INDEPENDENCE DAY SPECIAL
DefInsights VOL.1 ISSUE 3 ~ AUGUST 2017
A SUGOSHA PRESENTATION
FUTURE PERFECT
STRONG MILITARY INDUSTRIAL BASE LEVERAGING DEFENCE MSME INTERVIEW: BEL CMD Mr. M V Gowtama
TEJAS PROJECT HAL’S PRIDE
CONTENTS PROJECT APPRAISAL
POLICY ANALYSIS
05
HAL should take Tejas project ownership
19
here is how to boost defence fdi in india
SOUND BYTE
Marching towards self-reliance
INTERVIEW
BEL aims around US$1.6 bn revenue
14
16
BUSINESS BUZZ
22
iNDIAN Navy seeks 340 medium-range anti-ship missile systems
EDITOR’S NOTE EVENTS OPPORTUNITIES
Editor’s Note
This is why India’s worried over Chinese submarines in the Indian Ocean
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ifty years after it began to operate a submarine, India is struggling with a depleting underwater force, even as China’s massive fleet has increased patrolling the Indian Ocean, considered as New Delhi’s backyard. To add to India’s worry, China has successfully sold its submarines to both Pakistan and Bangladesh in South Asian neighborhood.
Indian Navy’s submarine arm has just 13 conventional diesel-electric vessels, down from 21 in 1996. India also currently operates a locally built nuclear-armed submarine (SSBN) INS Arihant since 2016, and a borrowed Russian nuclear-powered submarine (SSN) INS Chakra since 2012 on a 10-year lease worth $1 billion. In July 2017, India initiated the process to build six modern diesel-electric submarines and sought information on technology transfer from six global shipyards. India is also preparing to induct a newly built submarine, Kalvari, under a 236-billion-rupees project awarded in 2005 to the state-owned defence shipyard, the Mumbai-based Mazagon Dock Shipbuilders Limited, as part of a six-vessel Project 75. These submarines are being constructed in technology collaboration with the French firm DCNS (now renamed as Naval Group). The first of the six Scorpene submarines, christened Kalvari, is to be delivered to the Indian Navy in August this year, according to a parliamentary reply by junior defense minister Subhash Bhamre on July 21. But Navy officials now say it may be delayed further, as the vessel is still going through trials. Project 75 is already delayed by five years, even as its construction missed its 2012 deadline for delivery of the first vessel. Five more are now under different stages of construction, with the second one having been launched in waters only in January this year. The two new submarines projects are part of India’s plan to have 24 conventional new submarines in its fleet by 2030, a proposal approved in 1999. India has in February 2015 approved the construction of six new nuclear-powered submarines at a cost of 600-billion rupees, which now forms part of the 24-vessel plan. But these are still not enough for India to meet its target and deadline for shoring up its submarine fleet, even as the Navy estimates that it would requires at least 18 conventional, six nuclear-powered and four nuclear-armed submarines to deter both China and Pakistan. August 2017 | DefInsights | 3
Against this backdrop, yours truly chatted with Sugosha Advisory Chief Executive Officer Colonel K. V. Kuber, an Indian Army veteran, on the prospects of the Indian Navy’s submarines fleet. Here is the Q&A to gain perspective on the matter at hand: Q. Is India’s approach to get new submarines of Project 75(I) under the Strategic Partners initiative a good move, considering the urgency in force accretion of the underwater fighting arm of the Indian Navy? Would this mean a further delay in the process that is already seven years late? A: We are at the cusp of national transformation. Our industry is bubbling with energy. While the operational urgency cannot be undermined, there is a need for the Indian Navy to fight its wars with India-made submarines. I think, India, as a nation, must make the SP model happen and encourage domestic shipyards to have global tie-ups for meeting the demands of the Indian Navy. This way we would have encouraged an inorganic route to speed up the acquisition process. Even if the government goes for a global tender to meet the urgent requirements of the Navy’s submarine arm, India would still be years away from acquiring them, due to the potential conflicts in the acquisition process and the long-drawn procedure, invariably resulting in either litigations or accusations and counter-accusations leading to further delays. I believe this Strategic Partnership is the fastest route. Q. Considering that the Kilo class and the HDW submarines are already too old, is the situation likely to get any better for the Indian Navy? A: The choice was always between the French Naval Group (formerly DCNS) and German HDW. I now see the options have included the traditional Russians, Spain’s Navantia, and a new entrant in this game, Mitsubushi-Kawasaki (MKI), along with Sweden’s Kockums. Well, India has opened and can hope for a good platform that the Indian Navy would choose to meet its requirements. The Strategic Partners model has this fundamental strength of letting the choice of the platform and the potential Strategic Partners be with the Government of India, while the market forces determine the actual Strategic Partner. Q. Are the Chinese miles ahead of India in terms of its submarine fleet strength and will that pose any serious trouble to India, considering that their vessels have already made several forays into the Indian Ocean Region over the last five years? China has also sold submarines to nations like Bangladesh and Pakistan in the neighbourhood in the recent times. Does this pose a challenge to India in any way? A: Yes, indeed, the Chinese are a little ahead. We have recently seen the Yuan class submarines wading their way into the Indian Ocean Region, albeit under the scrutiny of our own ‘RUKMANI’ satellite. They have also sold to our neighbours. However, as part of the military diplomacy, we have brought Bangladesh under our umbrella by signing off the most aggressive defence pacts, thanks to our Prime Minister’s vision. Pakistan will remain a pin-prick and that can be handled with ease by the Indian Navy. However, it will be the Strategic Partnership model that will provide the Indian Navy and the nation with the ability to match and pose a credible threat to the Chinese, to put a break on their expansionist adventures. Q. What’s the best way forward for India on building on its 24 submarines under the 30-year plan that’s already delayed by a decade now? A: The best way forward is to create a formidable domestic defence industry, hand-hold them to make them successful and create inherent strengths, to be able to meet the demands of our forces from our soil. This will encourage our potential adversaries to exercise caution, thus ensuring peace in the Indian Ocean Region. —Bipindra N C 4 | DefInsights | August 2017
Policy Analysis
here is how to boost defence fdi in india G
By Colonel K V Kuber
overnment of India has taken a number of measures to increase the participation of Indian companies in the defence sector. From liberalising the licencing regime to making remarkable changes in the Defence Procurement Procedures (DPP), according Acceptance of Necessity (AONs) on the ‘Make in India’ platform provided by the ‘Buy Indian’, ‘Buy and Make Indian’ and the ‘Make’ provisions of the DPP, the government has done all that it could to energise the Indian defence industry. Easing of provisions of No-Objection Certificates (NOC) for exports through time-bound online processes has been accomplished and populating the SCOMET chapter on defence products, which hitherto has been vacant for a long time, is a work in progress, as is the membership to other control regimes, apart from the Missile Technology Control Regime, which we joined in early 2016. In consonance with all of this, the government has also revisited the extant Foreign Direct Investment (FDI) policy and brought it in sync with the other policies and procedures, by taking a bold step of inviting FDI in the defence sector up to 100 per cent, with up to 49 per cent through the automatic route and the rest with government approval. Foreign Investment Promotion Board (FIPB) is also being eased out to simplify processes. The formal thrust of the DPP-2016 has been incorporated in the ‘Buy IDDM’ (Indian Designed, Developed, and Manufactured), ‘Buy Indian’ and ‘Buy and Make Indian’ with simplified procedures for effective implementation. The ‘Make’ acquisition strategy has been completely redesigned to include the small industry segment (MSMEs) with great incentives and purchase guarantees. As outlined by the DPP 2016, ‘Buy’ would mean an outright purchase of equipment and could be ‘Buy (Indian)’ or ‘Buy (Global)’. ‘Indian’ would mean Indian vendors only and ‘Global’ would mean foreign as well as Indian vendors. ‘Buy (Indian)’ must have minimum 30 per cent indigenous content if the systems are being integrated by an Indian vendor. Buy
IDDM is the key for creating an ecosystem in the country with emphasis on Indian design or with the caveat of indigenous manufacture. ‘Buy and Make’ would mean purchase from a foreign vendor followed by licensed production/indigenous manufacture in the country. ‘Buy and Make (Indian)’ would mean purchase from an Indian vendor including an Indian company forming joint venture/ establishing production arrangement with an original equipment manufacturer (OEM) followed by licensed production in the country. ‘Buy and Make (Indian)’ must have minimum 50 per cent indigenous content on a cost basis. Included in the DPP-2016 is a liberal offsets guidelines of 30 per cent to 50 per cent for any arms imports above a threshold of Rs. 2,000 crore to promote transfer of technology amongst other avenues such as direct purchase and FDI in terms of equity and transfer of technology as well as investment in kind in terms of assembly lines, jigs and fixtures. So what? These measures were incentives for foreign OEMs to bring in technology into the country. However, this has not happened, we are still grappling with screw-driver technology. In the prevailing global geo-political-economic order, it would be difficult for foreign OEMs and their countries that control these technologies to part critical technologies. Control regimes are very strong and technologies are well guarded. War-machines and arms industry lead the global technology innovation and applications. India, as a nation, is at the cusp of technology breakthrough and proliferation in manufacturing sector. It has established a niche space in the Information Technology sector. But, is India there in engineering design and high-end critical design elements? This is a serious question the nation must ponder over. There is a time in history of nations when the revolution is forced upon the state to come up to what is expected of the state. While the Armed Forces are at August 2017 | DefInsights | 5
Policy Analysis
nerves-end in combating terror and busy protecting the strategic interests of the nation, it is the nation’s call to respond. India has tried the organic route of the Defence Research and Development Organisation (DRDO) and the Defence Public Sector Undertakings (DPSUs) for too long, they have delivered to the Forces in time of need and continue to do so. Is that enough? Is India still satisfied with the 70 per cent or more imports that we make even in the ‘Buy (Indian)’ categories of procurement? Is the MoD in sync with the ‘Make in India’ initiative of the nation? Do we have to do more? Where is the FDI in all of this? FDI is not a magic wand with all the solutions for the defence industry. However, it is also a fact that very little has happened in this space. Is this because of the lack of confidence of the foreign OEMs and their governments in the ease of doing business in India? Is this because of the bureaucratic lethargy in extra-ordinary delays in decision making to push programs through? Or is this because the nation cannot fund the programmes for the Forces and hence a deliberate delay is caused sometimes tending to infinity. All of this causes uncertainty in the minds of the industry, both, domestic and foreign. One of the key defence industry reforms initiated by the Ministry of Defence in the last three years, mooted by the Dhirendra Singh Committee - the Strate6 | DefInsights | August 2017
gic Partnerships - has seen the light of the day. Will the programmes listed therein be signed off before end of 2018? Any delays in execution could once again put the policies and programmes associated, in jeopardy. One of the major causes for delays in most programs has been attributed to the finance wing of the Ministry of Defence as also the Ministry of Finance. Most objections on procedures and processes, and oftentimes, fundamental issues have been raised at late stages in the procurement time-cycle. Is this because India as a nation is unable to fund the programmes and therefore, its Ministry of Defence uses the bureaucracy to do the honours to cause delays, through effective use of the English language? It could be only an apprehension or may be true too. Does India need to go only the organic route and hold the armed forces on, till such development takes place indigenously - could be infinity - or the DRDO or the other organs of the government come up with development when the armed forces no more require the system, or even the other world has gone far ahead fighting our armed forces with superior weapon system? In the situation that India is in, the latent potential energy in the industry is overwhelming. The government has done well to support the domestic industry and has opened up the private sector in more ways
Policy Analysis
Just US$174,000 FDI in Defence in 3 years
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ndia has got only pittance in the form of Foreign Direct Investment (FDI) - US$ 174,000 (really?) -- in the last three financial years from 201415. Till May 2017 in the current financial year that will end in March 2018, the FDI inflow has been zilch. What’s more, France has been the biggest contributor among the only two foreign investor-nations in these three years. No other country has contributed even a penny. France has done US$ 172,000 of investment in India, while Israel has done just US$ 2,000 in all. There are shocking facts shared by Indian Minister of State for Defence Dr. Subhash Bhamre with Parliamentarians on July 28, 2017. This must be a real low for the Narendra Modi government that has done so much to improve the FDI policy in the defence sector in the last three years.
The government has gradually liberalised the FDI policy in the last two years. But Bhamre gave an interesting reason for the low FDI inflow. “Since defence projects involve long gestation period and investment inflow takes time even after the projects are approved and contracts awarded, there is always a time lag before the impact of FDI is visible.” Here is the date given by Bhamre in reply to a question from the parliamentarians: “In the year 2014-15, FDI of US$0.77 lakh and US$0.01 lakh has been received from France and Israel respectively. In the year 2015-16, FDI of US$ 0.95 lakh has been received from France. In the year 2016-17, FDI of US$ 0.01 lakh has been received from Israel. In the current year, till May 2017, no FDI inflow has been received.”
than one to support the armed forces. What then is holding up FDI in the sector? There is a definite requirement to infuse money into the sector. This could be done by external borrowings, foreign line of credit, and even through banks that lend to governments to support their programmes. This, however, may not be the best of options. Therefore, FDI, with its instruments of support, is considered essential. FDI could typically include equity, technology, investment in kind, institutional investors, Non-Resident Indians (who, of late, are in the news for sending back home huge sums of money) and others. Technology is critical to the development of the sector. However, foreign OEMs are more comfortable in transfer of technology, if they have management control over the Joint Venture (JV)/ Indian company so formed for this purpose. Management control, however does not mean total control, and hence, checks and balances are necessary. In all such ventures, it may be pertinent for the government or one of the organs of the government to hold a golden share, with representation on the Board, that will help monitor the progress and health of these companies. Thus, it is essential, that India embarks on both, organic and inorganic growth. While the government may approve a JV or a fully owned subsidiary with
The overall FDI inflow during the 2016-17 was US$ 60.08 billion (about Rs. 3,86,885 crore). The cumulative FDI in the country during April-May this year was US$ 10.02 billion (about Rs 65,000 crore). India had notified its latest, revised FDI policy in the defence sector on June 24, 2016. As per the extant FDI Policy, foreign investment up to 49 per cent is permitted under the automatic route and beyond 49 per cent is permitted through the government approval route, wherever it is likely to result in access to modern technology or for other reasons to be recorded. The FDI policy is subject to Industrial Licence under the Industries (Development and Regulation) Act, 1951. Further, the policy is also applicable to manufacturing of small arms and Ammunition under the Arms Act, 1959.
100 per cent FDI, it may also launch an indigenous program for home-grown technology. This will enable our DRDO to compete, a timeline would be set for the same. In course of time, India could witness collaboration between the government institutions and industry, both domestic and foreign. Where do we go from here? There have been a number of debates since the time of complete protectionism prior to the 1991 industrial policy to the changes affected in the Press Note 4 of 2001 and Press Note 4 of 2002, inviting 100 per cent participation of private industry in the defence Sector with a 26 per cent cap. Then, it was argued that 49 per cent will make a difference. It took more than a decade and a new government with a dynamic outlook to implement that. It now seems this is not enough. After all, between 26 per cent and 49 per cent nothing has changed, in so far as the industry structures are concerned. Of course, some restrictions have been removed, and the process eased. Well, that is not enough. The call of the hour is to take bolder steps like permitting 100 per cent FDI in defence industry, and incentivise the OEMs to set up plants in India. Just 100 per cent FDI may not be enough. This will need to be dovetailed into progressive Aerospace and Defence policies of states in sync with the federal reforms. This way, it can be ensured that key technology will August 2017 | DefInsights | 7
Policy Analysis not be denied and Indian vendors would have the opportunity to get into the global supply chains of world leaders, till such time Indian companies themselves become one. While the industry is opened up with unrestricted FDI, following must be mandated :* Outsourcing with clear norms of up to 50 per cent or above * Development of supply chain: This has to be demonstrated for furthering business. * Integration of development partners, in consonance with the above. * Integration into global supply chain, with demonstrated capability. * Buy India: Buy raw material from India where available; this has to be done with scant respect to lowest bidder (else, China would take away this business). Quality assurance will be the norm, while adhering to such a policy. Also, in the first instance even if the raw material is sourced at, say, 90 per cent quality, the Indian company can be encouraged to exceed expectations in the next order, and so on. A systematic encouragement to industry is called for. * Develop raw material suppliers, where this is not available indigenously. * Focus on exports from such subsidiaries. What happens to DRDO/OFB/DPSUs? The new steps taken by the Ministry of Defence indicate that it is reluctantly moving in the right direction, but as of now it remains much too protective towards the government companies. There would be a few large corporates, who also advocate this type of protectionist tendencies to maintain their monopoly of what little they hold. This fear holds India back. Can the government companies be let free and compete? How long will the government hold on to them and how long will they be made more inefficient with government breathing down their necks. Can an ill-experienced bureaucrat, with a generalist intellect, dictate and run high-technology companies? Can India learn something from the ISRO? Let the government companies free, disinvest and make them more efficient, must be the mantra, they must learn to compete in this highly efficiency driven, technologically supreme, and skill-oriented sector. There is one more fear, what if the OEMs run away after making the investment? Well, the investment is made in kind in the geography of our country and there can be no occasion that they will be allowed to slip away. Some personnel may make the grade. Well, the reminder of the Intellectual Property and skill remains in the country, and hence, can be strengthened with little effort. 8 | DefInsights | August 2017
A parallel can be drawn from Australia, where the global majors have made 100 per cent subsidiaries, and are flourishing well. The diktat in Oz is that the complete work-force must be Australian, the technology developed and transferred will reside in Oz, and they are mandated to develop an eco-system of small industry. Concept of Cost-to-Country It is not necessary to always follow the finance department for determination of lowest bidder (L-1). There is a concept of cost-to-country that needs to be advocated. Even if the cost of an indigenous supply is costlier by 50 per cent or so, let us be aware that this money spent is rotating within the country, in Rupees, amongst the tax-payers, who have contributed to the national exchequer. A simple analysis would reveal this is a cheaper option, also saving precious Foreign Exchange. Recommendations * FDI could be free-flowing with no limits * Limits and mandates on work-force and skill, 100 per cent Indian * Intellectual Property to reside in India * Concept of IDDM be dove-tailed into FDI-oriented industries with mandated outsourcing and demonstrated development of MSMEs. * Raw material, if available, in India will be procured from within the nation only. ‘Buy from India’ is an essential pre-requisite for ‘Make in India’ and ‘Made in India’. (The writer is an Indian Army veteran)
MISCELLANY
Sugosha Advisory Chief Executive Officer Colonel K. V. Kuber chairing a session at the Electronics Industries Association of India’s (ELCINA) Strategic Electronics Summit (SES) in Bengaluru on July 6-7, 2017. The seminar focused on ‘Policy Push and Strategic Partnerships for Self-Reliance in Defence Electronics’ and the development of electronics MSMEs in the Defence and Space sectors.
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DefInsights August 2017 | DefInsights | 9
industry review
MSME: The future of India’s defence By Colonel K V Kuber
The Micro, Small and Medium Enterprises (MSMEs) sector is an important pillar of Indian economy, as it contributes greatly to the growth of the Indian economy with a vast network of around 30 million units. The MSME sector creates employment of about 70 million, manufactures more than 6,000 products, contributes about 45 per cent to manufacturing output and about 40 per cent of exports, directly and indirectly. This sector assumes even greater importance now, as the country moves towards a faster and inclusive growth agenda. Moreover, it is the MSME sector which can help realise the target of proposed National Manufacturing Policy of raising the share of manufacturing sector in GDP from 16 per cent at present to 25 per cent by the end of 2022. Definition of the Sector
Figure 1
The sector is defined by the MSME Development Act of 2006 to clearly indicate the Micro, Small and Medium enterprises. This has been defined separately for the manufacturing and Services sector as under :-
As per fourth All India Census of MSME conducted by the Ministry of MSME, the number of functional and non-functional registered MSMEs in the country are 1,563,974 and 496,355 respectively (Figure 2). Although MSMEs contribute significantly to overall economy of the country, they face certain disadvantages, some of the credit related issues being: * Availability of adequate and timely credit; * High cost of credit; * Collateral requirements; * Access to equity capital; and * Rehabilitation of sick enterprises. The Government of India/Reserve Bank of India had set up many committees to improve the performance of MSME sector, the latest one being the Prime Minister’s Task Force on MSMEs, which provided a comprehensive framework for long-term development of MSMEs, covering crucial issues and concerns relating to credit, marketing, infrastructure, technology, skill development, exit policy, labour, taxation, matters related to North Eastern Region and Jammu and Kashmir. The Task Force recommended several timebound action plans which are being implemented by different ministries of Government of India. Where does the Ministry of Defence fit in? Defence Production, hitherto the monopoly of the public sector, was opened to the private sector for participation in the year 2001, despite the aggressive industrial policy statement of 1991. Thereafter, several measures were taken to bring the private sector at par with the DPSUs (Defence Public Sector Units).
Features of MSME Sector Office of the Development Commissioner at the Ministry of the MSMEs has conducted the fourth Census on MSMEs with reference period 2006-07. Some of the socio-economic features of MSME sector in India are as given in Table below. 10 | DefInsights | August 2017
MSMEs have been an integral part of the defence production process since long and the Ordnance Factory Board (OFB)/DPSUs have been cultivating the MSMEs to the extent they thought it was enough. To understand how much they integrated them into the production process and how much outsourcing they have done, let us have a look at some figures (Figure 3 & 4). As a sample, we can review the above two cases of the DPSUs, which provide a reasonable representative indication. The value of production has been increasing over the years and they also have their order book full for a few years in the future. However, their outsourcing record is pretty dismal.
industry review MSMEs are largely dependent upon the large conglomerates and the OFB/DPSUs for their business expansions. MSMEs are recognised as Islands of Innovation and excellence. If India lives in the villages, Industry lives in the MSMEs. Ministry of Defence has recently come out with guidelines for outsourcing from the OFB and DPSUs.
Figure 2
They have been instructed to gradually increase their outsourcing to an extent to just remain integrators of systems. This will give a great boost to the MSMEs. In a recent seminar, Bharat Electronics Limited (BEL) Chairman and Managing Director (CMD) has indicated that BEL has increased its outsourcing norms to a great extent and is complying with the MSME Development Act of sourcing from MSMEs to the extent of 20 per cent. This is indeed very good news to the Indian industry. If this spirit is adopted by all the DPSUs, the outsourcing from MSMEs will reach a figure of Rs. 8,820 crore. The vendor base of OFB and DPSUs boast of more than 3,000 companies (going by the figures of each of the DPSUs, namely, HAL has 2,500 vendors, BEL has more than 1,800 vendors and so does OFB and other DPSUs, and averaging them to a normal). Of these, it is expected that more than 1,000 MSMEs are integral to the supply chain. Compare this number to the volumes of the 15.5 lakh of registered MSMEs. The potential is huge and the benefits of cultivating the MSME sector is the geographical reach to which industrial development can be extended. The government may like to mandate for the increase of vendor base from MSMEs.
Figure 3
A platform for MSMEs to showcase MSMEs are the backbone of an economy. They are the most prolific job creators and pioneers in developing new ideas. That is why the MSME Ministry of the Government of India wants to help these businesses in every possible way to facilitate the industry. A new step in this direction is the development of ‘Virtual Clusters’. While the government is taking few steps, industry at large also must provide complimentary development measures, such as providing a platform for development of business and processes in the MSMEs.
Figure 4
One such measure is ‘Compass Communications (www.compasscomn.com)’, which essentially is a platform to integrate the potential for the companies under its umbrella and arm them with news, media campaign, seminars and conferences and provide for a platform to show-case the potential of MSMEs with the stake-holders. The idea is to connect all stake-holders on one common platform and arm them with requisite knowledge to enhance their business. In this case (Compass Communications), there will be a definite effort to also search and find August 2017 | DefInsights | 11
industry review business for the MSMEs and for the stake-holders reliable MSMEs.
greater impetus to the MSMEs, with certain category of ‘Make’ projects reserved exclusively for them.”
The companies need a proper communications plan, public relations, create advertisements, interviews, effective use of social media and integrating their capabilities through symposiums and workshops.
The preamble speaks of the requirement to enhance the role of MSMEs in the defining sector as a defining feature of the DPP. ‘Make’ procedure in both categories of ‘Make-I’ and ‘Make-II’, provide for a ‘Right of Refusal’, for the MSMEs, for all contracts of below Rs. 10 crore in the former and of Rs. three crore in the latter.
What about the DPP? Defence sector is peculiar in its form with both types of procurement prevailing equally strongly, both in terms of the budget involved and the opportunities it provides for the industry. While the Capital procurement is centralised, Revenue is de-centralised. Capital route is time intensive, while the Revenue route is much faster, each governed by a different procurement procedure, the former by the DPP (Defence Procurement Procedures) and the latter by the DPM (Defence Procurement Manual). Revenue Procurement Revenue procurement have a potential of more than Rs. 20,000 crore from the Ministry of Defence alone. This includes the revenue procurement for upgrades, maintenance, repair, overhaul and other services related procurement, dedicated to the upkeep of the systems already inducted by the Services. While the revenue directorates such as the MGO (Master General Ordnance) in the Army and the sister organisations in the other Services, have a system of centralised procurement, there are many procurements that are governed and executed from the various Commands of the armed forces, such as the Northern Command, Eastern Command, and the other Commands of the Indian Navy and the Air Force. In addition to all this is the procurement from the OFB and DPSUs. Therefore, MSMEs do have a huge potential for getting interfaced with the industries at large. While all of this is true and happening, the large corporate that are eyeing for contracts from the Ministry of Defence as Prime, such as the Tatas, Mahindras, L&T, Bharat Forge, and so many others in that space also are cultivating MSMEs as part of their supply chain. This opportunity is by itself in the excess of Rs. 10,000 crore. Capital Procurement For the first time in the DPP 2016, MSMEs have a mention, and a mention of eleven times in different context for providing them with adequate reach into the entire system, sometimes with an incentive and sometimes with mandated entry. The foreword from the Minister of Defence, for the first time has mentioned MSMEs and I quote, “DPP 2016 also provides 12 | DefInsights | August 2017
Even for the conduct of the feasibility studies for the ‘Make’ category of projects, the ministry would invite amongst other industry associations, the MSME associations. Also, the guidelines for shortlisting of Indian vendors for issue of EOI (Expression of Interest), a general relaxation is provided for the MSMEs. To top it all, the net-worth criteria defined for industry has recommended only a positive net-worth without any pre-conditions. The DPP, although related only to Capital procurement, amongst other high value programmes, there are several schemes that are in the beat range of the MSMEs, namely, the Rs. 100 corre to Rs. 150 crore range. These are mostly from the powers of the Services Headquarters (Vice Chief ’s powers), and a few even a bit beyond these, all of which can be attempted by the MSMEs as opportunities. So, the government has taken the initiative to promote MSMEs, it is for us in the industry to help the government to realise their objective, of creating a formidable defence industrial base. Where do Offsets figure? Offsets were introduced as part of the defence Capital procurement, in the DPP 2006. Since then, several improvements were made to the offsets guidelines to make it more flexible and industry friendly. The international best practises have been included in the offsets guidelines and plenty of freedom has been provided to the foreign OEMs to execute offsets as part of the capital procurement process. A special provision has been provided for choice of MSMEs as Indian offsets partners with foreign OEMs as an incentive to provide them with a 150 per cent offsets credits for any work they do with them. While the offsets opportunity is pegged between US$ 10 billion to US$ 12 billion in the next five years, MSMEs must also target the OEMs and optimise the incentive provided by the Indian defence ministry. One could intelligently guess this opportunity to be anything between US$ 800 million to at least US$ 1 billion in the next five years. This translates to at least US$ 150 million or about Rs. 600 crore each year, in addition to the revenue and other opportunities in capital procurement.
industry review
What then is the opportunity? In all, the opportunity is large, the demand side is huge, with all the incentives provided by the Government of India. The supply side has been discussed earlier in this paper, and presents with a huge number of registered MSMEs to the tune of more than 15 lakhs of them, interspersed in geography and disciplines with niche capability in many cases. The meagre 2,000 to 3,000 active MSMEs in this segment needs to be increased considering the nature of the industry and the demand side dynamics. This can come in from the synergistic sectors of automobiles, which have a huge number of them active and involved in making the sector where it is today. So is the case with the electronics sector. This important synergy needs to be built in, due to the demand on the Strategic Electronics side in the Aerospace and Defence sector. How do we get our act together? We have heard and read of the public-private partnership model and Joint Ventures in the sector. The government has also relaxed the norms for FDI and eased the licencing process. It is always not possible for an MSME to be able to address a given opportunity in the strategic sector. This calls for high degree of skills, certifications, capex and product capability as against the process capability. This provides an opportunity for the MSMEs to get-together and form alliances. The alliances may be in the form of partnerships, as in MSME-to-MSME partnerships. Concept of ‘Virtual Clusters’ as envisaged by the Ministry of MSME and virtual relationships as envisaged by “Compass Communications”, do go a long way in bringing capabilities of MSMEs to the forefront.
The niche capabilities of MSMEs can be fruitfully exploited by bringing in MSMEs with complementary capabilities together to address an opportunity. The Department of Industrial Policy and Promotion (DIPP) envisages an Association of Persons (AOP) as a legal entity. There could, however, be many models like Teaming Arrangements, technology partners, virtual JVs with a back-to-back relationship defined on each other’s strength. Can we bring in a 360-degree relationship by interfacing the MSMEs in opportunities in revenue procurement, capital procurement, procurement from OFB and DPSUs and most importantly with OEMs to bring them into the global supply chain? Conclusion MSMEs are at the heart of the industry and provide them with such capability in innovation, cost reduction, flexibility in operations, adaptability, operations research, productivity and all that the industry may dream of. It is imperative for the large conglomerates to cultivate niche MSMEs into their supply chain, for their own benefit. They can work on small margins and in fact, work better when challenged. DRDO’s most challenged innovations and research found the backyards of industry into the MSMEs; DRDO acknowledges their support, so do the OFB and DPSUs. A platform like “Compass Communications”, would go a long way to find the integrated approach and a 360-degree coverage and interface for the MSMEs, which they so very critically require. (The writer is an Indian Army veteran)
August 2017 | DefInsights | 13
sound byte
Marching towards self-reliance in defence production C
an a nation aspiring to be a ‘Super Power’ continue to depend on import of defence equipment and ignore the development of its indigenous defence production or defence industrial base? Definitely not. Indigenous defence production or defence industrial base are the essential components of long-term strategic planning of a country.
By Arun Jaitley
The heavy reliance on imports is not only disturbing from the perspective of strategic policy and the role India has to play in the security of the region, but is also a matter of concern from the economic point of view, in terms of the potential for growth and employment generation. Though all the aspects of power constitute a ‘Super Power’, the military power is a key to a Nation’s rise to great or Super Power status. Going back into the history, Indian defence industry has a history of more than 200 years. During the British period, Ordnance Factories were set up to manufacture guns and ammunition. The first Ordnance Factory was set up at Cossipore in 1801. A total of 18 factories were set up before independence. At present, India’s defence industrial base comprises 41 Ordnance Factories, geographically spread across the country, nine Defence Public Sector Undertakings (DPSUs), more than 200 private sector license holder companies and a few thousand Small, Medium and Micro enterprises feeding to the large manufacturers and DPSUs. More than 50 defence laboratories of DRDO are also part of the entire eco-system of defence manufacturing in the country. Till about the year 2000, most of our major defence equipment and weapon systems were either imported or were produced in India by Ordnance Factories or Defence Public Sector Undertakings under licensed production. DRDO, being the only defence R&D agency in the country, actively contributed to the technology development and supplemented the efforts of indigenisation to a large extent. As a result of the efforts of DRDO and DPSUs in R&D and manufacturing, the country has reached a
14 | DefInsights | August 2017
stage, where we have developed capabilities in manufacturing of almost all types of defence equipment and systems. Today, as per a rough analysis, out of our total defence procurement, 40 per cent is indigenous production. In some of the major platforms, a significant amount of indigenization has been achieved. For example, T-90 Tank has 74 per cent indigenisation, Infantry Combat Vehicle (BMP II) has 97 per cent indigenisation, Sukhoi 30 fighter aircraft has 58 per cent indigenisation, Konkurs missile has 90 per cent indigenisation. Apart from the indigenisation level achieved in platforms being manufactured under licensed production, we have also achieved success in developing some of the major systems indigenously through our own R&D. These include Akash missile system, Advance Light Helicopters, Light Combat Aircraft, Pinaka Rockets, various types of radars such as Central Acquisition Radar, Weapon Locating Radar, Battlefield Surveillance Radar, etc. These systems also have more than 50-60 per cent indigenous content. With the above progress made through the stateowned manufacturing companies and DRDO, the time was right to expand the defence industrial base by including the private sector in the fold of Indian defence industry. In 2001, the government allowed the entry of private sector into defence manufacturing along with Foreign Direct Investment up to 26 per cent. It is our endeavour to harness the potential of the entire spectrum of the industry and expertise available in the country in our journey towards building our own defence industrial base, ultimately leading to the self-reliance. Though the entry of private sector was opened up in 2001, the growth of private sector participation in defence manufacturing was insignificant till about three or four years back and it was largely limited to production of parts and components to be supplied to Ordnance Factories and DPSUs. With the liberalisation in the licensing regime in the last theree years, 128 licenses have been issued for manufacturing of various defence items, whereas in the last 14 years before that period, only 214 licenses were issued.
sound byte
Defence being a monopsony sector, where government is the only buyer, the structure and growth of the domestic defence industry is driven by the procurement policy of the government. The government has, therefore, fine-tuned the procurement policy to give preference to indigenously manufactured equipment. To further promote manufacturing of strategic platforms, namely, fighter aircraft, helicopters, submarines and armoured vehicles, the government has recently announced a ‘Strategic Partnership’ policy, where shortlisted Indian companies can form Joint Ventures (JVs) or establish other kinds of partnerships with foreign OEMs to manufacture such platforms in India with Transfer of Technology. The policies and initiatives taken in the last three years have started showing results. Three years back, in 2013-14, when only 47.2 per cent of the capital procurement was made from Indian vendors, in the year 2016-17, it has gone up to 60.6 per cent. To promote indigenous design, development and manufacturing of defence equipment within the country, the government has undertaken a series of policy and process reforms. These include liberalisation of licensing and Foreign Direct Investment (FDI) policy, streamlining offset guidelines, rationalisation of export control processes, addressing level playing issues between public and private sector. A number of steps have also been taken to revitalise the working of DPSUs. All DPSUs and Ordnance Factory Board (OFB) have been mandated to increase their outsourcing to SMEs, so that an eco-system for manufacturing develops within the country. The DPSUs and OFB have been given targets for export and for making their processes more efficient by cutting down costs and removing inefficiencies.
Our defence shipyards have achieved a significant percentage of indigenisation in shipbuilding. Today, all the ships and patrol vessels, etc. are being ordered by Navy and Coast Guard to the Indian Shipyards. Gradually, disinvestment in DPSUs is also being pursued to make them more accountable and bring in operational efficiency. In the last three years, the Value of Production (VOP) of DPSUs and OFB has increased by approximately 28 per cent and productivity by 38 per cent. We are at a crucial and important phase of our journey towards self-reliance as far as defence production is concerned. After independence, while we started with primarily imports, then gradually moved towards licensed production in 1970s, 1980s and 1990s, and now have started moving towards indigenous design, development and manufacturing. Like other sectors such as automobile, computer software, heavy engineering, etc., I am hopeful that with the constant policy push, efficient administrative process and handholding, the Indian defence industry would rise to the occasion and we can witness design, development and manufacturing of major defence equipment and platforms in the country in the near future. The process of reforms and the ‘Ease of Doing Business’ is an ongoing process and the government and industry will have to work together to create an eco-system, which is required for the growth and sustainability of this sector, and this would be in our long-term interest of national security. (Author is the Union Minister for Defence, Finance and Corporate Affairs. Article courtesy: PIB)
August 2017 | DefInsights | 15
INTERVIEW
BEL aims around US$1.6 bn revenue
BEL is a leading electronics major in the Indian Ocean Region and one of the largest electronics companies in South Asia. BEL has been in service of the Indian armed forces for more than seven decades. BEL has amongst the largest turnover to R&D investment ratio in the region and has consistently pursued innovations. A company looking at Rs. 9,000 crore in revenue, growing at 16 per cent or more, with a number of Joint Ventures, BEL has a major contribution to ‘Make in India’. Here is an exclusive interview of BEL Chairman and Managing Director Mr. M. V. Gowtama with DefInsights correspondent Sohil Patel: Q. In July 2017 BEL signed the annual MoU with the Department of Defence Production for 201718, setting a target of Rs. 9,000 crore revenues from operations. What areas of your business will drive the operations to achieve the challenges there? A. We are an MoD organisation. We have committed to a revenue target of Rs. 9,000 crore for the Financial Year 2017-18, which is a small stretch from our previous year, which saw BEL revenue at Rs. 8,825 crore for the FY 2016-17. So, we are confident of achieving this target of Rs. 9,000 crore (US$ 1.4 billion) this year. We are actually aiming for Rs. 10,000 crore (US$ 1.6 billion). Our plan is to (a) grow at a rate of 12 per cent to 15 per cent in the next couple of years, and (b) become the most preferred defence electronics company for both the government and private industries (including potential Strategic Partners). In terms of our exports and offsets business, last year we saw our exports touching US$ 65 million compared to US$ 85 million in the previous year. The challenge is to achieve more than US$ 85 million in the current year. We already have export orders worth US$ 82 million, of which US$ 14 million are in offsets. Export licensing has been made simpler with the recent policy changes by the government. Only when a complete system need to be exported, there is a need for license. There has been a big support from the Government of India. They are also extending support with Line of Credit (LoC) to friendly countries. Many countries are looking for export from Indian defence companies. BEL is in discussion with such countries and getting license for weapon systems. Government of India has also allowed for export of Akash missile and we expect to achieve success in the next one or two years’ time. Q. BEL has several JVs, how do they shape BEL’s strategy? A. Our JV history has been very modest. We started our first JV with a Netherlands firm. The company 16 | DefInsights | August 2017
withdrew post Pokhran (1998 nuclear tests by India) and now it is a 100 per cent subsidiary of BEL. The second JV is with GE medical systems, where GE is the majority partner. We manufacture precision components for x-ray and CT scan machines. We supply close to 14-15 MN parts for medical electronics amounting to more than US$ 1 million in exports annually. The third JV is with Thales for air traffic management radars. Thales is a global market leader in this space. We are working on modern ATM radars, which are designed jointly by Thales and BEL. This is a two-yearold JV. Revenue earning opportunity is very low and currently it is generated only from service support of existing radars. The fourth JV is BEL OP which is running profitably. BEL is keen to open more JVs. While the Thales JV took longer to form, it is much easier now and we can turn it around in nine to 12 months. Q. The indigenisation content achieved by BEL is indeed commendable, in many instances it has crossed a figure of more than 70 per cent. An account of your indigenisation efforts in flipping the self-reliance ratio in favour of locally made
INTERVIEW
DefInsights’ Mr. Sohil Patel with BEL CMD Mr. M. V. Gowtama and BEL Corp Comm Head Mr. Ashish Kansal after the interview. Photo Credit: Soumya Kuber content in defence equipment and systems would provide an inspiring read. Can we get a glimpse of such programmes? A. At BEL, we always understand the technology before we work on any programme. This goes a long way in bringing indigenisation content into the system. For example, the Akash programme was run under a Public-Private Partnership model and is at 96 per cent indigenisation level today with complete sourcing within India. Weapon Locating Radar (WLR) has 75 per cent content sourced within the country. We have a road map for every user and create a plan for indigenisation, which also falls under our cost reduction policy. Software is a key component of any system, which, though not visible, plays a very big role in realising systems in the country. At BEL, we have two quality certified software development centres: (a) CMMi Level 5 software development centre at Bangalore, and (b) CMMi Level 3 software development centre at Ghaziabad (soon to be Level 5) As a system-of-systems integrator, all our software is indigenised, which is one of the greatest contributors to indigenisation. More importantly this allows BEL scope for customisation. For example, the coastal surveillance system, which was developed by BEL, has
also been established in other countries due to BEL’s capability to customise the solution. Research and Development (R&D) is also a key element to indigenising any system. There is a need for a good ecosystem to engage and absorb R&D. Towards this, we have established a Collaborative R&D programme at BEL. We have 200-plus partners in this programme and 90-plus projects under development. Q. BEL has funded the Defence Innovation Fund (DIF), along with HAL. What is going to be your strategy to promote creation of an ecosystem to foster innovation and technology development in the defence sector through DIF? A. BEL has more than 30,000 partners registered with us. In any given year, we have close to 4,000 active vendors supplying to various programmes at BEL. We are 100 per cent compliant with the government’s procurement policy. We ensure 20 per cent or more sourcing from MSMEs in India. We have established vendor development cell at each of our locations. These centres interface with the industry and help them understand the requirements and expectations from BEL. We are not just working with MSMEs but companies like Tata Power SED, L&T are our partners as well in big programmes. While we also become suppliers to some companies August 2017 | DefInsights | 17
INTERVIEW A. Today, HAL is the sole supplier of airborne assets in India. Similarly, the government shipyards are sole supplier of Naval assets. The requirements of the Armed Forces are huge and not completely met by the DPSUs. Strategic partners will boost the defence manufacturing sector and will allow different platforms to be developed in parallel during the same timeframe. We, being a T1 supplier, look at SP model as an opportunity for growth. In fact, we would look to double our revenues by supplying to both the government agencies as well as the SPs. SPs might create electronics suites within their organisation and still require products from BEL like Reliance Defence, L&T Shipyards, BEL is a matured industry partner and we believe all companies have a role to play in development of the ecosystem. We have been supporting manufacturing start-ups for a while and we have recently modified our policies to include start-ups in our supply chain. They get special treatment in terms of funding, relaxation from compliances and other benefits. Today, the industry lacks innovation. The maturity level is lower in defence manufacturing industry. To this effect, HAL and BEL have created the Defence Innovation Organization(DIO). The guidelines of the policy will be announced shortly. The Defence Innovation Fund (DIF) will be Rs. 100 crore, with a contribution of Rs. 50 crore each from BEL and HAL. BEL spends close to 10 per cent on R&D in collaboration with various organisations like DRDO, CDOT, CDAC, CPET, etc. There are many areas which need to be explored and we will define the areas in which we want to develop expertise. We will also look for technical partners in such areas. As part of our vendor process, we ensure the quality of our suppliers and refresh the list every year. A vendor, who are lagging in their processes, are removed from the list and we bring in new partners. Q. At a time when the government of India is pushing for greater private sector participation in the defence sector, what do you think is the future for public sector companies like BEL? A. We at BEL are not worried about competition. More than 25 per cent of our orders have come through Tendering process. We won the tender for upgrading of L70 gun and many such orders have been won in global tendering. We are very confident of our process and competencies. Q. How beneficial would the Strategic Partnership policy be for a DPSU like yours? 18 | DefInsights | August 2017
We are in discussion with likely SPs and always there to support them to succeed. This is definitely a growth driver for BEL. Q. BEL launched its Remote-Controlled Weapons Station (RCWS) for the Arjun tanks that can also be used on hovercraft and fast-moving boats. Have you been successful in obtaining orders for this system? Could you please share the challenges involved in developing and integrating this system that were overcome? A. This is a good example of a product designed and developed by BEL. Today, we do not have orders at this point. We are very positive about the product and the feedback we have received so far. We are hopeful of receiving a big order soon. One of the challenges with such a product is that we had to understand the entire ballistics and ensure that the system auto corrects the firing accuracy as well as continuous online calibration. In this process, we understood a lot of new things and are now capable of making necessary corrections in the system functionalities to meet the complete end user requirements. Q. Please provide our readers an update on future programmes and focus areas for BEL? A. Today 85 per cent of our revenue comes from defence business. We know that competition is increasing and BEL should not limit itself to defence sector alone. We want to look towards non-defence sectors as well. Homeland Security is one such area. We have taken up certain projects in homeland security. We are looking at system-of-systems solutions. Some of the sub-systems might not be feasible to produce in-house. Hence, we would want a private partner. We will also be joining private partners, where they are the lead integrators. We have many reusable technologies, which can support homeland security.
PROJECT APPRAISAL
Why HAL should take Tejas project ownership O
n 1st July 2016, No. 45 Squadron of the Indian Air Force (IAF) inducted the first two Serial Production models of the Tejas Mk.1 Light Combat Aircraft. More than a year has since elapsed since these first aircraft were inducted and they have now been joined by three more with a sixth scheduled to join shortly.
By Sanjay Badri-Maharaj
Built to IOC (Initial Operational Clearance) standards, these aircraft are the first of 20 destined for No. 45 squadron, while an additional 20 will be built to FOC (Final Operation Clearance) standard. Steady but somewhat slow progress is being made towards achieving FOC, with the Tejas Mk.1 crossing a major milestone on 12th May 2017 when aircraft LSP-4 successfully fired a fully-guided Derby Beyond Visual Range (BVR) airto-air missile. Gun trials are scheduled to commence in August 2017. Yet, despite assurances from Hindustan Aeronautics Limited (HAL), slow progress has been made in establishing adequate production facilities. HAL has not yet been able to meet the target of eight aircraft per year, much less an enhanced production target of 16 aircraft per year, although the establishment of a second production line using its BAE Hawk production facility will help in this regard. Furthermore, despite the prospect of having to produce 83 additional aircraft to an enhanced Mk.1A standard, HAL has not acted with the requisite alacrity to take control of this project and bring it to fruition in the shortest possible time. HAL’s Stymied Opportunities When the history of the Tejas is written, there will always be questions as to why HAL was not entrusted with the design of the aircraft and the Aeronautical Development Agency (ADA) not formed as part of HAL (rather than as a separate agency). Indeed, up until the late 1970s, HAL had a reasonable degree of success in aircraft design and was poised to achieve further levels of competence when its design efforts were abruptly, and, in the case of the HF-24, prematurely, ended.
In 1948, HAL began work on a basic piston-engine trainer to supplement and then supplant the Tiger Moths and Percival Prentice aircraft then in service. The result was the Hindustan HT-2, which served with distinction from 1953 until its retirement in 1990. Over 170 of these aircraft were built, with a dozen being used to form the Ghanaian Air Force in 1959. Its successor, the HPT-32 was less successful, with a high accident rate, though with an otherwise respectable service record. HAL now pins its hopes on the HTT-40. In 1959, HAL received permission to proceed with the development of a basic jet trainer to replace the Vampire T.55 and the T-6 Harvard. The resultant aircraft – the HJT-16 Kiran – first flew in 1964 and in a modified version continues to this day as the IAF’s basic trainer. Although the Kiran did have a somewhat protracted development period before entering service and its Mk.2 variant was late in coming, it was a success. It entered bulk production and serves the IAF competently. Simultaneously, HAL had laid the foundations for fighter production with a licence agreement for the Folland Gnat being signed in 1956, with production peaking at four aircraft per month. This light fighter formed a considerable portion of the IAF’s frontline strength until the late 1970s. The HAL Ajeet, while intended to improve on the Gnat’s performance, was only marginally successful since, by 1975, the desired performance could only be achieved with more powerful engines and advanced avionics. While four squadrons of the Ajeet served between 1975 and 1991, the type never achieved its potential. An attempt to turn the Ajeet into an Advanced Jet Trainer (AJT) failed thanks to a lack of support, a lack of reference to the Gnat T.1, and the loss of a prototype. HAL’s ultimate misfortune was the untimely demise of the HF-24 Marut. This promising aircraft saw service with three IAF squadrons and proved to be a very effective weapons platform, yet fate was unkind to it and HAL suffered as a result. The HF-24 was August 2017 | DefInsights | 19
PROJECT APPRAISAL
designed around the Orpheus B.Or.12 engine – rated at 6,810 lbf (30.29 kN) dry and 8,170 lbf (36.34 kN) with afterburning – which was being developed for the proposed Gnat Mk.2 interceptor and a NATO light-weight strike fighter. Unfortunately, the British authorities cancelled their requirement for this type. And India, unwilling to provide the modest sum required to complete development, was stuck with the non-afterburning Orpheus B.OR.2 Mk.703 rated at 4,850 lbf (21.57 kN). Despite some half-hearted efforts to find a suitable engine for the Marut, the IAF was never entirely supportive of the project. An attempt to integrate Adour turbofans (used in the Jaguars and Hawks) was confounded by an IAF demand that the thrust of the Adour be increased by 20 per cent. In addition, a very realistic and cost-effective proposal to create a strike-fighter based around the Marut airframe and the R-25 engine (the HF-25) received no sanction. While efforts to procure RB.199 turbofans were seriously considered for a Marut Mk.3 – the HF-73 – the project itself failed to materialise. With this design pedigree, it might have been expected that HAL would be tasked with developing the Tejas. However, this was not to be. The ADA, formed in 1984, received the opportunity and resources to undertake this project. And that effectively decimated HAL’s design capabilities, while simultaneously robbing the ADA of the experience and infrastructure of HAL. The Tejas project has had to therefore overcome the obstacles that inevitably arise from a separation of the design and production agencies, 20 | DefInsights | August 2017
while at the same time overcoming those that arise from an inexperienced design team. Unfortunately, the Tejas has also been the subject of somewhat harsh and overbearing assessments from the Comptroller Auditor General (CAG), which has tended to overemphasise the negatives while inadequately appreciating the problems in re-creating the ecosystem required to support a fighter project. For this project to have achieved a level of indigenization equal to 59.7 per cent by value and 75.5 per cent by component is commendable and ought not to be downplayed. HAL’s New Opportunity – The Tejas Mk.1A On 8th November 2016, the Defence Acquisition Council (DAC) cleared the production of 83 Tejas Mk.1A aircraft at an estimated cost of US$ 7.5 billion. It should be noted that the DAC approval does not equal authorisation of the requisite funds for production for which latter the approval of the Cabinet Committee on Security (CCS) is required. Nevertheless, at one stroke, the DAC approval offers HAL an opportunity to become an integral participant in the development of the Tejas – as opposed to remaining just the production agency. It also offers HAL the opportunity to develop variants of the aircraft, which may prolong the production run beyond the total of 40 aircraft currently authorised (20 IOC authorised in 2006 and 20 FOC authorised in 2010) and 83 aircraft approved by the DAC. The Tejas Mk.1A – for which a prototype, previously designated Tejas Mk.1P, was proposed by HAL
PROJECT APPRAISAL
– is designed to correct many of the existing shortcomings in the FOC standard aircraft. Planned to be equipped with an Active Electronically Scanned Array (AESA) radar and electronic warfare systems currently missing from the FOC standard Tejas Mk.1, the Tejas Mk.1A may be the ultimate development of the basic Tejas airframe given its lack of internal volume without necessitating major redesign. While there is a proposed Mk.2 variant of the Tejas with upgraded General Electric F414 engines, this seems to be some time off in the future and remains a project essentially in potential. It would appear, from statements emanating from HAL, that the Mk.1A has been proposed to the IAF by the company itself rather than the ADA. However, development of the Mk.1A will require close collaboration between HAL and ADA. To date, HAL has issued most if not all public statements regarding the project, with ADA working towards the FOC. However, despite HAL floating a tender for AESA radars for the Tejas Mk.1A and for jamming pods, it has not seemed to have moved with any degree of alacrity on the project. It is interesting to note that despite the statements of HAL’s Chairman and Managing Director T. Survarna Raju that tenders would be opened for AESA radars and jamming pods by the end of March 2017, no news in this regard has been forthcoming to date. This would suggest that meeting HAL’s timeline of flying the Mk.1A by 2018 with production starting by 2019 may be optimistic, though this may not necessarily impact the desired production target of 123 Tejas Mk.1 and Mk.1A in IAF service by 2025. In this regard, the question remains as to whether HAL has
fully committed itself to developing the Mk.1A in a timely fashion. Indeed, it would be naïve to expect CCS authorisation for the 83 Tejas Mk.1A until at the very least the flight of the first prototype. Yet, HAL has an opportunity to reclaim its position of producing indigenously designed aircraft as well as be a participant in the further development of the Tejas. Besides the Mk.1A variant, which should be accorded priority, the two-seat trainer version of the Tejas offers the prospect of emerging into a Lead-in Fighter Trainer (LIFT) in the league of the Korean KAI T-50 Golden Eagle, while retaining the core combat capabilities of its single-seat stablemate. This would fill a gap in the IAF’s existing training programme, which, while adequately equipped with basic and advanced trainers, is compelled to use two-seat variants of combat aircraft for roles more usefully satisfied by a LIFT. Moreover, HAL would invariably participate in any upgrade of IOC aircraft to FOC standard. The stakes for HAL and ADA are very high. The Tejas project is a litmus test of the ability of Indian designers and production agencies to produce a viable combat aircraft. On the very threshold of success, it behooves both agencies to work in synergy to ensure that not only is production scaled-up to meet the target of 16 aircraft per annum, but also to ensure the successful and prompt completion of the Tejas Mk.1A project. The Tejas project has come too far to be allowed to stumble or fall at this stage. (This article was first published by New Delhi-based IDSA) August 2017 | DefInsights | 21
Business buzz
Navy seeks 340 medium-range anti-ship missile systems New Delhi (India): India’s Navy has formally expressed its intent for buying anti-ship missiles with medium range capability by issuing a Request for Information (RFI) from global vendors on Aug 7. The Indian Navy has a requirement for approximately 270 combat, 40 practice, 10 training, six dummy and four cut section Medium Range Anti-Ship Missiles and 24 systems for fitment onboard warships, according to the RFI documents reviewed by DefInsights. The tender for the 340-odd missiles and its systems is expected to be out in the first half of 2018, according to Indian Navy officials dealing with the weapon procurement. The anti-ship missile procurement will include Fire Control System (FCS), missiles, radars, associated systems/devices, installation, product support package, training, simulators, maintenance, on board spares and comprehensive Annual Maintenance Contract (AMC). As India is looking for local manufacture of the anti-ship missile system under its government’s ‘Make in India’ initiative, the RFI has asked the vendors and firms to indicate their willingness for Transfer of Technology (ToT) towards manu22 | DefInsights | August 2017
facturing, operation, maintenance, training and scope, depth and range of ToT. “The GoI (Government of India) is desirous of license production of equipment after acquiring ToT in the case,” the document said. The vendors should also be willing to provide Transfer of Production facility (including DPR for setting up facility for manufacture of missile/system components in India. India is keen to know if the equipment proposed by the vendor for sale to India was ever supplied to any other country and installed on warships or other platforms of any other nation. In case of a developmental system, the same needs to be indicated with developmental timelines. The Medium Range Anti-Ship Missile (MRAShM) system on offer would be put through Field Evaluation Trials (FET). The Indian government may exercise the option to buy more of the MRAShM system under the current procurement and invoke offset clause of 30 per cent of the deal’s worth to be invested back in India under Defence Procurement Procedure-2016 For more details of the RFI, please contact Sugosha Advisory at info@sugosha.com
NEWS YOU CAN USE
EVENTS Air Defence India 2017
Integrating New Technologies and Optimizing Legacy Systems Conference & Exhibition 16 Aug - 17 Aug 2017 Manekshaw Centre, New Delhi.
India Composites 2017
Driving Adoption of Composites in India. Focus Sectors: Aerospace & Defence, Building & Construction, Transportation and Marine Start Date:Aug 18, 2017 Venue: Shangri-La - Eros Hotel, Ball Room, 19 Ashoka Road, Connaught Place, New Delhi.
CII Event: MSME CEO SUMMIT 2017
Start Date:Aug 30, 2017 Venue: HOTEL CROWNE PLAZA, CHENNAI, TAMILNADU, India.
12th International Conference on Energising Indian Aerospace Industry Start Date: Sep 07, 2017, End Date: Sep 08, 2017 Venue: India Habitat Centre, Gulmohar Hall, Lodhi Road, New Delhi.
14th CII Global MSME Business Summit 2017
“Promoting Global Co-operation through SME Partnerships” 19-20 September 2017: India Habitat Centre, New Delhi, India.
Deftronics 2017 4th edition, Accelerating self-reliance in Aerospace, Defence and Internal Security Date and Place: Aug 31-Sept 1, 2017, Hyderabad.
Organiser: India Electronics and Semiconductor Association (IESA)
Conference on ‘Smart Border Management’ - 2nd edition
Addressing the emerging challenges faced by India post Uri attack Date and Place: Sept 18-19, 2017 Organisers: India Foundation and FICCI
CII-MoD Defence Delegation to Russia
Date and Place: Aug 24-25, 2017, Moscow Region.
FICCI Workshop on Goods and Services Tax
For Defence and Aerospace Industry Date and Place: Aug 26, 2017, New Delhi.
OPPORTUNITIES SL. No.
TENDER DESCRIPTION
CLOSING DATE
TENDER NUMBER
1.
Two type design manufacturing and supply of a common functional fixture for AMOGH and assault rifle
25th August 2017
3173000308 / 017_ DoDP_233547_1
2.
MRO inspection along with lower inspection schedule overhauling of NLG/MLG and its assembly for BSF
24th August 2017
1791/16-AW/LGS/EMB/BSF/ Part File - II/4043
3.
Spares for IL 78
21st September 2017
AIR HQ/D PROC/R1727541/PUR
4.
Spares for AN-32
20th September 2017
AIR HQ/D PROC/R1726508/PUR
5.
Repair/Overhaul of CAT ‘D’ Aggregates of the IL Fleet
29 th August 2017
Air HQ/82886/4/486 Lines/Eng D1 (T)
Procurement and laying of OFC and allied eqpt to mitigate voids of Proj NFS
11th September 2017
047/Proj/Sigs 2T/OFC Allied Eqpt/10 ID
6.
For more comprehensive list of opportunities please reach Sugosha Advisory at info@sugosha.com August 2017 | DefInsights | 23
Sugosha Advisory redefines advisory in the Aerospace & Defence domain, with in-depth insights into the policy, regulatory, integrating MSME’s with T1’s and OEM’s as supply chain partners and business information tailored with market intelligence. Sugosha Advisory, is founded on the principle of providing “Value Based Consulting” to our clients, partnering with them, so as to create an impact on their growth. Beyond advisory and business development, Sugosha intends to be knowledge repository for our clients.
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