more Sukhoi-30MKI fighters ($1.15 billion). This will take the value of on-going arms imports from Russia to $15 billion – far more than any other country, including the US.



Washington, however, has created a lever to discourage Indian weapons imports from Moscow. A recent US law – Countering America’s Adversaries Through Sanctions Act (CAATSA) – requires the US government to sanction countries that engage in “significant transactions” with Russian, Iranian and North Korean entities. The US president has the power to grant India a waiver from CAATSA. However, without large arms purchases from the US, there is no certainty that that Donald Trump would grant a waiver.

Friday, 13 March 2020

Galvanising aerospace

Infrastructure, skilling, access to funds— these fundamentals need to be fixed first for India to achieve its aerospace targets

By Ajai Shukla
Business Standard, 13th March 20

Addressing an industry gathering in New Delhi last Saturday, Defence Minister Rajnath Singh recited a series of targets from the Defence Production Policy of 2018 (DPrP-2018). He urged the private sector to boost annual defence production to $26 billion by 2025, which would allow overall manufacturing to rise to $1 trillion that year and facilitate the government’s vision of making India a $5 trillion economy by 2024. Mr Singh also laid down an ambitious new target, stating that the government aimed to double the size of the aeronautics industry from Rs 30,000 crore to Rs 60,000 crore by 2024, through measures such as encouraging the global aerospace industry to source aero components from India. Describing micro, small and medium enterprises (MSMEs) as “silent performers,” the defence minister stated that efforts were being made to double their numbers in aerospace and defence (A&D) from 8,000 to 16,000 firms.

First, some context. Of the current annual aerospace production of Rs 30,000 crore that Mr Singh cited, just one behemoth – Hindustan Aeronautics Ltd (HAL) – accounts for over Rs 20,000 crore. The remaining one-third consists of offset related production by biggies like the Tata and Mahindra groups, and the export related production of aerospace components by a host of MSMEs, which have, by dint of meeting demanding international benchmarks of high-quality production and on-time delivery, embedded themselves into the global supply chains of industry leaders such as Boeing, Airbus, Lockheed Martin, Bell Helicopters and others. 

There are structural and functional limitations to how much HAL can realistically expand production, given that it is genetically a builder of aircraft – both foreign and indigenous – for the Indian military. Defence capital allocations are growing in single digits and, therefore, it should be no surprise that HAL’s turnover is also growing in the mid-single digits: 7.8 per cent in 2018-19 and barely 4 per cent this year. Further tempering expectations from HAL should be recognition of the fact that its Sukhoi-30MKI production line in Nashik, for long the company’s cash cow, will come next year to the end of its order of 222 fighters. It was hoped that Sukhoi-30 production would be followed by an order for building 126 medium multi-role combat aircraft (MMRCA). Instead, New Delhi bought 36 Rafale fighters that will be fully built in France. Nor is there any sign of life in the Indian Air Force (IAF) procurement of 114 medium fighters or the navy’s acquisition of 57 carrier deck based fighters. All recent aircraft inducted – such as the C-130 Super Hercules and C-17 transporters, Boeing P-8I Poseidon maritime aircraft, or Apache, Chinook and MH-60R helicopters – have been procured in flyaway condition from America, notwithstanding the rhetoric of co-development and co-production between these “comprehensive global strategic partners.” Nor have any production orders emerged out of the defence ministry’s endless rhetoric about the military’s need for more unmanned aerial vehicles. HAL, therefore, can take solace only from likely orders for the Tejas fighter and the production of a large numbers of helicopters: the Russian Kamov-226T, the indigenous Dhruv and Rudra choppers that are already in service, and the Light Combat Helicopter and Light Utility Helicopter that are both on the cusp of operational clearance. In the circumstances, HAL will require unstinting support to grow at anything more than the low single digits in the coming years.

Therefore, meeting the aerospace production target of Rs 60,000 crore would have to come through MSMEs that are manufacturing for the global supply chains of the large “original equipment manufacturers” (OEMs). To support these firms and enable their growth, the government – across key ministries – must keep a few things in mind.

First, it must recognize that our firms competing for global orders are up against rivals that are being supported by their home governments with tax and export incentives and infrastructure that almost invariably surpasses India’s. Our government must provide its aerospace firms with a level playing field, if not a competitive advantage. The greatest deterrent to growth our companies face is the high cost of capital and lack of access to funds. In several cases, Indian MSMEs have had to turn down offers to build components and assemblies for global OEM supply chains simply because the cost of capital to create the shop floor and train the personnel was too high. This resulted in a loss of business and a missed opportunity for creating jobs and skills. To overcome this, the government could create a sector specific “A&D Fund” to provide low cost capital quickly to enable our MSMEs to grab fleeting business opportunities. 

If the government is serious about doubling aerospace manufacture, it must include MSMEs in business delegations that senior ministers take abroad. These MSMEs must be introduced to overseas OEMs, with the tacit assurance that New Delhi backs its companies. Simultaneously, the government must incentivize global OEMs with tax incentives for working with Indian MSMEs. It would be worth considering whether to enlarge the definition of an MSME; Rs 10 crore worth in plant and machinery is no longer in consonance with the times.

Second, the government must transform the “people landscape” by shifting the skilling emphasis from quantity (numbers put through training) to quality (ability imparted). For this, the All India Council for Technical Education (AICTE) must allow industry participation in creating pedagogy, curriculum and training infrastructure in consonance with industry needs. Already, several companies run their own training curricula; the government must recognize these programmes as valid academic qualifications for career advancement. Additionally, the government must evangelize the creation of intellectual property (IP), patents and inventions, for which it must create a legal IP protection system on par with global standards. Finally, global OEMs must be encouraged to invest in the A&D learning space, with offset credits granted for investments in A&D learning in proportion to the number of workers the OEM hires from its own programmes.

Third, as exemplified dramatically by the ongoing Coronavirus pandemic, a safe and conducive business environment fundamentally shapes outcomes. Even if India successfully navigates the on-going stock market meltdown and mid-term degradation of global supply chains, our international businessmen are facing the consequences of our shift away from liberal democracy. One of our leading A&D entrepreneurs who regularly travels to the US and UK recounts the wariness that now mars casual interactions with the locals. “We always thought you Indians were like us; what’s happened to you guys?” he was asked. Such apprehensions are exacerbated by the snubbing of industry leaders like Jeff Bezos, who the government shunned during his recent trip to Delhi, apparently because his newspaper, Washington Post, had criticized the government.

Businessmen do indeed follow the money, but they also like to combine business with pleasure. It is no accident that Seattle – one of America’s most livable cities – is the centre of that country’s aerospace industry. Similarly, foreign businessmen are attracted to Bengaluru by that city’s easy culture. By that token, there is unlikely to be much international interest in the government’s A&D corridor in Uttar Pradesh, which the defence ministry is talking up. Mr Singh’s aerospace production targets ignore the limitations that abound: abysmal infrastructure, negligible law and order, a vicious social environment, lack of skills, poor access to funds and cumbersome compliance requirements. There is an urgent need to set these fundamentals right first.