The policies and processes for indigenisation of defence equipment need a relook
Atul Chandra
India’s armed forces are tasked with the onerous responsibility of defending the nation’s borders against China and Pakistan. Having traditionally maintained a focus on Pakistan, the armed forces are now in a Catch 22 situation with the need to rapidly build up their capability against an increasingly belligerent Chinese threat on its eastern borders. The need to reequip Indian forces has resulted in sizeable orders for defence equipment in recent times. However, much of this has primarily gone to foreign OEMs as the indigenous defence industry (both public and private) is yet to develop state-of-the-art defence equipment needed by the armed forces.
Despite decades of government funding, India’s defence industry is well behind the capability of Israel, South Korea and Turkey, which have all leveraged their defence partnerships with the US to develop highly capable domestic defence industries. Interestingly, no country that is dependent on foreign defence technology has built up a strong and sustainable domestic defence industry. According to a 2020 working paper by the Stimson Center, 70-85 per cent of India’s military platforms were of Russian origin. India’s indigenous defence ecosystem is largely structured towards supporting defence equipment first inducted in the 1980s and 90s and has proved to be unable to pivot to deliver state-of-the-art clean sheet designs, except for a few exceptions when it comes to large defence platforms such as the Hindustan Aeronautics Limited’s (HAL) HTT-40 Basic Trainer Aircraft (BTA), Light Combat Helicopter (LCH) and Light Utility Helicopter (LUH); the Akash Surface-to-Air Missile (SAM) system, etc.
Of course, the Indian defence industry has achieved spectacular successes in the design of development of strategic systems such as long-range ballistic missiles, nuclear submarines, et al. But by and large, defence public sector undertakings (DPSU) appear to be content to deliver minor improvements on platforms produced under licence with a focus on indigenisation of spares. Despite the enormous expenditure in licence-production of Russian origin platforms such as the MiG-21, MiG-27 and Sukhoi Su-30 MKI; T-72, T-90 Main Battle Tanks (MBT) or BMP-II Armoured Personnel Carrier (APC), which were built under licence by the Heavy Vehicle Factory Avadi (HVF Avadi) and Ordnance Factory Medak respectively, the native capability to substantially upgrade these platforms indigenously has not been accomplished, in many cases, decades after these programmes started (and ended in the case of the MiG-21, MiG-27, T-72).
The same is the case with western origin systems such as the BAE Systems Hawk Mk132 or Sepecat Jaguar, which were built under licence by state-owned airframer HAL. While the HAL has undertaken its most ambitious upgrade of a fighter aircraft manufactured under licence in the Jaguar DARIN III programme, it has faced numerous delays and a planned re-engining effort has been abandoned as well. The contract for upgradation of 61 Jaguar Display, Attack, Range, and Inertial Navigation-I (DARIN-I) aircraft to DARIN-III standard was signed with the HAL in December 2009 with Initial Operational Clearance (IOC) and Final Operational Clearance (FOC) originally to have been achieved by December 2012 & June 2013 respectively. The original delivery of all series upgrade aircraft was to have taken place by December 2017. The IOC has eventually obtained in February 2017. The Jaguar DARIN III is a substantially improved variant of the aircraft as compared to the older DARIN II version and features a Multimode ELTA Radar, Glass Cockpit with Dual SMD and EFIS, Open System Architecture Mission Computer, Solid Stage Digital Video Recording Systems and additional functionalities relating to display and data handling.
Air Systems
The ministry of defence (MoD) and DPSUs have largely failed to leverage transfer of technology (ToT) agreements gained for its licence production agreements to manufacture Russian and western origin military aircraft in India. Upgrades to these platforms have been limited to avionics and integration of weapons, instead of substantial upgrades including those related to the aircraft structure. One glaring example is the failure to upgrade the IAF’s Su-30MKI fleet, which has only received minor avionics and weapons upgrades in over two decades of operational service. The HAL, however, did successfully complete the structural modifications for carriage of BrahMos Air Launched Cruise Missiles (ALCM) on some portion of the IAF’s Su-30 MKI fleet.
The original IAF contract for the supply of 40 aircraft inked in November 1996 envisaged development of the Su-30MKI aircraft by integrating the Su-30MK (Commercial version of Su-30M unveiled in 1993) with western, Russian and indigenous avionics and their licence manufacture for indigenous production under a ToT agreement with Rosoboronexport (ROE). Those were the first Su-30MKIs to enter the IAF. Thereafter, HAL obtained three contracts for manufacture of 140, 40 and 42 aircraft in December 2000, March 2007 and December 2012 respectively. The first HAL-assembled Su-30 MKI was delivered to the air force in November 2004.
The Su-30MKI programme was divided into four phases. Phase I was the Flight Testing Phase (FTS), which envisaged delivery of the aircraft to the IAF, after system checks, ground and flight tests and final finishing of aircraft, which were fully imported. Phase II involved the final assembly by HAL of major assemblies and equipping of aircraft plus above Phase I activities. In Phase III of the programme, only the Su-30MKI fuselages were imported from Russia and the rest manufactured by the HAL. Phase III also involved the start of production of aircraft parts from raw materials and all components and assemblies were manufactured by the HAL. Phase IV was to manufacture of the Su-30 MKI airframe from raw materials plus above activities. By the end of Phase IV, the Su-30MKI would have been fully indigenised.
Indigenisation of the Su-30MKIs engine, involved five phases. Phase I involved the delivery of fully imported engines from Russia, which were also fully tested in Russia for re-testing and delivery. In Phase II, the HAL received the engines from Russia after first test and then undertook dismantling, defect analysis, rework, assembly and Phase I tasks. For Phase III, the HAL undertook disassembly, assembly of assembly units and engines for acceptance test, disassembly, flaw detection and assembly for acceptance test before performing the final acceptance test. Phase IV involved all the work under Phase III and manufacture of parts, assembly and testing of units, sub-units and modules of the engine by the HAL. It was in Phase V, that the engine was considered to be fully indigenised as it manufactured from the forging and casting stage.
The HAL has now completed the licence production of 222 Su-30MKIs and it is unlikely that the Indian defence industry will produce such a large number of fighter aircraft of foreign origin ever again. One would have assumed that after producing 222 Su-30MKIs in India under licence and manufacturing the aircraft from raw material phase, sufficient knowledge would have been gained to undertake a Mid-Life Upgrade (MLU) of the Su-30MKI fleet with minimal participation from the Original Equipment Manufacturer (OEM). The proposed Su-30MKI upgrade was to have integrated with a new radar, weapons control system, mission computer, communications suite, and several new air-to-air and air-to-ground munitions, including indigenous ones.
The cost of licence-produced Su-30MKIs was also higher than those directly procured from the Sukhoi Design Bureau. In January 2019, in a reply to parliament, the MoD stated that the costs of the Russian Su-30 and indigenously manufactured Su-30MKI were not the same, and that a one-to-one comparison of cost may not be appropriate. The MoD stated that the higher cost of indigenously manufactured Su-30MKI is due to the following factors: additional modifications were incorporated on indigenous Su-30MKIs to suit IAF requirements; due to it being a ToT programme, costs were involved towards payment of licence fee to the Russian side; the low volume of production of Indian Su-30MKIs, as compared to Russian Su-30, thereby lowering economies of scale and import of raw materials and proprietary components from Russia which resulted in a dependency on Russian OEMs for kits, whose costs, were not proportionate with the kit contents.
Interestingly, the MoD claimed then that since the facilities were indigenously established, future production supplies would likely to be cheaper if new orders for bulk production were placed on the HAL. The MoD also stated that indigenous manufacturing of the Su-30MKI had created advanced skill sets in the country, enhanced self-reliance, and would result in lower life cycle cost and reduced dependency on the OEM on repair and maintenance and faster turn-around time and quick support to IAF bases.
The licence production of the Su-30 MKI and manufacture of this aircraft and its engines from raw material phase, do not appear to have had any significant benefit on India’s indigenous fighter aircraft developmental programmes or to the Kaveri engine. The Su-30MKI was essentially an 80s era airframe coupled with 90s era avionics and one can safely assume that not much of its manufacturing technology was imbibed or was useful for the Tejas Mk-1 programme or the upcoming Advanced Medium Combat Aircraft (AMCA). The Tejas Mk-1 makes heavy use of composites unlike the Su-30MKI and has a Western origin engine in the GE F-404, while the AMCA will be even more advanced due to its stealth features, advanced flight control system and powerful 110 Kn engines.
Land Systems
The Indian Army is thought to have approximately 3,700 MBTs in service. The fleet comprises almost entirely of Russian origin T-90S and T-72M/M1 MBTs, in addition to an insignificant number of indigenously developed Arjun Mk-1 MBTs, 45 each of which are operational with the 43rd and 47th armoured regiments. India started operating Russian origin MBTs in the T-54 and T-55 which were inducted starting in the mid-60s. The T-55 was finally declared obsolescent by the army in December 2011, while the Army’s fleet of nearly 450 T-54s, which entered service between 1971 and 1988, were to have been phased out by 2019.
India’s T-90S tanks were first ordered in March 2001, when Rosoboronexport was contracted for the supply of 310 tanks. About 124 fully formed tanks were directly imported from Russia and the remaining 186 MBTs were delivered as 86 Semi-Knock Down (SKD) kits and 100 Complete Knock-Down (CKD) kits. ToT for the manufacture of these tanks in India was to be provided by Russia. A follow-on order for 124 more direct import tanks and 223 SKD kits was contracted. The first batch of T-90S tanks manufactured in India were delivered to the army in August 2009. The local manufacture of 236 more T-90S tanks was contracted for in December 2013. This was followed by the final order for 464 T-90S/SK MBTs in November 2019. In all, the MoD has ordered just over 1,350 T-90S/SK MBTs from Russia. In recent years, there has been a heavy focus on indigenisation of the army’s T-90 fleet, along with upgrades such as retro-modification of T-90 commander sights on 957 MBTs. About 1,512 mine ploughs are also being acquired for the T-90S/SK fleet under a July 2020 contract inked with the Bharat Earth Movers Limited (BEML). Deliveries are planned for completion by 2027.
The manufacture of the T-90 MBTs 1000 HP V92S2 engines and T-72 MBTs 780 bhp V46-6 engines were also indigenised in 2018. The cost of an indigenised engine is nearly half that of an engine imported from Russia. According to information provided by Armoured Vehicle Nigam Limited (AVNL) officials to the Parliamentary Standing Committee on defence, the T-90 and T-72 today feature indigenisation levels of 80 per cent and 90 per cent respectively. However, despite being produced in such large numbers in India both the T-90 and T-72 have not been retrofitted with a Remote-Controlled Weapons System (RCWS), an Active Protection System (APS) or an integral drone system. The MoD, however, is accelerating efforts to induct RCWS but it will be sometime before these fructify into contracts and are inducted into service. It issued a request for proposal (RFP) in November 2022 for the procurement of 90 RCWS with the Russian 12.7 mm NSVT (T stands for tank) heavy machine gun. The procurement is being pursued under the fast-track procedure under the category Buy (Indian). The RCWS 12.7 mm NSVT is being acquired for the army’s armoured regiments on the northern borders.
The army is also thought to operate approximately 2,400 T-72 MBTs, the first of which were inducted in 1980. As part of an upgrade effort that began in 2014, 1,000 T-72s received a new Thermal Imager Fire Control Systems (TIFCS). The work was undertaken by local firm Alpha Design Technologies Limited (ADT) in partnership with Israel’s Elbit. Uprated 1,000 HP engines, are being fitted on 1,000 Indian T-72 MBTs as part of 2018 contract, which will afford the tanks with better performance as their weight had increased from 41 to 44 tonne.
Again, it is hard to fathom the real benefits of the production of over 2,000 Russian origin MBTs in India. These tanks have hardly had an impact on the indigenously developed Arjun MBT and its variants. The manufacturing technologies acquired via ToT are unlikely to be of any use for the Future Infantry Combat Vehicle (FICV) programme. Neither has the licence production provided the knowledge for integration of RCWS or APS, nor has it allowed for provision of better in-country support for these MBTs. As per a March 2017 report by the Comptroller and Auditor General (CAG), it took up to 836 days for a T-72 MBT to return from overhaul as compared to the norm of 144 days. It stated by the end of 2015-2016, 479 T-72 MBTs were awaiting overhaul, which was around 20 per cent of the army’s total holding.
The AVNL which also handles production of the BMP-II amphibious Infantry Combat Vehicle (ICV) says that the 1980s vintage ICVs have been indigenised to the extent of 98 per cent while its engine is 90 per cent indigenised. The government-owned AVNL, which was earlier part of the Ordinance Factory Board (OFB), showcased upgrades being offered for the Indian Army’s legacy BMP-II amphibious ICVs. The first BMP-II built under licence rolled out from Ordnance Factory, Medak in 1987. It is estimated that over 2,400 BMP-IIs, across all variants are operational with the Indian Army. The BMP-II entered Indian service in 1985 but the fleet is largely incapable of conducting night operations. The BMP-II when inducted had a service life of 30 years.
As per a 2016 CAG report, on an average, approximately 35 per cent of the total BMP-II fleet was due for overhaul between 2010-11 to 2015-16. As per the CAG data, only 10-15 per cent of the vehicles due for overhaul successfully completed their maintenance work. With the current supply chain issues with Russia, this situation is unlikely to have changed significantly for the better.
Despite having produced such a large number of ICVs, the BMP-II has received only minor upgrades and even the latest order placed in June 2020 for delivery of 156 new BMP II/IIKs by 2023 are largely similar to the first BMP-IIs which rolled out from Indian factories in 1987. In recent years steps have been taken to substantially upgrade these legacy ICVs. In September 2020, the army issued an Expression of Interest (EOI) to upgrade 811 BMP-II/IIKs with a third-generation Thermal Imager (TI)-based gunner and commander sights along with a modernised FCS and automatic target tracking capability.
At the DefExpo 2022, the AVNL showcased a BMP-2M upgrade with a fifth generation SPIKE Anti-Tank Guided Missile (ATGM) from Rafael and a loitering munition system from Israeli firm Avision. The addition of the fifth generation SPIKE ATGM will provide a dramatic upgrade to the combat capability of the BMP, which is presently equipped with second generation Milan-2T and Konkurs ATGMs. The SPIKE ATGM can engage targets out to a range of 5.5 km in ground launch mode. The BMP version of Avision’s loitering munition system weighs 12 kg and has a 4.5 kg warhead. It can stay in the air for one hour. Ideally such an upgrade should have been conceptualised at-least a decade ago and entered operational service at least a few years ago. The BMP-2M would have gained the ability to operate in urban terrain while addition of new weapons would allow the ICV crew to independently close the sensor-shooter loop.
R&D Investments
Indian defence exports, which grew to Rs 10,746 crore in 2018-2019, declined for two successive years to Rs 9,116 crore and Rs 8,435 crore in 2019-2020 and 2020-2021 respectively before increasing to Rs 12,815 crore in 2021-2022. India exports defence equipment and parts and components to more than 75 friendly foreign countries but the value of defence exports has largely remained static if one considers the decline in defence exports in 2019-2021.
For the period from 2022-2023, (as of February 2023), Indian defence exports amounted to Rs 10,967 crore. The government has set a target of achieving defence manufacturing worth Rs.1,75,000 crore including defence exports of Rs. 35,000 crore by 2024-25.
However, the Parliamentary Standing Committee on defence’s report on the Directorate of Ordnance (Coordination and Services)–new DPSUs, DRDO and the NCC released in March 2023 noted that exports by the new DPSUs were shrinking year by year. During 2019-20, the value of export was Rs. 140.94 crore, it declined to Rs. 94.61 crore in 2020-21 and in 2021-22, the export stood at only Rs. 81.08 crore.
According to the MoD, the expenditure incurred on defence procurement from foreign sources has reduced from 46 per cent of overall expenditure to 36 per cent in the last four years, that is 2018-19 to 2021-22. Despite this decrease, the total value of all offset contracts is USD 13.21 billion, with the quantum of offset obligations for which claims have been submitted standing at USD 6.42 billion.
The Parliamentary Standing Committee provided important insights into the level of Research & Development (R&D) spending of the erstwhile OFBs, which have now been converted into seven DPSUs with 41 units, with nearly 70,000 employees.
These seven DPSUs cover the areas of ammunition and explosives, vehicles, weapons and equipment, troop comfort items, ancillary, opto electronics and parachutes. In the first six months of 2022, the AVNL had an R&D expenditure of Rs 13 crore. For 2023, an R&D expenditure of Rs 60 crore is planned. Thirty two new projects under development worth Rs 414 crore are under way, these include work on a future MBT, light tank and upgrade of T-72, T-90 MBTs with 1,000 hp engines. At present, import content in items produced across these seven DPSUs is approximately 8-10 per cent, which also includes spares and components.
The DRDO’s 2022-2023 budget was around Rs 21,000 crore, which was 5.53 per cent of the defence budget. The DRDO has requested a 2023-2024 budget of Rs 23,260 crore. There has been a drop in DRDO expenditure as a percentage of total GDP over the past few years. From the data provided by the MoD, the percentage share of defence R&D budget to total GDP has come down to 0.078 per cent in 2021-22 from 0.088 per cent in 2017-18.
The DRDO’s projected 2023-2024 requirement of Rs 23,263.89 crore at the budget estimate stage, is 5.1 per cent of the defence budget. As per the data provided by the MoD to the Parliamentary Standing Committee, the exclusive R&D budget is Rs 5,000 crore only, out of which 25 per cent, that is, around Rs. 1,300 crore is earmarked for the private sector. Some of the R&D projects under way during the current year are Advanced Medium Combat Aircraft (AMCA), Twin Engine Deck Based Fighter (TEDBF), Unmanned Aerial Vehicles (UAV), Extended Range Surface to Air Missile, Full Mission Simulators for LCA, Advanced Material for Aero Engine Components, Bridging Solutions, Void Sensing Fuse, Unmanned Surface Vehicles etc.
The DRDO is also undertaking the Technology Development Fund (TDF) scheme, in which it is partnering with the Indian industry so that these companies deliver significant upgrades/ improvements/ further developments on existing products/ process/ application etc. It is also assisting companies with technology readiness level upgradation from TRL3 onwards to realisation of products as per the tri-services requirements. The other objectives are development of futuristic technologies/ innovative products, which can be useful for the defence applications and import substitution of components whose technologies does not exist with the Indian industry.
In a statement to Parliament in March, the MoD stated that to date a total of 68 projects at total cost of Rs 287.40 crore have been sanctioned under the Technology Development Fund (TDF) scheme, out of which the DRDO’s share is Rs 250.12 crore. A total fund of Rs 58.87 crore out of the DRDO share of Rs 250.12 crore has been released. Under the TDF scheme, 68 projects were sanctioned in the country with 14 projects each in Maharashtra and Karnataka, followed by nine each to Tamil Nadu and Telangana.
A Bridge Too Far
Despite the government’s optimism and the undoubted competence of large sections of India’s private sector defence industry, the fact remains that the inability of the DPSUs to leverage large sums of money spent on licence production of Russian and western defence equipment into developing their own systems or substantially upgrading these legacy platforms has left the Indian armed forces with a Hobson’s Choice. Budget constraints and a strong push towards growing the indigenous defence ecosystem means that the military’s plans to replace obsolete systems are being delayed because of time taken for indigenous equivalents to meet their exacting standards, while the DPSUs have only gained to ability to undertake minor modifications on platforms that they have built in thousands under licence.
The reluctance to provide sufficient funding for R&D for both the DRDO and DPSUs and the need to continue development of large, expensive strategic platforms such long-range land and submarine launched ballistic missiles, nuclear submarines, aircraft carriers, advanced combat aircraft, often means that there is little money for R&D in advanced drones, loitering and smart munitions, unmanned ground systems for the army, unmanned surface vessels for the navy, new generation sensors, command and control networks, etc. An honest appreciation of the successes and failures of India’s licence-production partnership with Russia will better inform future such initiatives.
After all India shared a special partnership with Russia, which was happy to provide access to technology, which nearly all other nations were loath to share with India. But the licence manufacture of aircraft, tanks, armoured vehicles and other systems from Russia, have hardly helped in growing India’s own defence ecosystem. For the Indian defence ecosystem to grow, greater and sustained investments will have to be the way forward.