Strong Building Blocks

 R.S. Mann (retd)



The Indian defence industry has made significant strides in recent years, driven by initiatives like ‘Make in India’ and the implementation of the Defence Acquisition Procedure (DAP) 2020. However, growing global and regional instability necessitates that India take decisive and timely actions to establish a robust defence industrial base capable of producing frontline defence equipment within the next 15-20 years.

The ongoing geopolitical realignments, particularly in Europe, Middle East and Southeast Asia also present significant opportunities for the Indian defence industry. Further, the ongoing Operation Sindoor, which showcased the outstanding performance of indigenous weapon systems, the enhanced national threat perception, with the inclusion of Bangladesh as an adversarial state, is driving increased domestic demand for defence equipment as well as creating new avenues for exports and strategic partnerships. Post Operation Sindoor, a domestic constituency has built-up for further significant and bold reforms to address persistent challenges and accelerate progress towards a robust defence industrial base.

This article examines the existing framework’s shortcomings, draws lessons from successful defence industrialisation strategies of nations facing similar challenges, and incorporates expert opinions. It proposes changes across the conceptual, industrial, technology and procurement domains of DAP 2020 to enable the Indian defence industry to achieve self-reliance in advanced military hardware production within specified timeframe.

Current State

A robust defence industrial base is characterised by several key elements that collectively form an ecosystem which contributes to a nation’s ability to independently produce the required military equipment. These elements include:

Overarching Strategy and Policies: A long-term overall strategy provides guidance and direction, supported by effective subordinate policies.

Empowered Supervisory and Management Body: A supervisory and management body for periodic review and course corrections based on credible feedback, operating within the above laid down policies.

Linkages: To enable synergised national effort through formal cross-disciplinary and ministerial linkages.

Strong Research and Development (R&D) Capabilities: A robust ecosystem for innovation, cutting-edge technology development and the ability to translate research into tangible defence products.

 Efficient Production and Manufacturing Infrastructure: Modern facilities, skilled labour and the capacity for large-scale production of defence equipment and components, ensuring quality and timely delivery.

Active Private Sector Participation: The dynamism, innovation and specialised capabilities that private companies, including Micro, Small, and Medium Enterprises (MSMEs) and startups, bring to the sector.

Adequate Financial Resources and Investment: Sustained growth requires sufficient budgetary allocation for defence procurement, R&D, and infrastructure development, along with private and Foreign Direct Investment (FDI).

Streamlined and Efficient Procurement Processes: Timely acquisition of defence equipment demands transparency, reduced bureaucracy, specialists and faster decision-making processes. This brings stability and certainty to the defence industrial base.

 Robust Supply Chain and Availability of Critical Technologies and Materials: Self-reliance necessitates access to essential raw materials and Rare Earths, components and mastery over critical technologies, reducing dependence on imports. 

Effective Collaboration and Integration: Strong linkages and synergy between the different levers of the government—ministry of finance, ministry of external affairs, ministry of science and technology, ministry of defence (MoD), Department of Atomic Energy, Indian Space Research Organisation (ISRO), Service Headquarters, R&D organisations and both public and private sectors—are vital for efficiency and progress. 

Skilled Human Capital: A sufficient pool of trained personnel in various specialised fields is necessary for a thriving defence industry.

Supportive Policies: Policies related to financing, ease of business, taxes and subsidies, Intellectual Property Rights (IPR), and Special Economic Zones (SEZs) are crucial.

However, the Indian defence industry faces several challenges in achieving these elements. These are:

Lack of a National Security Strategy: India lacks a clearly defined National Security Strategy to provide long-term direction to executives of the indigenous defence industrial base. This lack of a strategic approach is evident from an examination of the IDEX, as it targets innovation tactically and piecemeal, rather than enabling an innovation ecosystem.

Absence of a Structured System for Synergised Effort: There is no structured system to enable and monitor synergised effort among various stakeholders, both between ministries and well as between the Services, Defence Research and Development Organisation (DRDO), Defence Public Sector Undertakings (DPSUs), private sector and academia.

Production and technology development are intertwined but have distinct needs. While production requires scale, infrastructure and supply chains, technology demands R&D, talent and intellectual property frameworks. A single policy struggles to address both effectively as the two require distinct strategies, funding models and timelines.

Challenges in R&D and Technology Dependence: India faces challenges in translating R&D into modern weaponry and relies heavily on external sources for critical technologies, subsystems and materials.

Underdeveloped and Fragmented Manufacturing Ecosystem: Indian industry has traditionally focused more on manufacturing and assembly, rather than original design and development. The Indian defence manufacturing ecosystem suffers from underdeveloped infrastructure, including inadequate modern testing and certification facilities, Quality Assurance (QA), standardisation, outdated production lines and shortages of skilled labour.

Constraints on Private Sector Participation: Private sector involvement is constrained by a lack of a conducive financial framework, bureaucratic hurdles and a perceived preference for Public Sector Undertakings (PSUs) in major contracts. The effective integration of MSMEs into the defence supply chain also needs significant improvement.

Financial Constraints: Despite increasing defence spending, budgetary constraints persist, limiting funds for acquiring advanced weaponry, investing in R&D and upgrading infrastructure. Private investment and FDI in the defence sector also remain inadequate.

Inefficient Procurement Processes: The defence acquisition process is slow, complex and bureaucratic, causing delays in procuring essential equipment.

Dependence on Imports: India remains largely dependent on imports for vital defence technologies and components, particularly in high-end systems, making it vulnerable to supply chain disruptions and geopolitical pressures. There is a lack of indigenous design capability and an inability to manufacture major subsystems and critical components domestically.

Shortage of Skilled Labour: The Indian defence industry faces a significant shortage of skilled labour in specialised fields crucial for advanced defence manufacturing.

These challenges highlight the need for a comprehensive strategy and reforms to build a self-reliant defence industrial base in India.

Limitations of DAP 2020

While DAP 2020 has laid a foundation for industrial growth and self-reliance in the short to medium term (five to 10 years) by addressing immediate needs like reducing imports and scaling production, it has certain limitations:

Procurement-Centric Nature: DAP 2020 primarily focuses on acquisition processes and lacks a long-term vision for industrial technological dominance or mastering critical technologies. It is primarily reactive rather than proactive in building a comprehensive ecosystem. It lacks agility to pivot towards emerging threats, disruptive shifts in warfare and innovations or position India as a global tech leader. The complexity of modern weapon systems needs a multi-dimensional approach beyond DAP 2020’s current capabilities.

Emphasis on Indigenous Content vs Indigenous Design: DAP 2020 emphasises ‘Indigenous Content’ (IC) over ‘Indigenous Design’ (ID). While increasing IC is a step towards self-reliance, a predominant focus on it can inadvertently lead to the local manufacturing of equipment based on foreign designs, hindering the development of truly indigenous innovation and ownership of critical IPR. This approach may not foster the deep technological capabilities required for producing cutting-edge frontline equipment. The current IC requirements might also disproportionately focus on basic, lower-technology parts and components, while the core and critical technologies may remain under foreign control.

Procedural Complexities and Delays: Despite the stated aim of simplification, the defence acquisition process under DAP 2020 continues to be characterised by procedural complexities and significant delays. The multi-stage acquisition cycle, coupled with collegiate decision-making and bureaucratic hurdles, impedes timely procurement and negatively impacts the growth and investment viability of the domestic defence industry.

Restrictions on Foreign Ownership and Technology Transfer: While the government has liberalised FDI in defence manufacturing, the existing restrictions on foreign ownership and control can deter foreign Original Equipment Manufacturers (OEMs) from transferring their most advanced and critical technologies to India. Challenges persist in effectively securing comprehensive technology transfer from foreign original equipment manufacturers (OEMs).

Quality of Indigenisation: Concerns exist about the quality of indigenisation achieved, as ambitious indigenisation percentages might sometimes lead to compromises in the overall quality and reliability of the indigenised components and systems.

Limited Private Sector Participation: Greater encouragement and support are needed to enhance the participation of the private sector, MSMEs and startups in the development of high-end and strategically significant defence technologies. Building a defence industrial base requires infrastructure, supply chain resilience and a skilled workforce, which are not comprehensively covered by DAP 2020.

Lack of Industrial Scalability: The policy emphasises manufacturing but does not adequately address the ecosystem needed for industrial scalability.

Siloed Approach: The integration of industrial capacity and technology development under one policy as is presently the case, dilutes focus. A single policy struggles to address the complexity of modern defence systems, which spans industrial capacity, technological innovation, and global competitiveness, requiring a multi-dimensional approach beyond DAP 2020’s current capabilities.

To overcome these limitations and propel the Indian defence industrial base to the next level, comprehensive reforms and a long-term strategic vision are required.

Policy Recommendations

To achieve self-reliance in frontline defence equipment production, key changes across the conceptual, industrial, technology and procurement domains are proposed. These should engage with the governments’ ongoing initiatives like Skill India, Digital India, National Apprenticeship Promotion Scheme etc.

Conceptual Domain

National Security Strategy and Defence Planning: In the aftermath of Operation Sindoor and in light of evolving defence technologies and warfighting, global and domestic security situation, India needs a clearly defined National Security Strategy to provide long-term direction to executives and guide the development of the defence industrial base. A dedicated defence technology and R&D strategy would allow for a more targeted and long-term approach to building indigenous technological capabilities, outlining key technology areas, promoting collaboration, and aligning R&D efforts with overall defence and security objectives. It would identify capabilities to be acquired domestically, through allies or through acquisitions. A separate defence industrial strategy would focus on creating a conducive ecosystem for defence manufacturing, addressing aspects like infrastructure development, private sector participation, attracting FDI with technology transfer and establishing and empowering defence industrial corridors. Situating the DAP under the umbrella of these broader strategies would ensure that procurement decisions are driven by capability requirements, technological roadmaps and industrial capacity considerations and a strategically driven acquisition process.

Defence Capability Acquisition Organisation. Establishing a body with requisite knowledge and authority to manage the entire ecosystem and ensure synergy with the National Security Strategy and supporting policies, will provide a focused approach to achieving self-reliance. It should be supported by a robust monitoring structure with digital, Artificial Intelligence (AI) linkages.

Establishing Defined Timelines and Measurable Targets for Self-Reliance: Establishing clearly defined responsibilities, timelines and measurable targets is crucial for driving India’s pursuit of self-reliance, especially in critical areas. These provide a necessary roadmap, instil a sense of urgency, enable effective monitoring of progress, create accountability, and encourage long-term investments and strategic planning by the domestic industry. A pro-active technology policy, anticipating threats 20 to 30 years out, will ensure that India is not perpetually catching up.

Developing robust domestic sources for essential raw materials and rare earths while strategically diversifying global supply chains.

Industrial Domain

Enhance Indigenisation with a Focus on Core/Critical Technologies: Shift from merely manufacturing to innovating by incentivising R&D in strategic areas. Increase funding for private sector R&D, reducing dependence on DRDO and DPSUs, and mandate higher indigenous content in defence platforms, especially for critical systems, to foster domestic technological expertise. Introduction of a tiered system where critical subsystems must meet higher indigenous content thresholds over time should be considered. Weighted financial incentives for manufacturers who exceed minimum indigenous content, especially for high-tech components, can be prescribed. There is a need to develop a legal and technical framework for reverse engineering imported systems, respecting international IP laws. Global defence is shifting towards AI, quantum computing, Space, Cyber, hyper sonics and autonomous systems and without proactive investments and focus, India risks lagging behind.

Promote Private Sector Participation: DPSUs dominate the sector, while private firms and MSMEs struggle. Policy should mandate Joint Ventures requiring DPSUs to collaborate with private firms, subsidise MSMEs by offering grants, low-interest loans and tax incentives, creating a level-playing field, facilitating easier access to technologies and funding and ensuring long-term, predictable contracts. Ensuring policy stability and providing a supportive regulatory environment will encourage investment and innovation.

Reform Offset Policies for Greater Impact: Revise offset guidelines to prioritise high-value transfers, such as know-how in semiconductors, advanced materials and propulsion systems. Introduce multipliers for offsets that align with critical technology needs or investments in defence industrial corridors and link offsets to India’s long-term strategic priorities.

FDI Policies: FDI policies should allow for higher ownership stakes for strategic and trusted international partners who offer firm commitments to technology transfer and the establishment of local manufacturing and R&D facilities.

Boosting Defence Exports and Ease of Business: To transform India into a major defence exporter, the government must streamline export procedures, ease of business, secure defence trade deals, offer competitive financing options to foreign buyers and actively promote Indian defence products through defence exhibitions and diplomatic channels.

Improve Testing Infrastructure, Standardisation, Quality Control and Assurance. This must be brought up-to global standards with credible certification agencies to audit and certify defence manufacturers.

Technology Domain

Focus on Indigenous Design and Technology Development: Shift the primary focus from merely achieving ‘Indigenous Content’ to fostering genuine ‘Indigenous Design’ capabilities within the Indian defence industry. Significantly increase and strategically direct funding for indigenous research and development in key technology areas relevant to frontline equipment, with a clear focus on achieving complete design ownership and control.

Incentivise Innovation and Technology Adoption: Implement a ‘T1’ evaluation system that assigns significant weightage to superior specifications offered by Indian companies, alongside price considerations, to encourage technological advancement. Robust and transparent mechanism are needed to effectively verify claims of indigenous design and content. Establish a clear and effective system for governing the Intellectual Property (IP) generated through government funding.

Foster Collaboration and Knowledge Sharing: Promote stronger collaborative linkages between the industry, academic institutions, and DRDO to facilitate the transfer of knowledge and technology. Establish specialised centres of excellence and technology incubation facilities to drive innovation along-with grants and low interest rate loans for R&D in key technologies.

Skilled Human Resource. Implement comprehensive skill development vocational training and internship programs in collaboration with industry and academia, to address the shortage of skilled labour especially in critical and futuristic technologies. Towards this end qualified Indian diaspora and global experts abroad need to be tapped.

Forge strategic partnerships with friendly nations for co-development and co-production of systems like hypersonic weapons, unmanned platforms and next generation aircraft.

Procurement Domain

Streamline and Simplify Procurement Processes: Re-engineer the entire acquisition process to eliminate redundancies, multiple layers of approvals (MoD, finance ministry and CCS) and diffused structures. Simplify overly complex procedures supported by effective enterprise governance, digital architectures and AI, to achieve a substantial reduction in overall timelines. Laying out clear criteria for decision making at different levels will reduce ambiguity and empower executives to take positive decisions. A hybrid model of decision making to balance efficiency and accountability is recommended, instead of the present system of collegiate decision making, which is a ‘one size fits all’ approach. Adopt a ‘parallel processing’ approach for various stages of the procurement cycle to minimise sequential delays. Reduce financial approvals at multiple points (AON, RFP, contract negotiations). Increase delegation of financial and administrative powers to lower levels within the procurement hierarchy to enable faster decision-making. Maintain detailed digital records of all acquisitions using secure systems like Blockchain. Synergise procurements by DRDO and DPSU’s with the overall Service acquisition plans which are presently stand-alone.

Adopt the Chinese IDAR concept (Introduction, Digestion, Assimilation, Re-innovation) for all futuristic acquisitions.

Enhance Transparency and Accountability: Establish stricter and clearly defined timelines with built-in accountability mechanisms for any deviations or delays at each stage of the procurement process.

Optimise Vendor Selection and Contract Management: Consider a ‘technology first’ approach in vendor selection, where superior technologies are given higher weightage. Formalise graded indigenisation timelines for different procurement categories to provide a more structured pathway towards achieving higher levels of indigenous content. Introduce well-defined clauses that limit a contractor’s liability in certain circumstances, to potentially reduce the cost of tendering. Explore alternative mechanisms to address contractor non-compliance rather than relying solely on ‘march-in rights’, to foster a more collaborative environment.

Strengthen Institutional Capacity: Establish a dedicated, empowered, and highly specialised Defence Capability Acquisition Organisation (DCAO), staffed with personnel possessing the necessary understanding and technical and commercial expertise, to effectively manage the entire acquisition lifecycle. Ensure consistent and adequate budgetary allocations for defence acquisition, aligning these financial resources with the long-term strategic goals for achieving self-reliance.

Simplify the DAP 2020: With separate documents for the Technology and Industrial Strategies, the DAP should become a lean user-friendly document. There should be a shorter version for small vendors with a quick start guide summarising key steps for beginners, online tutorial and video guides. An online portal with hyperlinks between sections and downloadable, maybe considered.

Conclusion

Operation Sindoor has shown that establishing a strong and self-reliant defence industrial base is imperative for India’s national security and strategic autonomy, particularly in the context of an increasingly turbulent global order. It underscores the need for comprehensive reforms across the conceptual, industrial, technology, and procurement domains to achieve the overarching goal of producing frontline defence equipment indigenously within the next 15 to 20 years. Operation Sindoor has also shown that India possesses the potential to build cost effective and frontline weapons and systems. With sustained commitment to these strategic policy interventions and a focused, collaborative effort, India can develop a robust defence industrial base, thereby ensuring its national security and solidifying its position as a significant global power in the decades to come.