In a major boost to Make in India and private sector’s participation in defence production in particular, the Defence Acquisition Council (DAC) on October 21 approved three capital procurement projects worth Rs. 3300 crore for indigenous design and development. 1 The first two projects pertain to Make-II category of the defence procurement procedure (DPP) and include third generation anti-tank guided missiles (ATGM) and auxiliary power units (APUs) for the T-72 and T-90 tanks. The third project relates to the design and development (D&D) of electronic warfare (EW) systems for mountain and high-altitude terrain by the Defence Research and Development Organisation (DRDO), and manufacturing of the same by a design-cum-production partner selected from the Indian industry.
The importance of DAC’s October 21 decision is that it is the first time that the government has allowed the private sector to undertake D&D of complex defence equipment, a task which was hitherto reserved for the DRDO and, to a smaller extent, state-owned/controlled production entities. The government’s bold decision to allow the private sector to undertake complex D&D is a step in the right direction to forge a larger innovation system to meet the diverse requirements of national security. However, caution may be required to avoid duplication of efforts and prevent indirect import which is otherwise not permitted directly.
It is significant to note that of the two projects approved by DAC under Make-II, the DRDO is already engaged in the development of ATGM. The R&D agency seems to have achieved a degree of success in the project. This is the reason why the government has twice ignored in the past an import option in favour of the home-grown project. However, permitting the private sector to undertake the development of ATGM has raised doubts about the status of the DRDO’s project. More significantly, if the DRDO, India’s premier defence R&D agency with a budget of more than Rs. 19,000 crore (in 2019-20), is not able to design and develop an ATGM, how could the private sector, which has little expertise in missile development, achieve the same and that too with no funding support from the government under Make-II?
The Make-II procedure was carved out as a separate sub-category of the ‘Make’ procedure as part of the revised DPP-2016 to give a boost to the Make in India initiative in defence production. The intention behind the sub-category was to leverage the industrial and financial powers of the Indian industry, particularly the private sector, for greater indigenisation through import substitution with some technical assistance from overseas, if required. Leveraging industry’s financial power was, however, not meant to ask the industry to spend a huge sum on D&D efforts. Therefore, projects with a large developmental cost was meant to be executed through Make-I procedure in which the government bears up to 90 per cent of the prototype development cost, whereas all other projects with smaller financial implications were intended to be executed under Make-II through industry’s self-funding.
The Make-II is undoubtedly a novel idea of the Ministry of Defence (MoD) to promote innovation within the industry. Its three distinct features – allowing the industry to submit suo moto proposals, MoD’s willingness to entertain single bid, and assurance of time-bound and guaranteed order post successful development – are refreshingly different from the government’s routine contractual norms that give prominence to tender-based bid solicitation, multi-vendor participation and uncertainty of order placement. The innovativeness of the sub-category and the government’s zero financial liability for prototype development has allowed the MoD to go the whole hog in embracing a large number of proposals under Make-II. In comparison to mere three projects under Make-I, the MoD has so far accorded acceptance-in-principle (AIP) to nearly five dozen proposals under Make-II.
Significantly, apart from ATGM, the AIP has also been given to a number of other big projects including the long range air-to-air beyond visual range (BVR) missile, on which the DRDO has been working for a long time and has achieved some major success in recent years. By allowing these projects to be executed through Make-II, the MoD not only runs the risks of forgoing the opportunity of deploying its home-grown technology but unwittingly gets into a trap of foreign suppliers who rarely pass on any key technology and whose only interest in India is to bind it with perpetual dependency.
The question, therefore, is whether the foreign original equipment manufacturers (OEMs) should be allowed to use Make-II to sell their hardware which they are otherwise denied to do directly. The question merits debate as it has a huge implication on India’s own efforts in developing key defence technologies. Even though Make-II requires local design and development and a minimum 40 per cent indigenous content (IC), it nonetheless leaves a plenty of scope for technology assistance from external sources which allows foreign companies an opportunity to push their products, albeit indirectly, through Indian partners who are willing to play a second fiddle to their overseas collaborators. In their attempt to sell their products, the foreign companies also do not hesitate in exploiting the age-old turf wars between key stakeholders of the Indian defence establishment.
As of now, the Indian defence companies, especially the ones from the private sector have very little capability of designing and developing complex weapon systems, and that too in a period of 105 weeks, the maximum time allowed under Make-II for user trial of prototype. If a company claims it could do so, it is important for the MoD to decipher the real motives, examine what new technologies are being promised to be developed, and see to it that the company has the overall intellectual property rights (IPR), including for exports. Furthermore, when the government has already sanctioned a developmental project to the DRDO, or any other agency, which involves a significant investment of taxpayers’ money, it is important for the MoD to ensure that such projects are delivered on time before a parallel development is sought outside.
This is not to suggest that the DRDO, or any other state-owned/controlled agencies, should have exclusive monopoly over all developmental projects approved under Make-II. In fact, the Make-II procedure categorically states that projects once approved would not be retracted just because India’s premier defence R&D agency is developing such projects. However, such restraint on the DRDO appears to be based on the organisation’s chequered past, and not on the organisation’s stellar contribution especially to strategic programmes. Identifying the issues and concerns of DRDO’s R&D projects, including in the post-developmental phase, and addressing them in a time bound manner is far more important than marginalising the organisation in favour of parallel development within the industry. Suffice to say that the DRDO is currently engaged with nearly 370 R&D projects (excluding strategic ones) with government making an investment commitment of over Rs. 78,000 crore.2 The MoD could least afford to ignore its premier R&D agency and all the sanctioned projects and rely on an industry whose R&D effort is hardly anything.
The MoD has already taken a host of initiatives to contain India’s arms import and enhance self-reliance. These initiatives have started paying dividend as is evident from the continuous increase in domestic arms production and phenomenal increase in defence exports. Further, the MoD is presently engaged in implementing a major plan for the defence public sector undertakings for the indigenisation of Rs. 15,000 crore worth of previously imported items by 2022-23.3 The Make-II is ideally suited for import substitution of these types of items and all efforts need to be undertaken to make it a success. The MoD needs to send a strong signal that Make-II is not to kill India’s own technology development but to supplement it.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.