text:
SUGOSHA ADVISORY
Significance of Sugosha
Modernisation of Chinese Military : Impact on India : Procurement Focus
The dragon smiles with a pinch all around. The conclusion of the 19th Congress of the Communist Party of China (CCP) has thrown up a new dimension in the geo-politics of the region. Mao's legacy is history, so it seemed after his enigmatic portrait was replaced by the one and only one towering visage, Xi Jinping. Selection of a 200 member central committee, a 25 member politburo and an Apex Politburo Standing Committee (PSC; having just five to nine most powerful party leaders) is the hallmark of the event at the Great Hall of the People. There are no surprises here, Xi Jinping will be central to all and central to the central leadership, that's how it works, more work behind the curtain than what is seen and heard.
Welcome to the emerging new world order. Trump and Modi leading the two largest democracies of the world, Abe returned to power to institutionalize the reforms he has conceived and worked for, Xi returned with a larger than life enigma, and we have Kim Jong Un and leaders like Kim to provide for the balance of geopolitics. What are the major implications for the largest democracy in the shadow of these developments and how must we position ourselves in this new world order.
Xi has emphasised that the PLA is vital for the party and hence a need to keep them close to themselves, well it is no secret that Xi's spouse is a serving Major General in the PLA. Idea is to have an expert system and yet retain complete control over them. The CCP now infiltrates all organs of governance and corporate. In an effort to woo the PLA, PLAN, PLAAF, rocket forces and others, the underlying emphasis would be on modernisation of the Armed Forces, to keep them loyal and ready.
The thrust of the PLA's modernisation is based on the concept of non-contact wars which rely on psychological operations that compel the enemy into submission without an actual military engagement.
An effort in the reorganisation of the PLAAAF has witnessed a flattening of the apex structure with Xi calling all the shots, he is known to be present in the Military Operations Planning Room and in direct conversation with the theatre commanders. The concept adopted is a limited war under Informed conditions; smaller military objective with major political connotations. Information Warfare, Electronic Warfare and Surveillance are integrated and applied as a single homogenous entity. While the 21 group armies in the 1990s has reduced to just 13 Group Armies today, the quality of recruitment as wella s arms and equipment has improved considerably. They train in an exclusive area of about 10,000 Sq Km, a unique and tough concept indeed.
PLAN intends to incorporate 65 Destroyers and Frigates, of which they have 21 x Destroyers, 35 x Frigates, 20 x Corvettes and notably 56 Amphibious ships. They are progressing towards a Blue-Water Navy(PLAN); as they consistently increase their tonnage and can meet a wide range of operations. The Ari Craft Carrier capability is equally large.
Aircraft carriers can be bought off the shelf or for that matter a Strike Corps is not as much as a problem as it is to deploy them, train them to become battle worthy. Their combat capability has increased since the modernisation drive began in 2014.
While China is racing ahead in its drive to modernisation, we have not even been good spectators. China's new round of modernisation of its Armed Forces began in 2010 indicating major progress in 2020 and to fight and win wars in the mid 21st century. They would keep talking and keep nibbling, confusing the world and yet eating into real estate on ground, at sea and in the air. A larger emphasis is on IW, EW, and ensuring information dominance. Their foray into Space is admirable, with the military(PLA SSF) in complete control of all Space programs and IW. They have 181 satellites in orbit from a meagre 10 (in 2000). What is of importance is the importance given to Cyber W and IW since Xi Jingping heads the Centre for Cyber Space Affairs. Investment in skill development is note-worthy with a demand of 1.2 million work force by 2020 from a present demand of 700, 000(of which the country is able to field only 30,000 as on today.
Acquisition of the Rafales from Dassault Aviation of France has brought about a sense of ascendency in the might of IAF, parity in capability was always in the favour of the IAF. Additional Rafales, the ongoing discussion needs to be taken to a logical conclusion, thus arming the IAF with a capability to set the Chinese thinking. Our military balance is more equal due to the SU MKI and now the Rafales.
Acquisition of the Single Engine aircrafts, is another important milestone that would set parity at a more equal level, both in quality and quantity. Gripen E next generation, is a natural choice given the advanced technology incorporated and the state-of-the art features. Aerospace industry in India is set to grow to levels never seen before. US would be happy with this choice for the important part of engines and few other systems belong to them. Single engine aircrafts will also help assist the AMCA program in stealth capability, while expediting its development.
Air to air refuelling capability has been put on the back-burner, needs to be revived.
Advanced US technologies incorporated in the Predators and Avengers would integrate such capabilities both in terms of passive and active intervention(when required). This would endeavour to enhance our IW capabilities in the Sub-continent. Cooperation with the US for being a part of the "Fish Hook", the improved sound surveillance system as also the General Dynamics developed "DRAPES(Deep Reliable Acoustic Path Exploitation System)", to get reliable information on the movement of submarines in our area of interest. As Russia, and especially China, have developed larger and more advanced submarine fleets, the U.S. Navy has had to re-learn old Cold War anti-submarine warfare competencies while developing new capabilities to tackle more challenging modern submarine technology. Using cueing data from those platforms, improved local anti-submarine assets like the P-8I Poseidon sub hunter aircraft(ASW capabilities) and surface combatants with new, improved towed sonar arrays of their own, like the Multi-Function Towed Array, can then close on a target, and track or engage it as needed. Use of UAVs in tandem is a force multiplier.
The acquisition of A-330 based AWACS is a long pending program, the government may like to pursue to achieve the over-arching capability in IW and command and control of the areas of Interest. This will be in sync with the other programs that are in the pipeline In addition, Amphibious aircrafts from Japan is an essential pre-requisite to project force in areas of interest, besides enhancing maritime amphibious capability both at sea and across the Brahmaputra.
Capitalising on the progress made in the Indigenous EW Program, it is a neighbourhood call to enhance capabilities in EW and IW, incorporating all facets of IW. Information Ascendancy is a battle wining factor. If the Chinese had a Sun Tzu, we have a Chanakya Niti. The greatest recorded war in history, the Kurukshetra war, is replete with examples of Information Warfare in aid of the greatest of Army Commanders ever on a battle field. Our leadership needs a lesson or two from the Bhagwat Gita, to improve upon IW, EW, Psy W, Cyber W and create a potent force to deal with Information and cyber.
Does a requirement exist for us to re-evaluate our capabilities in IW and space and initiate an effort to integrate the capabilities for a national benefit and not relegate it to a specific service, to create and enhance national capability.
The SSBN capabilities of China are not much to talk about and our own Prithvi has more than matching capability and Nirbhay successfully tested for more than 1000 Km range; with the steady progress in the IMDGP, we would retain the leadership position in the subcontinent. In the application of Force, we would retain a more than equal capability.
Is there more we can do?
Yes, much more, but then, we may like to address the programs that have been listed above, they are already in the pipeline.
The programs in the pipeline will provide us with a Airborne EW capability duly integrated with UAVs, UAS, shipborne sensors, ground based EW capabilities and an ascendancy in IW. This is an essential pre-requisite for launching of operations.
We are at a cusp of a Defence Industrial Revolution, with the more friendly Defence Procurement Procedures (DPP 2016), the implementation of Strategic Partnerships and a number of MAKE programs on the anvil, the government will do well to put into action all of the above programs to enable them to fructify by 2020.
We as a nation have little choice but to actively speed up modernisation for the Indian Armed Forces. Let the Armed Forces guard the nation effectively and let the nation equip the Armed Forces efficiently.
14th November 2017 Comments (1) Articles Like
How Strategic Partnerships will change the Indian Defence Industry Ecosystem
Systemic changes to the environment around us has affected our thought processes to have an enhanced look at ourselves. This is what the Modi government has done to us, has made us feel better of ourselves and also empowered us with the ability to achieve what we always wanted to. Among the 23 identified sectors for Make in India, the PM has chosen the Defence sector to be the key one. Much talk of reversing the import ratio of 70:30 for more than a decade without any work done on ground. Manohar Parrikar led Defence ministry embarked upon a series of reforms amongst which the Strategic Partnership figured towards the end. This was essentially to ensure that the ground work is done to enable the industry and the nation to respond to the Strategic Partnerships in the private sector, in the manner envisioned by the Dhirendra Singh Committee(of which the author was a key member).
Vision, was to arm the Forces with the state of art weapons and systems for them to engage with the ever-provoking enemy both from within and without. Key strategic procurements cannot be relegated to a vagaries of a procurement procedure(DPP), that handles routine procurements. Delays in decision making, have crippled the Forces as never before.
For example, the procurement of 126 fighter aircrafts in the much talked about MMRCA, began in 2004 or so and RFP was issued in 2006 and no decision was taken till 2016, despite down selecting the lowest bidder in 2013. This is essentially because we drafted a QR for an aircraft that was never made and the global majors such as Boeing, LM, Eurofighter, SAAB/Gripen, Mig, Dassault/Rafale, were competing for the deal. It would have been wiser for the IAF to have placed a finger on the aircraft they needed and rest left to the MoD to make sure the deal is done in a timeframe that the IAF wants. Ideally, such deals must be negotiated between governments to iron out any misgivings and assure support at the government level.
In the same manner as the MoD is able to place orders/indents onto the OFB and DPSUs on a single tender basis; an enabling condition was necessary to extend this to the private sector; thus came about SPs. There is space for everyone, the OFB, DPSUs and the private sector, demand side being strong a balanced approach is expected.
Indian Defence Industry has grown beyond the realms of the OFB and DPSUs to include the private sector as a force-multiplier. While it may be argued that the infrastructure investment in the private sector is way too low, well the game has just begun. In the past five years there have been many private sector companies that have bagged large orders from the MoD. L&T with the K9 Guns in collaboration with Hanwa Techwin, Tata Power SED for the mountain warfare EW systems, Alpha Design for various programs in communications and EW and as recently with ISRO, just to name a few. There are also many examples of private sector actively supporting the Public sector such as the Global Engineers building the explosive plants for OFB, VEM technologies developing their own ATGM with home grown technologies, and so many more. India's geo-political and economic ambitions have grown significantly. Establishment of a robust indigenous manufacturing capability supported by a energetic and vibrant ecosystem in the Aerospace and Defence industry is the call of the hour.
The un-enviable security environment in the Indian subcontinent region, places huge demands on defence requirements. In the foreseeable future, this will only increase thus making indigenous development of modern defence hardware and technology a top priority for the government.
DPP 2016 was indeed a game changer, a transformational one ringing about such lasting changes with a focus on indigenous design, development and increased manufacturing. With the government's agenda to reduce import dependence in defence by 35-40 percent it is actively promoting indigenous defence manufacturing with initiatives like Make in India and policy reforms including allowing 100 percent Foreign Direct Investment (FDI). Several states are also offering incentives and concessions in the form of aerospace clusters or Special Economic Zones (SEZs) for developing an ecosystem where all core and ancillary activities related to defence manufacturing can co-exist, the most recent one being Haryana, with a A&D industry policy.
How does the SP policy contribute
It is estimated that procurement to the tune of about US$10 billion worth of defence products per year is planned in the next 5 to 10 years. It is in the interest of the OEMs and the domestic industry to move on from a buyer-seller relationship to that of a partner in terms of co-development and co-manufacturing, with transfer of technology. Indian companies will largely front end all business with the government and the opportunity for the OEMs is indeed huge in establishing a sound relationship not only for Indian market but also to service the global market.
While the government will short-select both the platform and OEM on the one side and the pool of Indian industry considered eligible to become SPs on the domestic side, the differentiator would be the partnership-relevance between the SP and the OEM. This relevance comes about through indication of range and depth of transfer of technologies, development of ecosystem and establishment of a production base in India.
One of the essential parameters of the SP policy is that of outsourcing. Although, deliberately, the Government of India has not indicated any specific number in terms of percentage of outsourcing that an SP should do; they have outlined the concept. Such as, it has been elaborated that the SP is expected to be a system of systems integrator; this means a lot, clearly indicating that if something can be outsourced, please do not do it. Concentrate on the Integration part, concentrate on the core technology part and leave the rest to the eco-system.
How did Bangalore, Hyderabad, Chennai in a major manner and other towns like Pune, Belgaum, Nasik and others in a smaller scale develop into pockets of excellence in Defence Sector? This was because of the DPSUs/OFB and DRDO labs that were in the vicinity that was an Industry-enabler cum Developer. So, there was an eco-system that developed to support the large government owned factories, despite these PSUs having huge infrastructure and their erstwhile known resistance to outsourcing.
Now the situation is much in favour of the small-scale industry. Here, the government will enable the formation of SPs with guaranteed business, four segments have already been identified, the aircrafts, submarines, helicopters and Armour Fighting Vehicles; all of which together count on more than 100 thousand crores. Although the potential SPs in the submarine segment have some infra to talk about, in each of the other segments they have little to offer, and will have to build from scratch. Herein lies the opportunity for the eco-system to develop. If for example we carryout a systems analysis of an aircraft , we could well end up with some 5000 sub-systems that go into its making, some of the major ones being Flight control systems, Engine control systems, Fuel systems, Hydraulic systems, Electrical Systems, Pneumatic systems, environmental control systems, Emergency systems, Rotary systems, Advanced systems, Avionics systems and more than about 200 technologies that determine its efficacy. The idea of listing some of these above, is that the nominated SP will not be able to master all of these and perforce will have to outsource, retaining the core technologies and system integration.
SPs are expected to have a global outreach addressing the global market and service them in addition to the domestic demand. Demand side dynamics are very strong in each of these segments and hence the opportunity for the industry to show up with centres of excellence in each of these areas. In addition, India offers tremendous opportunities in engineering services, supply chain sourcing and associated maintenance, repair and overhaul-related activities. This is the call of the hour and the nominated SPs are mandated to service all revenue requirements, MRO, spares, performance based logistics(PBL) over the life cycle of the product.
One challenge for the industry will be in Skill. From where do you get the work-force? Companies like P3 Consulting Engineering have been the pioneers in establishing a centre of excellence in skill development for training fresh engineering graduates to provide them with a finishing course in design skills. This initiative needs more hand-holding from the government and must extend to manufacturing and services like MRO, testing etc. As per government estimates, a reduction in 20-25 percent in defence related imports could directly create an additional 100,000 to 120,000 highly skilled jobs in India. The industry therefore, needs to build and train talent to address the growing needs of the market. With SPs in business these figures could well exceed estimates.
Tiered system of Industry – this is in the making with the SPs. While presently in India, we either have the MSMEs or then the big industries, the medium ones are neither here nor there; while they continue to do what the MSMEs do, they have greater aspirations. Aspirations will now be matched with discipline oriented investments at system and sub-system levels. Partnerships both with foreign OEMs and with the public sector are in the offing, for increased efficiencies. It is the turn of the DRDO labs to interface with industry in forging technology oriented relationships. Every design house must have a front-end manufacturing house, this relationship will boost Indigenous design and development. Partnerships amongst the private sector will also be the order of the day. Discipline oriented partnerships to converge on technologies and products will determine success in business.
One key element of the policy lies in "Buy in India". One of the ingredients that determines FE outgo, is raw material. It is widely believed that aerospace and defence grade raw-material is not available domestically. This, therefore becomes a thrust area for achieving our objectives of "Make in India". If a raw material is available within the country, it must be procured, imports of such raw material must be forbidden, even if the Indian supplier is higher in price. Similar mandate is required for any sub-system and products/technologies that are home-grown.
Cost to Country
It is often argued by few finance experts that Indian products and systems are costly and drains the national exchequer. MoD Finance is very happy with the award of contract going to the lowest bidder, also called as L-1. This could be true in a pure domestic competition, but has a slightly different connotation when the competition is geography agnostic.
Consider this as an example. From available public information, the cost of a Sukhoi 30 MKI if procured directly from Russia is INR 350 Crs. However, when HAL makes the SU 30 MKI, the cost is 450 Crs, implying a cost escalation of 30%. Is it then wiser to procure the SU 30 MKI from Russia and not get it manufactured in HAL?
The answer lies in an understanding of the concept of, "Cost to Country". When the SU is made in HAL the first advantage the country gains is the direct savings of precious FE of equivalent of USD $60 million per aircraft. There would however, be an element of FE outgo in terms of certain raw materials and proprietary products that may still have to be sourced from Russia. This FE savings can be better utilised for purposes that could have a social affect. The funding of SU 30 MKI from HAL would be done by the MoD in rupee terms, and this rupee is circulated back into the system in a variety of ways. Tax-payers money is getting back to enrich the tax-payer.
The other advantages are far more over-reaching. More than 42 new high-end technologies were mastered by HAL Nashik. HAL Nasik division, has grown into a manufacturing division and one for overhaul. complete Repair and overhaul (ROH) is done from within the country. Besides manufacturing the SU 30 MKI, it also supplies spares, consumables and aerospace fasteners. It has also taken up work-packages for civil aircrafts and exports spares to various countries as well, such as Egypt, Syria, Vietnam, Malaysia, Algeria, Poland and Russia. The complete Mig 21 and Mig 27 fleet( about 500 aircrafts still in service in many Air forces across the world) is supported globally from Nasik. The division has (from information on their website) manufactured 850 aircrafts and undertaken overhaul of more than 1800 aircrafts. The division presently holds on rolls, 1770 trained technical experts and 650 engineers; while more than 8000 trained over the two decades; this much for skill. They have a huge outsourcing bill, including disciplines like sheet metal components, machined components, non-metallic components, springs, metallic tanks, and a variety of tooling items, besides outsourcing labour. The eco-system developed just for the SU 30 MKI line could be more than 350 small companies that are tirelessly working on high end aerospace components. The outsourcing has a target of 30% and is leaning towards that with a 20% outsourcing that is presently taking place. Nasik has three huge industrial estates, viz, Satpur, Ambad and Sinnar with more than 2600 industries in it. The who's who in the industry have their manufacturing plant there, just to name a few, Siemens, Kirloskars, Crompton Greeves, Mahindra, VIP industries, Mico and many more. Also, to facilitate exports, Nashik division of HAL created a socio-economic JV between HAL and CCI corporation of India to provide a single window export clearance and facilitation for the agri-produce(grapes, Pomegranate, Bananas and others) the region is famous for.
A cost analysis of all of the above and the over-bearing advantages, would indicate that the cost to the country is far less, when we source from within the country.
When our SPs get on to their job, the contribution they could make to the environment would be far greater with a sound eco-system and a formidable production base established in the country with impinging technologies and manufacturing processes of global standards. SP model initiated by the government is a great transformational initiative and all stake-holders must come forward to whole-heartedly support this.
Parting shot
The SP policy is expected to cause a sea-change in the industry both in terms of outlook and real effects. Proliferation of technologies, development of skilled force, best practices in manufacturing, tired system of industry and development of MSMEs will be the order of industry. Niche companies with intense technological outlook will mushroom across the geography of the country and centres of excellence such as Nasik, Bangalore, Hyderabad and Chennai will spring to support the national effort.
28th June 2017 Comments (1) Articles 1
FDI in Defence Sector
Government of India has taken a number of measures to increase the participation of Indian companies in the Defence Sector. From liberalizing the licencing regime to making remarkable changes in the Defence Procurement Procedures, according AONs on the Make in India platform provided by the Buy Indian, Buy and Make Indian and Make provisions of the DPP, the government has done all that it could to energize the Indian Defence Industry. Easing of provisions of NOC for exports through timebound 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 various control regimes. In consonance with all of this the government has also revisited the extant 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 upto 100% with a 49% through the automatic route. 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 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 a caveat Indigenous manufacture.
"Buy & Make" would mean purchase from a foreign vendor followed by licensed production/indigenous manufacture in the country. "Buy & 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 & 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 30-50 per cent for any arms imports above a a threshold of INR 2000 crs 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.
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. We as a nation are at a cusp of technology breakthrough and proliferation in manufacturing sector. We have established a niche space in the IT sector but are we there in engineering design and high-end critical design element?
This is a serious question we must ponder on.
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 nerves-end in combating terror and busy protecting the strategic interests of the nation, it is the nation's call to respond. We have tried the organic route of the DRDOs and the DPSUs for too long, they have delivered to the Forces in time of need and continue to do so. Is that enough?
Are we still satisfied with the 70% 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 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 programs 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 Manohar Parrikar led Defence Ministry, mooted by the Dhirendra Singh Committee, the Strategic Partnerships, has seen the light of the day. Will the programs listed therein be signed off before October 2018? Any delays in execution could once again put the policies and programs associated , in jeopardy.
One of the major causes for delays in most programs has been attributed to the Finance wing of the Defence ministry as also the Ministry of Finance. Most objections on procedures and processes and often-times, fundamental issues have been raised at late stages in the procurement time-cycle. Is this because we as a nation are unable to fund the programs and therefore we use the bureaucracy to do the honours to cause delays, through effective use of English language? It could be only an apprehension or may be true too.
Do we need to go only the organic route and hold the Forces on, till such development takes place indigenously, could be infinity, or the DRDO or the other organs of the government come up with a development when the 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 we are in, the latent potential energy in the industry is overwhelming. The government has done well to support the domestic industry, has opened up the private sector in more ways than one to support the 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 programs. 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, NRIs(who of late are in the news for sending back home huge sums of money) and others.
Technology is critical to development of the sector, however, foreign OEMs are more comfortable in transfer of technology, if they have management control over the 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 we embark on both, organic and inorganic growth. While the government may approve a JV or a fully owned subsidiary with 100% FDI, it may also parallelly launch a 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, we could witness collaboration between our government institutions and industry both domestic and foreign.
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 PN 4 of 2001 and PN 4 of 2002, inviting 100% participation of private industry in the Defence Sector with a 26% cap. Then it was argued that a 49% 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 and 49 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% FDI may not be enough, this will need to be dovetailed into progressive A&D policies of states in sync with the federal reforms. This way you can ensure that key technology will not be denied and Indian vendors would have the opportunity to get into the global supply chains of world leaders, till such time we become one.
While the industry is opened up with unrestricted FDI, following must be mandated :-
Outsourcing with clear norms of upto 50% or above
Development of supply chain : this has to be a demonstrated for furthering business.
Integration of Development partners, in consonance with above.
Integration into global supply chain, 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 policy. Also, in the first instance even iof the raw material is sourced at say a 90% 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 my DRDO/OFB/DPSUs
The new steps taken by the MoD 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 us 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 we learn something from the ISRO? Let them 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 IP and skill remains in the country and hence can be strengthened with little effort. A parallel can be drawn from Australia, where the global majors have made 100% subsidiaries, and are flourishing well. The dictat 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 L-1 bidder. 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% 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 FE.
FDI could be free-flowing with no limits
Limits and mandates on work-force and skill, 100% Indian
IP 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 India only. Buy from India is an essential pre-requisite for "Make in India" and "Made in India".
18th June 2017 Comments (1) Articles Like
College of Material Management
MAKE IN INDIA IN DEFENCE SECTOR | START UP INDIA | STAND UP INDIA
INDIGENOUS DESIGN DEVELOPMENT AND PRODUCTION
Defence Procurement Procedures since inception have been incorporating different categories of procurement to enhance indigenous production. From its just two categories in DPP 2002 to the present six categories, the march has been significant, in the decade and a half. Concept of providing priority to categories in acquisition in Defence procurement was first introduced in the DPP 2013.
Never before in the history, a priority been assigned for indigenous design and development. Having recognized the importance of indigenous design and development, the Manohar Parrikar led ministry has for the first time provided both importance to indigenous design and development as well as granted the pride of place for design and development as a part of the procurement process. What does this mean and what are the implications for the indigenous industry, let us see.
Was there a requirement at all to provide for such a category with overriding priority in the procurement process? Or has this requirement of recognizing the importance of Indigenous Design and Development, come about a bit late into the procedures?
DRDO is the nodal agency for design and development of military platforms, systems, subsystems and in many cases components too, for the Armed Forces. It was designed to be so. It came about into being for this very reason to meet the requirements of our Armed Forces. In its more than six decades of existence, has DRDO even remotely met the expectations set out for? Why is it that our Armed Forces have to remain dependent on foreign sources for more than 70% of their needs even after seven decades of independence? What was lacking, (i) was it indigenous design and development (ii) was it indigenous manufacturing or (iii) was it both? What is more important for our Armed forces to be sustained from within the country for all their needs, is it (i) Design and Development or (ii) Manufacturing or both?
How did this all begin?
DPP 2013 already had the requisite flavour so of "Make in India", by according to priority in categorization of procurements, such as, "Buy Indian", had the greatest preference over all the others such as (ii) Buy and Make Indian followed by (iii) Make and then (iv) Buy and Make, with Transfer of technology, basically for the foreign OEMs and lastly the Buy Global. Introduction of Buy IDDM to override and sit above all of this in the order of priority of 'Make in India' initiative by Government of India in Defence sector is indeed transformational. An indigenous emphasis has increased the business of Indian Defence Vendors and also strengthened the economy by Rs 1,152.48 crore this year as compared to 2015 as reported by the government.
Parliamentary Discussion
According to a written reply by Minister of State for Defence(RRM) Rao Inderjit Singh to K Parasuraman in Lok Sabha on Friday the Sixth of May 2016, The Defence Procurement Procedure (DPP) 2016 provided strong support to 'Make in India' by according highest priority to Buy (Indian-IDDM) that is Indigenous Designed, Developed and Manufactured category. It also focused on enhancement and rationalisation of indigenous content and has provisions for involving private industry as production agencies and technology transfer partners. The 'Make' procedure has also been simplified with provisions for earmarking projects not exceeding development cost of Rs 10 crore (Government funded) and Rs 3 crore (industry funded) for MSMEs, Singh added. With this bold initiative, the total expenditure on purchase of Defence equipment for the three services in 2015-16 is Rs 76,169.57 crore in which the procurement from Indian vendors is Rs 49,979.11 crore and from foreign vendors it is Rs 26,190.46. In 2014-15, the total expenditure was Rs 77,986.32 crore in which Rs 48,826.63 crore was from local vendors and Rs 29,159.69 crore from foreign companies. The numbers prove that Indian companies got more business than their foreign counterparts in 2015-16. Importance of 'Make in India' in DPP-16 also reduced the foreign profit by Rs 2,969.23 crores than last year.
Measures Taken by the Government : Policy and Regulatory
A number of measures have already been taken to achieve self-reliance in defence production by harnessing the capabilities of the public and private sector industry. The DPP-16, aims at achieving substantive self-reliance in the design, development and production of equipment, weapon systems, platforms required for Defence in as early a time frame possible; creating conditions conducive for the private industry to take an active role in this endeavour, enhancing potential of SMEs in indigenisation and broadening the defence Research and Development (R&D) base of the country. Indigenous manufacturing of Defence equipments is encouraged by the Government through several policy measures like; Preference to 'Buy (Indian-IDDM)', 'Buy (Indian)', 'Buy and Make (Indian)', categories of capital acquisition over 'Buy (Global)' category in Defence Procurement Procedure.
Foreign Direct Investment (FDI) policy has been reviewed and as per revised policy noticed in November 2015, Foreign Investment Cap upto 49% is allowed under automatic route and above 49% under Government route on case-to-case basis, wherever it is likely to result in access to modern and 'state-of-art' technology in the country.
In addition to all of this the government has also taken efforts to de-regulate the requirements for licensing by removing more than 60% of the products form requirement of compulsory licensing, thus providing relief to the domestic industry. Industrial de-licencing has energized the component manufacturers, especially the small industries (MSMEs) by removing the extra burden of applying and obtaining licence for their products.
There has been a considerable effort to ease exports, by simplifying the export control norms and establishing a system for faster responses and approvals for exports. This has also been made on-line.
Minister of State for Defence Rao Inderjit Singh also informed that Hindustan Aeronautical Limited (HAL) has handed over 156 Dhruv Choppers to armed forces in which 66 choppers are already delivered to Indian Air Force, 78 to Indian Army, 8 to Indian Navy and 4 helicopters to Coast Guards. Defence Research Development Organisation (DRDO) is also working on different indigenous research with the help of Indian vendors which will give a boost to defence procurement and defence preparedness in future.
So, there has been a holistic approach to the entire defence sector, and IDDM category was the icing on the cake.
So, what are the categories of procurement in DPP 2016 and how does this aid in Make in India?
Categories of Procurement in DPP 2016. Presently the following categories are incorporated in the DPP 2016, in their order of priority in procurement :-
(a) Buy IDDM ( Indigenous Design Development and production)
(b) Buy Indian
(c) Buy and Make Indian
(d) Buy and Make (Global)
(e) Buy Global
Priority of procurement is the mantra for make in India. In addition to the above there is also the "Make" category of procurement, which is now formulated in a more practical and industry friendly manner. The government has pre-positioned the "Make" category to basically enable the Forces to select programs for consideration under the Make category. Within a month of promulgating the truncated DPP 2016, the MoD has also placed on its website 23 projects for the industry under the Make category. That's commitment to Make in India.
Buy IDDM
We shall now analyse the Buy IDDM category. Buy IDDM means Buy from those Indian sources that incorporate Indigenous design, development and Production. This essentially means the following :-
(a) Design has to be Indigenous
(b) Development has to be indigenous
(c) Production or manufacture has to be indigenous
However the government feels that there could be occasions when such conditions cannot be met by domestic industry, due to its evolving nature. Therefore, the MoD has considered a non-indigenous design and development proposal also as part of this category. This means, a non-indigenous solution by the industry that incorporates a non-indigenous design and development could also be categorised under this priority-1 category of procurement. What then is the difference? Government is aware of the infant nature of defence industry especially in the private sector and to help evolve it to the next levels, has therefore allowed even a non-indigenous design, but has made the difference in the manufacturing indigenous content. If the design and development is indigenous, then a indigenous manufacturing content of 40% could suffice, whereas, if the design and development is non-indigenous then a 60% indigenous content is mandated. Thus the MoD has taken care of both the requirements, viz, design/development as well as manufacturing in the same category.
For a given procurement proposal, If the above conditions are met, the planning process would accord highest priority to categorise this accordingly. This actually means:-
(a) Encouragement to Indigenous design and development
(b) Encouragement to indigenous manufacturing content
(c) Manufacturing invariably has to be done indigenously. The content of indigenous manufacturing is called as Indigenous content(IC).
It is important to also understand the concept of Indigenous content since many of the raw materials are not manufactured in our country. So at any given point in time, a minimum of 30% or so of an acquisition program could be already jeopardised in favour of import, on the basis of raw materials alone.
To depict the same as in a Flow chart :-
Apart from overall IC as detailed above, the same percentage of IC will also be required in (a) Basic Cost of Equipment; (b) Cost of Manufacturers' Recommended List of Spares (MRLS); and (c) Cost of Special Maintenance Tools (SMT) and Special Test Equipment (STE), taken together at all stages, including FET stage. This condition flows from the DPP 2013.
How do we prove the design?
The onus of proving that the equipment design is indigenous, rests with the industry, and such claims will be verified by a committee comprising scientists from DRDO and representatives from SHQs, based on documents issued by authorized agencies and presented by the vendors. The process of verifying the availability of indigenous design and development, should be completed prior to fielding of SoC( also called as the Sratement of Case, which in fact is the proposal made by the Armed Forces HQs) for categorization; guidelines pertaining to the same will be issued by the DG (Acquisition), with inputs from DRDO.
Modus operandi for proof of design to certify it as indigenous or otherwise, is an activity that needs to precede the planning process for appropriate categorization. This will be a challenge both for the MoD as well as for the industry.
(a) The process of verification of design precedes the fielding of the said acquisition for the SCAP lower committee. This means that invariably, the prospective vendors need to have an interaction with DRDO even before the proposal is fielded by the services. Early liaison and interaction with DRDO is called for to be eligible for placement under this categorisation.
(b) Even if design is not indigenous, a good tie-up with a foreign design source can be made and IC can be increased to be eligible under this category. Industry that intends to field a non-indigenous design, must necessarily have an intimate knowledge of the supply chain to integrate this with the design, in order that the manufacturing content is maximized.
(c) Early knowledge of proposals likely to be fielded is essential. May need to closely follow up the RFI process and have intimate interaction with Services.
How do we then see the acquisition process evolving?
It will be the endeavor of industry to field their solution against an acquisition proposal in the most preferred category. What do we mean by indigenous design? Supposing, an Indian company bought off a foreign design, does it now become indigenous? Buying off a design with the know-how and know-why along with the IP rights may empower Indian industry to stake claim to participate under IDDM category.
Indigenous industry has yet another option, a more interesting one, that has not optimally been exploited. There are many technologies that have been developed by DRDO and available for transfer to industry. Recently, DRDO has also promulgated the guidelines for transfer of technology to industry, the same is available on their website. Industry may like to exploit this opportunity for an eligibility under this category.
DRDO may also face challenges in transferring technology to industry. If Make in India has to happen, then industry is likely to flood DRDO seeking technology transfers for those technologies that DRDO has developed. These are known as "Cat A technologies", in DRDO's parlance. DRDO may need to develop an ecosystem for industry interface and enabling smooth transfer of such technologies.
We need to have Strategic Partnerships(SP) to promote private industry into the defence acquisition process. If we can dole out contracts to the DPSUs on a single tender basis, then, we must also be able to provide our private industry tenders on a Single Tender basis. This can be achieved if we have SPs. Concept of SP is that we from our private industry identify few that meet given criteria for a given discipline, such as say, Aircrafts, Helicopters, Missile systems, Guns, Materials, Submarines, Surface Ships, Tanks and other specialist A vehicles, small arms and ammunition and so on. Thereafter we may allocate one private industry for each of the above disciplines and harness the relationship for say a period of 20 years(concept of long term partnerships). In this period, the government(MoD) may issue tenders on a single tender basis to these also.
Industry readiness to face the challenge
How does the nation support Make in India and other initiatives? Do we have the raw materials required for Defence Production? By far, from amongst all sectors, Defence Sector is most quality conscious, this includes the Aerospace sector also and we shall also refer to this as the A&D sector. All of military grade steel and other raw materials are imported, all of electronics and the raw materials for the same are imported, all of special materials and alloys required are imported, so how do we reconcile to a situation like this?
Is it possible for us to dedicate a materials Management Division in the Acquisition process for management of materials? Can we address the most crucial aspect of material management in the acquisition process? Are we equipped to deal with this most important discipline in a methodical manner? These are some questions that will squarely affect our entire Make in India concept and can we encourage start ups in these disciplines?
We have been viewing Start-Ups as small niche companies that are usually run by a motivate technical genius, having ideas and looking for funds. We need to look at this quite differently, like a big industrialist like say Godrej or Tatas or Ambanis, creating Start-ups with huge investments in the disciplines that we are lacking, one of them being raw-materials.
Industry now has multiple options to meet the requirements of the Armed Forces through indigenous design and development. They could invest in design and development in an organic manner, thus investing heavily in researchers development. They could rely on DRDO for fundamental research and take on engineering design, it is still a tough call. The second option they have is to seek technology transfers for the already developed technologies by DRDO. These are technologies that have been developed, tested and ready to use, ready to go to production. This will incorporate less lead time in the production process. Domestic industry also has the option to go to a foreign OEM to seek transfer of technology. This can be done either through the Offsets route(which incidentally is more difficult), or through a direct purchase of technology or even through formation of a suitable JV(joint venture). The latter two options are more practical and feasible.
What is sought under such conditions is an unconditional transfer of technology, a full and total transfer of technology with unfettered rights. Only under such conditions can the said technology be deemed to be indigenous. When such technology is made available through a JV route there could typically be ownership rights and may not lead to "indigenous" qualification. In a more liberal manner there could be a case of teaming arrangement with the foreign partner willing to transfer technology under pre-stated business conditions, that could draw upon the Indian partner to seek IDDM status with a higher manufacturing content.
In conclusion, the government has done well to incentivize industry to strive for indigenous design, development and manufacture. Indian Armed Forces are deployed in intimidating Indian conditions and for the Indian conditions they are deployed in, they require Indian solutions. Innovation is the key to meet the immediate needs of the Armed Forces and innovation can happen only when indigenous solutions are attempted. It is now for the industry to come up with models to achieve "Make in India in Defence" in its true spirit.
Indigenously Design Developed & Manufactured
MAKE IN INDIA | INDIGENOUS DESIGN DEVELOPMENT AND PRODUCTION
DPP 2013 already had flavour so of "Make in India", by according to priority in categorization of procurements, such as, "Buy Indian", had the greatest preference over all the others such as (ii) Buy and Make Indian followed by (iii) Make and then (iv) Buy and Make, with Transfer of technology, basically for the foreign OEMs and lastly the Buy Global. Introduction of Buy IDDM to override and sit above all of this in the order of priority of 'Make in India' initiative by Government of India in Defence sector is indeed transformational. An indigenous emphasis has increased the business of Indian Defence Vendors and also strengthened the economy by Rs 1,152.48 crore this year as compared to 2015 as reported by the government.
According to a written reply by Minister of State for Defence(RRM) Rao Inderjit Singh to K Parasuraman in Lok Sabha on Friday the Sixth of May 2016, The Defence Procurement Procedure (DPP) 2016 provided strong support to 'Make in India' by according highest priority to Buy (Indian-IDDM) that is Indigenous Designed, Developed and Manufactured category. It also focused on enhancement and rationalisation of indigenous content and has provisions for involving private industry as production agencies
and technology transfer partners.
The 'Make' procedure has also been simplified with provisions for earmarking projects not exceeding development cost of Rs 10 crore (Government funded) and Rs 3 crore (industry funded) for MSMEs, Singh added.
With this bold initiative, the total expenditure on purchase of Defence equipment for the three services in 2015-16 is Rs 76,169.57 crore in which the procurement from Indian vendors is Rs 49,979.11 crore and from foreign vendors it is Rs 26,190.46.
In 2014-15, the total expenditure was Rs 77,986.32 crore in which Rs 48,826.63 crore was from local vendors and Rs 29,159.69 crore from foreign companies.
The numbers prove that Indian companies got more business than their foreign counterparts in 2015-16. Importance of 'Make in India' in DPP-16 also reduced the foreign profit by Rs 2,969.23 crores than last year.
Minister of State for Defence Rao Inderjit Singh also informed that Hindustan Aeronautical Limited (HAL) has handed over 156 Dhruv Choppers to armed forces in which 66 choppers are already delivered to Indian Air Force, 78 to Indian Army, 8 to Indian Navy and 4 helicopters to Coast Guards.
Defence Research Development Organisation (DRDO) is also working on different indigenous research with the help of Indian vendors which will give a boost to defence procurement and defence preparedness in future.
In addition to all of this the government has also taken efforts to de-regulate the requirements for licensing by removing more than 60% of the products form requirement of compulsory licensing, thus providing relief to the domestic industry. So, there has been a holistic approach to the entire defence sector, and IDDM category was the icing on the cake.
So, what are the categories of procurement in DPP 2016?
Categories of Procurement in DPP 2016.
Presently the following categories are incorporated in the DPP 2016, in their order of priority in procurement :-
(a) Buy IDDM
In addition to the above there is also the "Make" category of procurement, which is now formulated in a more practical and industry friendly manner. The government has pre-positioned the "Make" category to basically enable the Forces to select programs for consideration under the Make category. Within a month of promulgating the truncated DPP 2016, the MoD has also placed on its website 23 projects for the industry under the Make category. That's commitment to Make in India.
To depict the same :
Manufacturing content required is 40%
Is the design Indigenous?
Strategic Partnerships Ecosystem – June 2017
Say "Yes" or "No" was the thought that was engaging the minds of many corporates both domestic and foreign. While the industry was confused and apprehensive on the decision-making ability of the government, well, the corridors of power were busy sifting the various reports from different committees and trying to build a consensus. As it is normal in such policy formulation, there were differences in opinion from the stake holders and it was important for the government to take them all together.
The concept and fundamentals were laid down by the Dhirendra Singh Committee. To quote, "There are cases however where certain platforms are of strategic importance. For these, we are recommending the 'Strategic Partnership model' for creating capacity in the private sector on a long term basis. Such a capacity will be created over and above the capacity and infrastructure that exists in Public Sector units. This is expected to spur the sectors towards a more efficient and effective mode of operation. Likewise, there are cases where quality is critical and vendor base is very narrow. For these we are recommending a model of 'development partnership'". The committee further recommended few segments like aircrafts, warships, AFV, complex weapons networks, materials, and suggested a well defined protocol for selection of SPs. The follow-on task force dwelled into the details to lay down parameters for selection of SPs followed by Industry-led discipline oriented sub-committees. Issues concerning requirement of industrial Licence, minimum revenue of 4000 crs, three years of growth, weightages on segment specific criteria and more were deliberated in an Industry interaction on 11 June 2016. In less than one year, the the cabinet approves the policy and chapter VII of DPP 2016 stands populated.
Before we have an understanding of the polisy enshrined, let me address a few apprehensions such as, (a) What will happen to the JVs already established? Many of them may be in sectors now not declared as SP. (b) It jettisons the idea that market forces should drive development and competition. (c) Will value for money be achieved if orders on exclusive basis are given ? (d) What will happen if MoD decides not to buy the equipment after the SP produces it.
The reasons for such apprehensions can be figured out with less difficulty. They want to keep the pot boiling so that the Indian establishment continues the consultation process without speeding up implementation. As I see it, the initial efforts at forming JVs was only to take advance action and gain experience. No Indian company has wasted resources in actually building platforms. Market Forces do not work in monopsony conditions and the investment are so high that no one can risk it. However, it can be noticed that market forces have a role to play in the determination of SP, since it is the lowest bidder amongst the shortlisted ones that makes the grade. In fact, Value for money is achieved by various ways and not only thru competition, these have been illustrated in the spirit enshrined in the Dhirendra Singh committee report as well as the policy. In fact the standard procedure for value chain build up and long term vendors is based on constant interaction to improve quality and reduce costs. This is the standard procedure in civil Industry and in India the auto industry is a good model. So giving exclusive orders can be more beneficial to the country in the selected platforms. The question of not placing an order does not arise as the SP model is based on the RFP being issued on the basis of assured demand. The Indian Industry ( big for SP and small for DP) must whole-heartedly support the GOI in this venture, not miss this golden opportunity, ignore the doubting Toms and make India self sufficient in defence equipment manufacture.
The fundamentals of the policy are strong. For any strategic procurement, the nation needs to have a say in the choice of the platform and the supplier. For "Make in India" to be effective the nation must drive the initiative through reforms and choose their partners in progress. MoD will have control over the short-listing of the OEM on the one hand and the SP on the other, thus having a say in both the platform under procurement and the SP. In addition, the GoI has given due importance to Market Forces in actual determination of SP.
GoI has now come out with a business oriented policy, business first. This is a program based policy, addressing in the first phase four programs, viz, (i) Fighter Aircraft (ii) Helicopters (iii) Submarines and (iv) Armour Fighting Vehicles. The corresponding programs are easily interpolated, SAAB Gripen/Lockheed for the single engine, Airbus Helicopters and others for the Naval Utility Helicopter program and other multi utility helicopters, DCNS, HDW and other probable OEMs for the P75 I, and the FICV/FRCV program with multiple choices including RADS, BAE and others. With a clear business visibility, the MoD has proceeded to pick up their OEMS and SPs.
Initial shortlisting of SPs will be based on the model recommended by the Task Force with two gates, first being the minimum qualification criteria to include financial, technical and other general criteria and the second stage would be a site verification with an evaluation of financial and technical capabilities. Thus, the MoD intends to create a pool of SPs from the private sector. At this stage no apriori allocation of disciplines or segments is being made and therefore none of the SPs in the pool can lay claim on a particular discipline/segment. This is indeed a very smart move, providing a level playing field to the prospective SPs to compete for their rightful place in the choice of discipline.
As a part of parallel processing technique, MoD would send out an EOI or RFI to the prospective foreign OEMs for these particular programs seeking requisite technology in range and depth. From a purely technological perspective, based on an assessment of the responses received, two OEMs per program/discipline would be shortlisted. Thus, the MoD would have made a choice on both the platform/OEM and the desirous prospective SP.
Now it is time for the market forces to come into play. For the programs short-selected in the first phase, as above, the MoD will now issue an EOI/RFP to the prospective SPs, indicating in the RFP the short-selected OEMs for the program. Prospective SPs are expected to indicate their preferences for segments concerned. Prospective SPs in turn are expected to find their comfort zone with the OEMs and submit a single bid. The lowest bidder is the SP for the segment/discipline/program. In this final selection stage the GoI has left room for assessment/evaluation of segment specific capabilities within the SPs so contending, thus indicating a L-1/T-1 concept.
Evaluation criteria follows the task force recommendations thus reposing confidence, that included two stages of evaluation, stage 1 based on minimum qualification criteria and the second stage comprising of financial and technical parameters. Subject to compliance to certain aspects such as wilful default to the banking system or being black listed by the RBI or any joint lenders forum, debt restructuring and not classified by any bank as NPAs, all participant companies that qualify the first stage evaluation, will be considered for the second stage evaluation.
Few questions emerge, such as, While considering the single engine aircraft, is it wise to also consider the power pack and hence call for an SP for engine manufacturing? Should the percentage of R&D spend be the only criteria or there also be an absolute number to it? Could the third and fourth segment experience a single vendor situation with only few in the pool? Should the selected SP not perform, is there any exit clause and what options does the government have to fill the voids in defence preparedness?
What are then the outsourcing norms? From the concept outlined by the Dhirendra Singh committee, one aspect stands out loud and clear, SPs and DPs go together. What are DPs and how do they affect the defence industrial ecosystem? DPs are Development Partners; what SPs are to the GoI, DPs are to SPs. If the GoI is reposing trust on the SPs, the SPs are in-turn expected to repose their trust on the DPs, else this system will collapse. If India lives in villages, industry lives in MSMEs. The policy on SP must mandate a minimum specified amount of outsourcing, say 50% of which another 50% must find favour with DPs. It is expected that invariably DPs are from the MSME segment. It is perceived that the major beneficiaries of the SP model would be the small-scale industries, well only then will the ecosystem develop.
The question that comes up is what next? One of the highlights of the draft policy is that aspects like Performance based logistics for ten years, spares, MRO, life cycle support, upgrades, setting up of testing and proving laboratories, all of which are by themselves huge follow-on contracts during the life of the system. Therefore, MoD has kept it open for market forces to determine an SP for a future requirement in the same segment. While the initially nominated SP may have the first-mover advantage, room is provided for a new entrant and hence room for innovation and no-room for complacency. This is clearly a win-win situation for the Armed Forces as well as for the industry. For future acquisitions MoD has provided incentives such as investments made to improve segment specific infrastructure, nature of R&D investments made which is qualitative, development and acquisition of relevant technologies and extent of ecosystem created.
No country can win wars with other's arms. It is time we introspect and develop a formidable indigenous defence industry to support our Armed Forces that are forever in combat, without any respite. To build a formidable indigenous defence industry, it is imperative that the ecosystem is developed, and once the ecosystem is developed, only system of system integrators remain, sourcing can be done at will. New industry champions will emerge, new trends will be set, knowledge will grow and the nation will emerge stronger.
The preamble to the policy, the definition of SP and the clauses relating to issue of EOI make it absolutely clear that there is NO ROLE for DPSUs in the SP model. The SP has to be private industry. The only role of DPSUs/OFB is to team up with the SP along with MOD, DRDO etc to carry on indigenous efforts to make India self-sufficient in defence products . It is clear that the SP production will be over and above the DPSU capacity . This is as per the Expert Committees recommendations. It is the Private Sector for whom this policy has been carved out and that the policy states that along with the SP the Development Partner will also have a role and most of them will be MSMEs.
Is there a price the nation has to pay? Unfortunately, our Finance experts in the confines of the government buildings understand only L-1, the lowest bidder; ie, the lowest cost quoted by a bidder for a particular system or equipment. Has anyone spoken about the cost to the country? In the path to progress with great emphasis laid on "Make in India", it is possible that the cost of design, development, supply chain management and production may be costlier than a foreign made fancy toy. Well, since the complete development, ecosystem and production is taking place within the geography of this country, the entire tax-payers money so billed against the Indian manufactured system under consideration, is circulated within the same geography many times. Thus, the cost to the country would be far less than the L-1 cost, if seen in this perspective. This is a perspective that needs to be dovetailed with the SP policy.
Is there a case for management control with the foreign OEMs within the existing framework of 49/51 FDI to enable the FOEMs to transfer technology seamlessly? Since the segment wise technical capability could be a challenge for SPs to showcase, should this be evaluated in a more comprehensive manner to include the "Offered Technology"? Once this is done, the FOEM will be incentivised to transfer technology in range and depth in sync with the spirit of creating the ecosystem in India. What are the limitations to Liaibility and how is this carved out for protecting the nation's interest? Will the GoI hold a "Golden Share" in the SP, thus enabling protection? This is essential, to ensure that the SP/FOEM do not sell their shares in the market thus causing a disturbance in the existing relationship.
The document is great and aspects mentioned herein need attention to make it robust and encourage sound relationships.
11th May 2017 Comments (0) Articles 2
Impact of Demonitization and its effects on Defence
Impact of Demonetisation(De-Mon) in the Defence Sector
If there was one event that attracted attention it was the big announcement of November 8th 2016, viz, Demonetisation. It assumed centre-stage as year 2016 came to close after the announcement of phasing out of existing denominations of INR 500 and 1000. This was a rude shock to many delivered in a gentle manner through an announcement that was to bring about a revolutionary change in terms of curbing black money and regaining a control over the economy in a very subtle manner.
India as a nation was forced to reconcile to the hardship that was to follow with the changed scenario, the country was expected to see a major leap in digital payments and financial transactions over the Internet. Be prepared for the inevitable and adapt to changes. Those that were quick in adapting to changes with change in technology were less affected and the ones that kept the traditional methods of cash flows were more affected. It seems that many were quick to find interim solutions to avoid major losses in trade and cash flows and may be few of them laughed away to the banks. The year saw a few major global events which would such as Brexit and the election of Donald Trump as the President elect to assume office on January the 20th even when this article goes to print, which are likely to shape economic and financial trends across the world in coming months. Indian financial markets did not react sharply to these massive events to the extent that they were expected to. So, another lesson learnt would be not to plan your finances on short-term events. Instead, one should have long term financial goals and work towards them through market cycles. The Defence Ministry was busy handling the OROP scheme for the Defence Forces; the dynamic political leadership saw to it that this long-standing promise made to the Forces, was taken to fructification in a relatively short period. Then there was the implementation of the 7th Pay Commission that had its own problems. The nation also witnessed Pathankot and Uri, besides many other bad skirmishes both in the North and the NE. There was a huge financial drain in an effort to deal with these situations. Amidst all of this, was the whole concept of DE-MONETISATION and its consequent impact on the economy. It is widely reported in the media that more than 97% of the cash has come back into the system. Now, is this a good news or not so good? Let us analyse the impact it could have in the Defence Sector. Defence procurements are not done in cash, fortunately. Is there a cash component somewhere? Even the MSMEs operating in the Defence Sector, do not operate in a cash component as their raw materials and other tools and jigs are obtained through established banking channels. The big boys in any case operate only through the banking channels and the government procurement policies have a well laid out and defined process of payments. What about the dirty money that has plagued many a defence deal? May be this money has been curtailed and stopped albeit temporarily. In the ensuing two years we can hope to see a great deal of transparency and accountability in each of the deals that are signed and executed. While the government is clamping down on the un-accounted for money, that is still at large and is also targeting the hoarders of cash, in many cases with the new currency denominations, there is yet hope that the defence deals will become free of this menace of money laundering. Defence sector reforms have had a positive impact on the growth of the sector with a great deal of energy that is flowing in. De-licencing of the sector with more than 60% of the products and all of the components and accessories removed from compulsory licencing, has indeed opened up the industry gates for a larger segment of the industry to become partners with the Ministry of Defence in research, development and production. Defence Procurement Procedures have been revised to an extent of providing a greater impetus for indigenous manufacturing while encouraging the small and medium industries for direct partnership with the government. The MAKE procedure, providing intense indigenous impact has been rewritten providing the intended impact by encouraging industry to take up challenges and become partners with the government. This is the platform that the indigenous industry may like to exploit to derive the greatest benefit to the Armed Forces for inducting indigenous technologies and for the industry to move the business into India. The revision of the FDI policy to be in harmony with the changes in the sector has added to its potential. If there is one sector that can pursue the "Make in India" policy, it is the Defence Sector and the work has begun in right earnest. Easing of norms of executing Offsets, has encouraged the foreign OEMs to look at the indigenous industry with a greater interest, more Indian companies are getting hooked up to the Offsets wagon. One of the major concerns of the Defence Sector in so far as the MSMEs are concerned was the cash flow to enable them to be in business. This has also been addressed in the procurement policies for timely payments. Delays in payments by the payment authority to the industry is worrisome. While the foreign companies are paid through an LC, the same does not apply to the domestic companies. The domestic companies have to deal with different authorities for each part of the procurement/supplies. Initially with the planning process for making an entry to be considered good enough for receiving an enquiry for tender(the Defence procurement process by and large believes in limited tendering, save some revenue procurements that are tendered openly), thereafter, with the execution process for response to RFP and trials with the trial teams of the Armed Forces and thereafter with the bureaucracy for finalising the contract. The story does not end here, the execution/deliveries are interspersed with interaction with the end user, the Armed Forces, often seeking small increments in performance (not always in the book/RFP document/contract, but the supplier is obliged to support the end user both from a customer point of view as also due a patriotic fervour). Once the deliveries are done, the agony begins, as was highlighted by a number of suppliers in many forums, in following up with the payment authority (PCDA concerned); many times it could be a for ever exercise, unless of course the supplier understands the dynamics of cash flow. The payment authority is not a stake holder and is generally not answerable to anyone, this can be fixed if the domestic vendors can also have their payments through a system of LC. De-monetisation may have a favourable effect in this case, since there is limited liquid cash available, with the industry, to fix and fill in the time-gaps in payments. Before full restoration of money circulation takes place, the government may like to plug these gaps through an effective mechanism as also create accountability. The De-Mon story is not so rosy elsewhere. In the informal sector, experts have commented that, while this critical sector that contributes over half of India's economic output, and employs about 90% of India's 470 million workforce; they have been badly hit. According to the Secretary General of FISME, Anil Bharadwaj ( as reported in the ET of Jan 15), "Demonetisation has given us the biggest Jatka, for example in Yamunanagar(UP), the hub of India's plywood industry, factories are shut. Now they have only two options: shut down or shift to the formal economy. This is however unaffordable, since thin margins and higher compliance costs render it unaffordable". De-Mon has virtually stalled the economy with a sharp dip in consumer demand and job cuts, auto sales have dipped 18% in December, fuel demand is expected to slow by upto 40% in 2017, a recent survey by SBI among SMEs reveals a 66% dip in business; a study by SME outfit AIMO reveals 35% layoffs and a 50% revenue dip, investment proposals dropped to 1.25 lac crore in third quarter of 2016 as against an average of 2.36 lac crores. Defence sector being a strategic sector, with well defined rules of business is generally ever-green and has been made greener by the effective reforms undertaken by the Parrikar led ministry. Leading from the front the minister has made an effort to revive an indigenous approach to all requirements of the Armed Forces. The announcement of Strategic Partnerships for Defence Production and the much awaited Innovative Funding Mechanism in Offsets, will be the game changers. This is expected soon, may be before the grand Aero India show in Bangalore beginning valentine's day for four days, this year. What then would be the effect of De-mon on say, the budget. Media reports suggest that the GDP would grow at a maximum of 6% for a few years due to De-Mon, while the world bank has down revised the GDP growth to 7%; effects will be seen in the near future. When GDP reduces, gross income reduces and there will be less money for the government to spend, so the government is faced with the following options : either reduce the spending on non-priority sectors or increase deficit financing. Will the Defence Budget take a hit? While it is expected that the earnings for the government would be low(even the sale of stake in PSUs is not expected to yield desire results, with an estimated shortfall of more that 565 billion rupees($ 8.4 bn), the Minister of State for Defence, while delivering a lecture on "leveraging Defence Expenditure as a tool for Nation Building", in the first week of Jan, stated that the Minister is eying for an enhanced budget allocation for the ministry, while the Finance Minister presents his budget on Feb 1 this year. The Shekatkar committee was also appointed in mid 2016, by the Defence Minister to suggest recommendations on rebalancing the Defence Expenditure besides those for enhancing combat capability. "Produce locally, sell globally", the eye that the government has on exports is interesting. The Raksha Mantri has been drilling down all those who can hear and those who cannot too; that enhancing exports is key to military advocacy and military economics. De-limiting the geographical boundaries for business is always not a great idea. The prevalent philosophy of first supply to our Armed Forces and then only can you export is fast changing, if not already changed. This strategy will usher in the much needed FE, that otherwise has been frittered away in big time purchases for the Forces. The reduced cash flow for middlemen to meddle with the procurement process, concept of G2G deals to eliminate money power from any interference have all added to strengthen the economic fundamentals of procurement. Mr Parrikar, had in May 2016, announced his ambitious plan of hiking the defence exports by USD 2 bn by 2018. This could be termed as ambitious by those that are not able to visualise the 360 degree coverage policy revamp. Besides other initiatives as elucidated earlier, the government has also simplified the process of obtaining a "No-Objection" certificate that was an effort lasting an indefinite time period in the yester years. Increased participation of private industry, encouragement to DPSUs to earmark at least 10% of their produce for exports, increased tenders under the "Buy Indian" category of procurement, all add up to increased cash flow and boost in exports. Talks of a possible sale of the indigenous Surface to Air missiles, AKASH, to Vietnam has already forced China to raise their tentacles, a worried China, has taken suo-moto cognisance as reported in their media. This is just the beginning of military diplomacy. The LCA, Dhruv helicopters, other missiles and systems, radar systems, NPOVs, Brahmos cruise missiles, anti-submarine torpedoes are all there in the horizon besides the traditional bullet proof jackets, OPVs, spares, components and few syb systems, in electronics, radars and aerospace components. Will De-Mon then have any effect on the Defence Sector? Well yes, a positive effect. The increased budget allocation for the Defence Ministry with an earmarked allocation for defence modernisation and MAKE programs, the Innovative funding mechanism in offsets, reduced cash availability for laundering to sustain a cleaner procurement process, increased exports, increased order flow into domestic companies under the "Make in India" categories of procurement, will all actually boost defence cash flows. Well, De-Mon may actually have a positive effect on the Defence Sector, gearing up the sector to meet the challenges of increased indigenous production, investment in research and design, increased number of partnerships in the sector, increased FDI flows are all positives.
Strategic Partnerships : Challenges and Opportunities for Indian Corporates
Indian Military is today at the cusp of scanty preparedness, dealing with old and obsolete equipment and systems on the inventory, that they can neither use nor discard, with little hope of any replacements or upgrades in the near future. Indian defence procurement process is plagued with such incompetence that none in the corridors of power is either accountable or blamed for incompetency or non-performance, in ensuring compliance to the timelines laid down. They are in such a critical state of non-performance that they are not able to adhere to the time-lines laid down by themselves.
Observations from CAG clearly highlight the chinks in India's armour. India's defence forces have faced a shortage of personnel and critical equipment because acquisition and modernisation plans remain stuck in a mesh of bureaucracy. Out-dated equipment, technologically backward, low reliability, and perennially in short supply – these are just some of the problems with India's defence equipment. Delayed modernisation has ensured that defence capabilities are way behind countries such as China. India now spends 1.1% of its GDP on defence (capital expenditure ex-land and construction), which is higher than the US (0.8%) and largely in line with that of UK (1.4%). While India's capital defence spending has increased (vs. US and UK), only a small part of it goes towards new equipment. In addition, almost 60% of the annual capital budget is towards imports, mainly because India's defence PSUs lack the expertise to manufacture complex systems and private sector participation is still nascent. In order to correct this anomaly, the current government has taken steps towards changes to procurement procedures – by introducing new category IDDM, revision of the defence products list, issuing industrial licenses to the private sector, and relaxing FDI norms. India's Defence Minister, Shri Manohar Parrikar, has been leading from the front to address the sluggishness in defence preparedness, head on.
In December 2015, Comptroller & Auditor General (CAG) observed that Indian Army's availability of authorised stock against War Wastage Reserve (WWR, which measures war preparedness) is low. Thus, against a WWR of 40 intense war (I) days, in 50% of the total types of ammunition, the availability was 'critical' – i.e., less than 10 (I) days. Inability of the Ordnance Factory Board (OFB) to meet the army's demand was a major cause for this shortage. Delayed modernisation has ensured defence capabilities
are way behind countries such as China.
As an independent defence consultant following this sector, I feel that India's annual capital defence spending has averaged US$ 11bn per annum over the past five years. However, only about 8% of this capex goes towards ordering new equipment; the rest is payments for equipment that was bought earlier. Something like a INR 60,000 earmarked for capital expenditure, only some approx INR 6000 is available for new purchases and the rest is scheduled payments for committed liabilities for the equipment and systems procured in the yesteryears. The reasons for the under investment, are well documented – India shares a border with two hostile neighbours – Pakistan and China. Also, its defence forces face serious shortages of critical equipment – not just fancy high-tech equipment, even basic war-time necessities.
Defence Systems Comparison
China Pakistan India
Active Frontline Personnel 23,35,000 6,20,000 13,25,000
Land System
Tanks 9,150 2,924 6,464
Armored Fighting Vehicles(AFV) 4,788 2,828 6,704
Self Propelled guns 1,710 465 290
Towed Artillery 6,246 3,278 7,414
Multiple-Launch Rocket Systems 1,770 134 292
Total 2,942 923 2,192
Fighters/Interceptors 1,230 304 915
Fixed-Wing Aircraft 1,385 394 720
Transport Aircraft 782 261 316
Trainer Aircraft 352 170 277
Helicopters 802 306 656
Attack Helicopters 200 52 30
Naval Power
Total Naval Strength 714 197 295
Aircraft carriers 1 NIL 2
Frigates 48 10 14
Destroyers 32 NIL 10
Corvettes 26 NIL 26
Submarine 68 5 14
Coastal Defence Crafts 138 12 135
Mine Warfare 4 3 6
Source: Global Fire Power, Media Articles
OFB / DPSU Bashing
There is no dearth of statistics to highlight the poor state of the DPSUs and OFB in their preparedness and support for the Armed Forces. Many an author and defence experts writing on India's defence preparedness, have done a great deal of OFB/DPSU bashing. I do not intend to do more. However, we need to come to terms with the reality facing the country. On the one hand we have a political establishment that wants to do more, in terms of bringing about fast-paced changes, much to the dismay of the lethargic government functionaries, who now no more can put up a pretence at work; on the other, we as a nation are consigned to the fate administered to us by the bureaucracy. One unique quality in the bureaucracy is to neither deliver nor let go of the legacy fiefdom, thus discouraging new ideas.
There is a time in the national growth process when traditional mindset must give way to usurp change to allow the "best" to flourish. Safeguarding of turf for plenipotentiary power needs to be curbed with an Iron Hand. It is time to reflect upon the past and allow the OFB and DPSUs a free hand, free from the strangle-hold of the Defence Ministry. They are not being allowed to function as business houses, their hands are tied, their wages are controlled, their ideas are shot down, they are mere pawns executing a dictat from the corridors of the South Block, a dictat devoid of strategy, completely contingent on favours and return favours. How long can such a mechanism work. How long will the Ministry continue to park funds with DPSUs and OFBs for systems and equipment that may never see the light of the day, or when it does, it is at the end of a very long and dark tunnel.
Our OFB and DPSUs have performed well, have done their best, despite being in the guided environment they were subjected to and now they enjoy a definite lead over the private industry in terms of infrastructure, skill, experience and the working environment. Once they are freed, they have the promise to become the Embraers of the world. The government could consider to retain a golden share however. As a first step, they could be placed under the Ministry of Heavy Industries, if their characteristic that of "Public Instrument" is required to be protected. They will then learn to compete and become price conscious. Presently, they are like any government department, spending public money, agnostic to value of the rupee. That's why their products are costly, sometimes multiple times the market cost and this escalation is duly justified, by overheads and other estimates that the government must bear.
How will then the Armed forces get equipped to protect us or in other words, when will the Armed Forces get what they need
If we were to follow the traditional methods of procurement as we have been doing thus far, we are not likely to encounter any new results. Ambitions of the political leadership to institute corrective mechanism and vision of the government can be matched, only if we adopt new and innovative methods while also embracing the private sector. Mere lip sympathy will not be good enough. The government could do well to match the competencies in the corporate sector with that of the Public sector and find collaborative arrangements. Idea here is to mesh the efficiencies in the private sector with the infrastructure in the Public sector, a win-win situation will emerge.
DPP the work-in-progress document, has evolved to become an inclusive document, inclusive of the private sector as well as the MSMEs. The document however, falls short of defining the process through which procurement of strategically sensitive systems can be undertaken. Strategic Partnerships hold the key and probably provides a great hope(the only hope) for the Armed Forces to get the procurement executive to act in an atmosphere conducive to near-hassle free induction. The Committee of Experts constituted for formulation of the present DPP, recommended a recognition of the abilities in the private sector through Strategic Partnerships. A broad criteria for Strategic Partners was indicated by the Experts Committee, further refined by the successor committee, to draw up detailed pre-qualifications. Number of meetings were held by the MoD with various stake-holders, with the Minister leading from the front, to arrive at consensus.
In line with the progressive DPP 2016, the government will do well to soon notify the Strategic Partners' chapter, albeit, an unfinished agenda.
Opportunities for Corporates
This is the first time the MoD, thanks to active intervention and intense participation by the Defence Minister, has come this close to create an all-inclusive document. From seeding the idea of Strategic Partners to building consensus, it was not a cake-walk, with plenty of opposition from various stake-holders, some of them out of fear of the unknown and some due to perceived notions of unfair play.
Once notified, SPs present a tremendous opportunity for the corporates to Walk the Talk. Strategic systems of the Armed Forces will be opened for the large corporates that qualify as Strategic Partners. Monopoly of the OFB/DPSUs will be intruded into, albeit gently, with this grand entry of qualified Indian corporates. This is fundamental to growth. From advanced missile systems to Guns and Ammunition, from surface ships to subs, aircrafts, materials, the entire spectrum has been kept wide open.
Procurement plans will be shared by the government with the SPs( at least this is the intention as of now), they would also participate in shaping these plans to provide best possible effect. Forces will be involved at every stage with the corporates, like they presently do with the OFB and DPSUs to provide for hand-holding as necessary. Forces may do well to revise their HR policy to enable their best talent to be posted with large corporates for better synergy. In order that the government "Walks the Talk", these critical aspects of sharing of information and modus operandi for that must be documented in so many words, in the ensuing document. Else, the bureaucracy could find ways and means to mis-interpret these, thus finding a way to returning to status-quo.
Corporates must be able to seal off at least USD 10 bn equivalent in the first three years. Major systems on the map will yield more and this business, needs to flow in the country. The cascading effect it would have on the industry at large, could well be at least USD 30 bn. Cash flows will demand setting up of new infrastructure, best business ethics, global best practices, greater efficiencies, hiring of fresh talent, universities revising their curriculum to include Aerospace and Defence, tierisation of the industry and so on.
The greatest opportunity is to be able to participate in the strategic affairs of the nation by arming the Forces with systems better than those available elsewhere in the world. The opportunity is to place India on the global supply map and pose a challenge to technology as important as it is to production and processes. Bringing in technology into the industry for real is one of the biggest opportunities on which the industry as whole will flourish. The opportunity is to reverse the present import export ratio through indigenous development and production. The opportunity is to increase defence exports to such levels as to be able to shape foreign policy. Military diplomacy will have a new flavour.
What did the government want?
Experts committee set up by the Ministry of Defence, deliberated on this important aspect of improving the efficiency of the procurement process and help the Forces to be able to induct strategically sensitive systems at a desirable pace. Since this must be different from the standard procurement process, concept of Strategic Partnerships was suggested. Also, the concept of Raksha Udyog Ratna(RUR), fielded in the DPP 2006 never took off; so it was important that the identified pitfalls were addressed, while the concept is being re-vitalised a decade later. The concept was carefully crafted, with over riding stipulations such as there can be only one SP per segment. To quote the report, in concept, "Having considered the nature of defence materiel and the configurations of defence industry worldwide we have come to the inevitable conclusion that if the strengths of private industry are to be harnessed then they must be done under well defined models depending upon the strategic needs, quality criticality and cost competitiveness. Whenever the vendor base is large and competition is feasible, the competitive bidding process must be followed. There are cases however where certain platforms are of strategic importance. For these, we are recommending the 'Strategic Partnership model' for creating capacity in the private sector on a long term basis. Such a capacity will be created over and above the capacity and infrastructure that exists in Public Sector units. This is expected to spur the sectors towards a more efficient and effective mode of operation. Likewise, there are cases where quality is critical and vendor base is very narrow. For these we are recommending a model of 'development partnership'. These models would depend upon the systems and products within the ambit of the requisite model."
Industry was however keen that the market forces take over the decision of the SP in each of the segments and that they be allowed to be eligible for all segments. It was argued extensively in the committee's report that adequate opportunity must be given to the private industry to enable enhanced defence production. While in the present context the "Buy and Make" category of procurement invites the choice of the indian production partner basis the market forces and best combined bid, the situation was sought to be reversed in the case of the SPs. Since in the selected segments that form the core of the nation's war-fighting strength, self-reliance is considered to be of foremost importance. Options for selection/nomination could be either (i) after a G-G negotiation (ii) selection through competition (iii) selection prior to G-G negotiation and (iv) ab-initio selection for all segments. In order to address the issue of industry's aspiration to be eligible for SP status in more than one segment, the committee felt otherwise and quoting from the report, " having been declared a Strategic Partner in any one platform, or a family of complex weapons or a major network programme that entity or its associate or subsidiary should not be eligible to be chosen as a Strategic Partner for any other purpose under this dispensation. This is to prevent conglomerate monopolies emerging at the very start without production even having commenced. Likewise, they will also not be allowed to have cross-holdings in each others' companies. The available capability and capacity in the concerned public sector unit will be an additional safeguard against any monopolistic tendency on the part of the Strategic Partner".
While the Experts Committee deliberated on the strategically important segments they also called for a well defined protocol to identify the SPs, the primary focus being to support sustainability and the incremental improvements in capability of platforms through technology insertions over their life times. The selection procedure is central to the success of the scheme and therefore the Ministry is advised to define parameters to base the selection. Here is where the Ministry went ahead to form a successor committee which actually developed the parameters. These were thereafter deliberated by the Minister with his staff with the industry at large on a number of occasions.
The draft is now ready to be placed before the apex body of the ministry for its consideration.
What then are the Challenges?
The greatest challenge we have today is one of "Mindset". An aggressive mindset with a clearly defined roadmap is the need of the hour.
While the present nascent state of the defence industry is a challenge, the corporate sector is capable of rising to the occasion to make the necessary investments and initiate winner collaborative arrangements. Technology transfer agreements will usher in a fresh outlook and will no more be consigned to the confines of dusty rooms in dilapidated buildings.
Technology transfer arrangements will actually bring in technology since it will now be seen with a microscopic eye by the stake-holders themselves. Government's interference in negotiating technology transfer arrangements or at least overseeing them will be a major challenge the industry must resist and overcome. Interference of government would be minimal, however, this necessary evil, must be restricted to the lowest levels possible.
Corporates need to gear up and get ready to face the challenges of time and space. To deliver the desired strategic system within the time-frame in conformance to the highest quality standards with restricted availability of military grade raw materials and an un-organised defence industry will challenge the supply chain. Corporates must map the existing industry in terms of their preparedness quality and capacity. Gaps in the supply chain must be identified discipline wise and new ones developed, wherever necessary.
Development and sustenance of a quality supply chain will determine success in production. Involvement from design and development stage and hand-holding the supply chain in terms of processes will remain a challenge for some time, this must be addressed head-on.
Many corporates have made investments in multi-discipline sub sectors of Defence. However, the policy is indicative of just one SP per discipline. What then must the corporates do with the investments made in other disciplines? Collaboration, is the key-word. SPs must collaborate amongst themselves for sourcing, easier said than done, and work both as competitors as well as collaborators.
Idea of Strategic partnerships is indeed good, consensus on the criteria has largely been evolved, Implementation now is the key. While the government is good at making policies, it is weak when it is time for implementation. For example, the MoD is not able to adhere to the timeframe for procurement as enunciated by its own self. It may not be an exaggeration to state that not a single program has been in conformance to the timelines laid down by the MoD. They need to respect the policy they have laid down and bring in a great deal of accountability. The system lacks accountability, eg, a babu can hold on to a file relating to procurement of a system for our Armed Forces, under the garb of studying it, for perpetuity, no questions asked.
Decision making and timely decision making is paramount for any policy or program to succeed. Corporates may like to throw in a lesson or two here and this will most probably have an electrifying effect on the entire system and process.
1st November 2016 Comments (0) Articles Like
Make In India in Defence
The MSME sector is an important pillar of Indian economy as it contributes greatly to growth of Indian economy with a vast network of around 30 million units, creating employment of about 70 million, manufacturing more than 6000 products, contributing about 45% to manufacturing output and about 40% of exports, directly and indirectly. This sector even assumes greater importance now as the country moves towards a faster and inclusive growth agenda. Moreover, it is the MSME sector which can help realize the target of proposed National Manufacturing Policy of raising the share of manufacturing sector in GDP from 16% at present to 25% by the end of 2022.
Definition of the Sector
The sector is defined by the MSMED 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:-
Manufacturing Sector Enterprises Investment in plant & machinery
Micro Enterprises Rs.25 lakh
Small Enterprises Rs.5 crore
Medium Enterprises Rs.10 crore
Table Table
Service Sector Enterprises Table
Medium Enterprises Rs.5 crore
The share of MSME products in the exports from the country during last three years is as follows:
Year Share of MSMEs Products in the Exports
2013-14 42.42%
Features of MSME Sector
Office of the Development Commissioner, M/o Micro, Small & Medium Enterprises, has conducted 4th Census on MSMEs with reference period 2006-07. Some of the socioeconomic features of MSME sector in India are as given in Table below.
As per 4th All India Census of MSME conducted by the Ministry of MSME, the number of functional and non-functional registered MSMEs in the country are 15,63,974 and 4,96,355 respectively.
Ser No 2006-07 2009-10
Economic Parameters Regd Un Regd Total
1 No of Enterprises ( lacs) 15.5 245.5 261 298
Percentage 6 94 100 –
Manufacturing 10.3 64.2 74.5
Percentage 67 26 29
2 Employment (lacs) 92 502.6 594,6 695
Manufacturing 79.8 224.2 304.1
Services 12.2 278.4 290.5
Male 73.4 412.8 486.1
Female 18.6 89.8 108.5
3 Average Employment (number) 5.93 2.04 2027 2.33
Manufacturing 7.75 3.5 4.08
Services 2.35 1.53 1.56
4 Share in GDP 7.44% 8.72%
5 Share in Exports 40%
6 Fixed Investment (crores) 500758 693835
Source: Quick Results of 4th All India Census of MSMEs, 2006-07
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, matter related to North Eastern Region and Jammu & Kashmir. The Task Force recommended several time-bound 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 up to private sector for participation in the year 2001, despite the aggressive Industrial Policy statement of 1991. Thereafter a number of measures were taken to bring the private sector at par with the DPSUs(Defence Public Sector Units). MSMEs have been an integral part of the Defence Production process since long and the 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.
VALUE OF PRODUCTION OF DPSUs AND OFB in Crores
DPSU 2011-12 2012-13 2013-14 2014-15 ( upto Dec 2014)
HAL 12893 14202 15867 9915
BEL 5794 6290 6127 4026
BEML 4077 3360 3165 1671
BDL 993 1177 1804 1298
GRSE 1294 1529 1611 863
GSL 676 507 509 387
HSL 564 484 453 160
MDL 2524 2291 2865 2028
MIDHANI 496 537 572 403
OFB 12391 11975 11123 7138
Total 41702 42352 44096 27889
Particulars 2013-14 2014-15 Rupees in CroresGrowth over previous year
Sales 15128 15622 3.26%
Value of Production 15867 16289 2.65%
Gross Block 3729 4023 7.88%
Particulars INR in Lacs
Sales 617423 669457 752164
Value of Production 612690 665854 778209
Gross 222667 248515 276666
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.
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 Villages, Industry lives in MSMEs. MOD has recently come out with guidelines for outsourcing from the OFB and DPSUs. 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. Recently, in a seminar organised by Aakash Media, CMD, BEL has indicated that BEL has increased its outsourcing norms to a great extent and is also complying with the MSMED Act of sourcing from MSMEs to the extent of 20%. 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 INR 8820 Crores.
The vendor base of OFB and DPSUs boast of more than 3000 companies( going by the figures of each of the DPSUs, viz, Hal has 2500 vendors, BEL has more than 1800 vendors and so does OFB and others), and averaging them to a normal. Of these it is expected that about more than 1000 MSMEs are integral to the supply chain. Compare this number to the volumes of the 15.5 lacs 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.
A Platform for MSMEs to Show Case
Micro, Small and Medium Enterprises 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 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.
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 also 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 business for the MSMEs and for the stake-holders reliable MSMEs.
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.
What about the DPP and Defence Procurements
Defence sector is peculiar in its form with both types of procurements 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 Procurements
Revenue procurements have a potential of more than INNR 20,000 crores from the Ministry alone. This includes the revenue procurements for upgrades, maintenance, repair, overhaul and other services related procurements 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 procurements, there are a number of procurements that are governed and executed from the various commands of the Forces such as the Northern command, Eastern Command, and the other commands of the IN and IAF. In addition to all this is the procurements 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 corporates that are eying for contracts from MoD as Prime, such as the Tatas and Mahindras, L&T and 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 excess of INR 10, 000 crores.
What about Capital Procurements
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 Raksha Mantri, for the first time has mentioned MSMEs and I quote, "DPP 2016 also provides greater impetus to the MSMEs, with certain category of "Make" projects reserved exclusively for them". 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 INR 10 crores in the former and of INR 3 Crores in the latter. Even for the conduct of the feasibility studies conducted 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(Expresion 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.
DPP although related only to Capital Procurements, amongst other high value programs, there are a number of schemes that are in the beat range of the MSMEs, viz, the INR 100-150 crore range. These are mostly from the powers of the Services HQs(Vice Chief's powers), and a few even a bit beyond these, all of which can be attempted by the MSMEs as an opportunity.
So, the government has taken 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 in all of this
Offsets were introduced as part of the Defence procurements (Capital Procurements), in the DPP 2006. Since then a number of improvements were made to the offsets guidelines to make it more flexible and industry friendly. The international best practices 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% offsets credits for any work they do with them. While the offsets opportunity is pegged between 10 to 12 bn USD 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 USD 800 mln to at least USD 1 bn in the next five years. This translates into at least USD 150 million or about INR 600 crores each year, in addition to the revenue and other opportunities in capital procurements.
What then is the Opportunity for the MSMEs
In all, the opportunity is large, the demand side is pretty 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 lacs of them, interspersed in geography and disciplines with niche capability in many cases. The meagre 2 to 3000 active MSMEs in this segment need 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 ahs 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 to-gather and form alliances. The alliances may be in the form of partnerships, as 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's strength.
Can we bring in a 3600 relationship by interfacing the MSMEs in opportunities in revenue procurement, capital procurements, procurements from OFB and DPSUs and most importantly with OEMs to bring them into the global supply chain.
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 3600 coverage and interface for the MSMEs, which they so very critically require.
11th August 2016 Comments (0) Articles Like
Whats new in the DPP – 2016
The much awaited DPP[1] 2016 just released by the MoD in absolute harmony with the Inaugural ceremony of the DEFEXPO 2016[2], has created enough hype to justify its formulation or so we would like to believe. For the first time, since it evolved, the DPP was preceded by an Experts committee that made recommendations for the new DPP and then a task force that took a deep dive into one of the recommendations of the experts committee. The minister this time has been leading from the front, providing the much needed leadership to the bureaucracy and for the first time the MoD gets to hear a first hand account of an entrepreneur, voice of a small enterprise, all of this and more, finding its way into the defence quagmire. The minister has provided a voice to the small enterprises, the entrepreneurs, start ups and many others who never had one, despite the numerous associations that exist. In many a first, some of these concerns have been addressed.
Lets begin our analysis with the "Preamble". This DPP incorporates a Preamble, just like the one enshrined in the Constitution. The idea is noble, it is expected to provide the acquisition executive with the wisdom to choose the "spirit" from the "letter". The acquisition executive is many a time, "Prisoner to Procedure"; MoD officials dealing with acquisition are often called as "Prisoners to Procedures", since they are most rigid when it comes to the DPP, for fear of enquiries and an unknown, that may haunt them, down the line. Well, the preamble is expected to address some of these concerns and open the acquisition executive's mind to a more rational application of the procedures in the interest of the acquisition at hand. Should there be a doubt in application of any of the procedural paragraphs, the acquisition executive is expected to refer to the "Preamble", for a clarification and then follow the preamble, just like what the judiciary would. The question is, if the said preamble has a chosen text, with the ability to provide overarching clarity to the procedures enshrined therein. A great deal of effort is required in choice of words and the formulation of the "Preamble". The fine print somehow falls short of expectations.
The Preamble sadly begins on a negative note, "Defence acquisition is not a standard open market commercial form of procurement, and has certain unique features such as supplier constraints,…..", and so on. Well, we could have begun on a positive note, after all, so much effort has gone into making of this landmark DPP. The Preamble definitely lacks the ability to stand out as a Preamble, with an ability to provide overarching support to the execution executive. MoD may do well to take corrective actions in a more robust formulation of the Preamble.
A path changing inclusion in the DPP is the introduction of a new category called, "Buy IDDM". For the first time, since its inception in 2002, the DPP places importance on "indigenous design", development and manufacture. Although these attributes such as design, development and manufacture, were present in a subtle manner in the DPP 2013, and inherent in the "Buy Indian" category, they have now got their pride of place in the DPP. This is actually the essential ingredient to "Make in India", philosophy and will receive more AON awards, as the year begins from April the 01st 2016. This is extremely good and I believe the minister personally intervened for incorporation of such a category. So what then are the implications? The categorisation believes that if the design is indigenous then a manufacturing indigenous content of 40% would suffice to pass muster and should the design not be indigenous then the manufacturing content required is 60%. Well, this beats basic logic. Lets see how.
If the design is home-grown, then the design would most probably rely on indigenous supply chain and chances of indigenous content are high, whereas, if the design is foreign then chances of having higher indigenous content are low, after all, any foreign design would conform to a foreign supply chain attitude. However, paradoxically, the IDDM category demands just the reverse[3]. Is this demand based on realistic assessment of the domestic industry or was it a fancy tool to impress upon a theory[4] devoid of logic? It would be a challenge for the industry to reconcile to the situation.
Does the Preamble clarify, if the spirit of the DPP is to place an emphasis on indigenous design? For example, if there are two solutions for a program, one based on indigenous design and the other on a foreign design, will the MoD encourage a competition between the two? Will not the foreign companies exploit this and push for their design in the systems of Indian Armed Forces[5]?
There is a third challenge here, ie, there is no difference between IDDM with indigenous design and the next higher category, viz, "Buy Indian". Both of them demand a 40% indigenous content, never mind the lack of design or incorporation of it. How will the MoD, in the former, ascertain that the design is indigenous, considering that every design may not be patented(are we likely to open a Pandora's box here by asking for patent filings etc?), well we would be entering into a new variety of quick sand.
While recognising the importance of indigenous design and according it the pride of place right on top of the categorisation priorities, MoD has shied away from a complete and total lifting of the abeyance order placed on design services amongst others. The abeyance order[6] that was issued on a knee jerk reaction based on an alleged wrong doing by an IOP[7](still at large), the entire services industry in India was debarred from offsets discharge as eligible IOPs. Despite many representations, this ban, thanks to the rationale application of logic and reason, was lifted, albeit, partially, by the present governemnt. If the government truly believes in promoting indigenous design, then a case exists for a total lifting of the Abeyance order. The entire DPP must be in conformance with the spirit and the spirit needs to be established in the Preamble.
DPP 2016 must have a flavour for all upgrades and MRO type of activity. It would be a treat to see that all upgrades are necessarily under "Buy Indian" category, at best under "Buy and Make Indian". The type of investments being made by the Indian industry is pretty encouraging, like Reliance in Mehan, VEM in their new integration facility in Andhra and so many more. Indian industry is now ready to take on all type of upgrades and so the DPP may come out clear on this aspect. However, the formulation in the DPP is not exactly that, it reads, "Para 15 ….Such cases could be categorised under any of the categories as given in the paragraphs 6 – 11 (Chapter I)…". I would like to see all upgrades being covered under either Buy Indian or at best Buy and Make Indian categories. That could encourage domestic industry to make investments ahead of time. Although, I believe, the spirit of the DPP was to get all upgrades in house.
The DPP was expected to clearly differentiate the planning process from the execution process. While the HQ IDS[8] would coordinate the complete planning process till accord of AON, the Acquisition wing would take on from there and issue the RFP and proceed till signature of the contract. This clarity is essential to avoid duplication of work. Everyone in the system need not do everything, it should be teamwork, like a relay race, the baton[9] must pass from one stage to another. There is a tendency in the MoD for each successive stage to re-invent the wheel, this tendency must be curbed, this DPP has not brought in this clarity.
The RFI process must essentially be a commitment for purchase. Many times the industry is encouraged to make investment basis the RFI and hence the MoD must draw up the RFI for a reason and the reason is procurement by the Forces. Sadly, the formulation is otherwise, reads as follows, "The RFI would be published on MoD and SHQ websites for seeking relevant information, on specific procurement schemes. The issue of RFI is not a commitment for procurement". How do we expect the industry to have a show of hands when the RFI is not serious enough to lead to a commitment of procurement?
In so far as SQRs are concerned, the balance of decision making must shift to the Armed Forces. Let not the necessity, to make generic SQRs, broad based SQRs and SQRs that can generate a multi vendor situation, not deprive the Armed Forces of a system they require. I like the concept of "Essential Parameters A", "Essential Parameters B", and "Enhanced Parameters". While the concept of broad based QRs seems to apply only to the "Essential Parameters A", the Forces can use the enhanced parameters to get more out of a system, since no system is designed for exclusive use of the Indian Armed Forces. Also by an intelligent use of "Essential Parameters B", the Forces can get more even as the production begins. This concept is an intelligent insertion by the MoD, based on the leadership provided by the Minister himself. MoD has expressed a willingness to incorporate technical experts to have a deliberate examination at this stage of the planning process, a very welcome move, exhibiting the open-mindedness of the GoI.
There is an effort to cut down the time in the planning process, by reducing the AON to RFP time to 6 months/1 year for either a Buy Indian/Buy and Make Indian programme. This may be cosmetic, since I believe that the planning process may as well take a little longer, cutting down of time is more necessary in the execution process.
Offsets have been pegged at a threshold value of INR 2000 Crores[10], which comes with a mixed feeling. While the industry would have liked to have the offsets continued at the present threshold of INR 300 crores[11] or even lesser, to enable more offsets business. However, considering that the 300 crore limit was fixed more than a decade ago and that more and more programs are likely to go the domestic route, Indian industry is likely to be engaged more effectively by the MoD in the indigenous categorisation, such a decision may have been taken. Also, the MoD is probably not able to effectively manage the offsets, given the other stakeholders/players introduced in the system, such as the CGDA for an audit. For effective monitoring, may be the number of programs will reduce by increasing the threshold. This seems to be a smart move.
A new insertion in this DPP is the design and development by DRDP/DPSUs/OFB at para 71 of Chapter 1. It would have been a great idea to also include private industry at this stage. The confidence reposed in the private industry by the MoD would have been reflective by such an insertion. This therefore leads to a conflict at para 101, that reads, " … Cases which are being undertaken by DRDO/DPSUs/OFB/Indian private industry as design and development projects, would not fall in the category of Single Vendor cases…". Therefore the MoD does visualise cases that are undertaken by private industry also, besides the Make I and Make II category of cases. Therefore para 71 may demand a small inclusion of private industry as well.
A great deal of credit is to be given to the MoD for the far sighted "MAKE" procedure, with incorporation of MAKE category 1 and Make 2. Forward looking, industry friendly, ability to give large advances to the domestic industry for undertaking "Make" programs, will provide an unprecedented boost to the indigenous industry. A definite boost for MSMEs is clearly visible in this category, once again a pioneering move by the Defence Minister to encourage the small industry sector. The minister has attacked the "Defence Industrial Base", and addressed some of the concerns of the small scale units that are pegged at the base of the development pyramid. If India lives in villages, the Industry lives in MSMEs. 90% funding in Make 1 category by the government and a 20% advance are key highlights. A reimbursement of cost of the remainder 10%, should the MoD not procure after a successful development, is another key highlight, once again unprecedented, what a welcome move!! Provision of test facilities for industry and other key benefits accruing from such a move are very encouraging, this will boost exports of defence items from the country.
The fine print is out. Devil is in the details, let us hope this time when we see the DPP on 28th of March, may be The Angel is in the details.
[1] Defence Procurement Procedures
[2] DEFEXPO 2016 for the first time out of New Delhi, held in Goa from 28th till 31st of March 2016
[3] Buy IDDM demands a lower(40%) IC(indigenous Content) overriding on indigenous design and a (60% IC) on a non-indigenous dsign.
[4] The Theory being, "I will demand a higher IC since the design is not indigenous", after all I must get some compensation for a non-indigenous design
[5] They only need to comply with a higher IC in manufacturing
[6] MoD OM No 9(42)/2013/Offsets dated 23/05/2013 placed on their website on mod.nic.in/DDP/DOMW
[7] Indian Offset Partner
[8] HQ Integrated Defence Staff, responsible for coordination of procurement
[9] Acquisition baton
[10] USD 300 million approximately
[11] USD 45 million approximately
10th July 2016 Comments (0) Articles Like
Sugosha's Articles
India gets a new Defence Minister in Smt Nirmala Sitharaman
MSME in Partnerships
Procurement Data
FDI UPDATE : DEFENCE SECTOR
POLICY UPDATE : DEFENCE SECTOR
DPP 2016 Make in India Paradigm | A new era dawns
Chinese military col kv kuber Defence defence consulting Defence Ministry Defence Procurement Defence procurement Manual Defence Procurement Policy Demonitization Development Partners DPM DPP DPP2016 DPSU DRDO electronic warfare FDI FDI in Defence Foreign Direct Investment IDDM India India Defence India Defence policy India modernization indian armed forces Indigenous Design Indo China Make in India MakeinIndia make in india in defence material management Ministry of Defence MoD MSME Offsets partnerships procurement Strategic Partnerships sugosha advisory sugosha defence consulting System Integrators
Sep 2018 edition of DefInsights http://online.anyflip.com/dlht/nlgj/mobile/index.html …
Sugosha Advisory Pvt Ltd
info@sugosha.com
© 2017 Sugosha Advisory. All rights reserved