Overhauling Defence Manufacturing to Achieve Self-Reliance

Rohan A T

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In FY 22, the Indian defence manufacturing segment increased its production significantly to USD 11.85 billion when compared to FY 21 where the production was around USD 10 billion. At the same time the defence production which are done by PSUs was valued at USD 7 billion in FY 2021-22 clocking in an impressive growth rate of 12.36 percent year on year. Keeping the potential of the Indian defence manufacturing market in mind, the government has also set a production target of USD 25 billion by 2025. Apart from domestic use, India also supplies defence products to 42 different countries and in FY 2021-22, the Indian defence exports was valued at USD 1651.1 million and the government is planning to increase the military hardware exports to USD 5 billion in the next five years.

As a way to increase the domestic manufacturing of defence equipment, last year, Prime Minister Narendra Modi has asked the seven PSUs in the defence sector to focus on developing the functional autonomy, innovation and growth of the country’s defence sector. On top of that, policy makers also believe that the proactive approach taken by the government in foreign mutual trade and rising joint agreements with Kazakhstan, and the US will accelerate the growth of the country’s defence manufacturing space. With that being the case, let’s analyze the major trends reshaping the Indian defence manufacturing segment.

Self Reliance through ‘Make in India’

To make the country more self reliant, the Ministry of Defence has signed a multitude of contracts with the Indian industry. The Russia Ukraine war has also pushed the center to prioritize on the domestic manufacturing of defence equipment. During an earlier Army Commanders Conference, Defence Minister Rajnath Singh said, “It is our ‘whole of government’ approach to ensure availability of best weapons, equipment and clothing to our troops braving extreme weather and hostile forces to defend our territorial integrity”. The minister also added that in 2021-2022, 40,000 crore worth of contracts by the army are being awarded to Indian vendors. These measures are aimed at improving the domestic manufacturing of defence equipment in the country and promote the ‘Make in India’ scheme even further.

Under the ‘Make in India’ initiative, the government has also introduced three major projects called Make I, Make II, and Make III. The Make I scheme has four priority projects and they are Indian light tanks, Terminal End Secrecy Device (TESD), Tactical Communication System (TCS), and Futuristic Infantry Combat Vehicle (FICV). The Make I projects are 90 percent funded by the centre and there will also be a collaboration with indigenous vendors that are selected using tenders. Make II deals with the manufacturing for systems, and prototypes. These will be used for import substitution or as an innovative solution. Under Make II, the projects will be funded by domestic manufacturers and it will be based on the specific details provided by the government. As of now, there are more than 60 such projects currently happening for the three major arms of the Indian military. When it comes to Make III, even though it will be similar to Make I, and Make II, projects under Make III will only be manufactured in India as import substitution. The other differentiating factor is that, the design and development of prototypes and systems in Make III will not be done indigenously. So, these will be done to improve the collaboration with foreign equipment manufacturers and increase the production of defence products in India.

Increasing Participation from Private Players

Even after having multiple PSUs dedicated for defence, the fact of the matter is that over many years, these agencies have not come up with defence equipment that could compete at the international level. One of the very few notable achievements happened when HAL exported six helicopters to Ecuador but owing to its performance concerns, this deal also didn’t produce the desired outcome. The government is aiming to get more private players involved in defence manufacturing to tackle this issue and after opening up the market to private players in 2001, only 584 industrial licenses have been given to 358 private companies for manufacturing various defence products. To promote more participation and to attract more private players, the government has increased the period of License granted under the Industries (Development & Regulation) Act from 3 to 15 years. Apart from that, the government has also simplified the industrial licensing process and by doing so, allowing more private players to enter the defence segment.

iDEX to Promote Innovation and Research

Launched during DefExpo 2018 by Prime Minister Narendra Modi, iDEX aims at fostering innovations and technological developments in the defence and aerospace sector. To achieve this, iDEX strives to engage with MSMEs, startups, individual innovators and other R and D institutions which will also help in increasing the quality of domestic manufacturing of defence equipments. In order to ensure the smooth running of its operations, the government has issued a budgetary support of INR 498.78 crores for iDEX from 2021-2022 to 2025-2026. Through this scheme, the government is also aiming at provide better financial support to more than 300 MSMEs, startups, individual innovators and 20 partner incubators through Defence Innovation Organisation (DIO). And recently, under the iDEX initiative, the defence ministry has signed its 100th contract for defence innovation.

Aside from these, the government of India is aiming to utilize certain other initiatives like the; a) Strategic Partnership (SP) Model which identifies private Indian companies that will collaborate with global OEMs for technology transfer in order to set up the proper infrastructure for domestic manufacturing, and b) Defence Artificial Intelligence Project Agency (DAIPA) which was incepted in 2019 to accelerate the use of AI in defence including the formulation of an AI roadmap for PSUs and Ordnance Factory Boards in order to create AI-enabled defence products. And through initiatives like these, the Indian government is not only aiming to be self reliant when it comes to defence manufacturing but also compete with the best in the world through their defence equipment exports.