Harnessing the private sector in defence - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Wednesday 26 March 2008

Harnessing the private sector in defence

by Ajai Shukla
(Business Standard: 26th March 07)

It is seven years since the government permitted private sector companies to manufacture defence equipment, subject to licensing and a 26% cap on foreign holding, but only now are there indications of enthusiasm amongst private Indian engineering giants. If this does translate into meaningful defence production, enlightened policy-making from the Ministry of Defence (MoD) will have less to do with it than growing private sector confidence. With India continuing to pay staggering prices for cutting edge weaponry, several private sector giants now believe that they can develop those systems cheaper than the global majors who currently benefit from India’s custom.

Many of these private players are not newcomers to defence production. But the self-defeating pattern of recent decades had created a hierarchy, which was broadly structured as follows: putting together an overall weapons system --- whether a radar, an aircraft, a tank, or a communications network --- was the preserve of the Defence Public Sector Undertakings (DPSUs); the sub-systems and parts were frequently sourced from private companies. The technology for all this came from a global vendor, traditionally Russian, French or British. Despite the rhetoric of “technology transfer”, the proprietary technologies were never given to India. Instead, detailed manufacturing drawings were handed over; the Indian partners merely constructed and assembled according to those blueprints.

This process has been hallmarked by a profound intellectual apathy amongst the “technology recipients”, the Indian DPSUs, to absorb the technology in meaningful ways. Private companies claim that even if they had been handed over nothing other than blueprints, their scientists and engineers would have extracted and absorbed expertise that could have been canalised into new products. But Mazagon Docks Ltd constructed HDW submarines without absorbing the technology; Hindustan Aeronautics Ltd has built MiG series, Jaguar and Sukhoi-30 aircraft for decades, but still struggles to complete the LCA; and Bharat Electronics Ltd, which was transferred expensive technology for night vision equipment, has now embarked on an even costlier purchase of the next generation of the same technology.

While the private sector has been one of the links in this sterile process, the challenge before it is to move beyond in-country manufacture for dominant global corporations. Instead, groups like the Tatas, L&T and Godrej & Boyce, with proven engineering excellence, must actively participate in the entire cycle of weapons development, including visualisation, technology development, engineering, manufacture and integration. Small and medium industries must be actively developed as sub-component suppliers, a role in which they have already displayed their capability.

Traditionally, industry wants little more from government than that it stands out of the way, but building an indigenous “defence industrial base” will require more than that of the MoD. The greatest hurdle to private sector participation in defence is the high cost of R&D for a product that might never be accepted into service. That can be overcome by providing MoD funding for specified defence projects, a measure that has already been recommended by the Vijay Kelkar Committee in 2005. The MoD took the bold step of laying down in the DPP-2006 a procedure for subsidising R&D by nominated Raksha Udyog Ratnas (RuRs) from the private sector, in cases where the government decided to indigenously develop a weapons system. But trade union pressure from the DPSUs has prevented the MoD from nominating the RuRs and, so, that progressive clause stands blocked.

The MoD must also step in to task the Defence R&D Organisation (DRDO) to develop the costly “enabling technologies” that underpin the systems and sub-systems that go into a weapons platform. With fundamental research from the DRDO, subsidised research on systems technologies by the private sector, and with the DPSUs and private sector companies competing to manufacture and integrate the final product, India’s private sector will be given a meaningful role in developing a world class defence industry.


  1. You are absolutely on target. Hope the Govt wakes up. If somebody is sleeping one can make an effort to wake him - but when he pretends to sleep - how to wake up. Only SHAKE UP will help. You may have F16/F18 manufactured in India by Tata for world market and Govt happy with HAL (the great Indian Fightr Aircfart mangacturer for 40years + ) that feel elated with supplying doors for Airbus - a great achievement. Tomorrow they will tasked to make Toilet doors - HAL will have more doors per aircraft to make - good volume and may be "GOOD Business" "Made in India by HAL for World Community"

  2. HAL has only 'assembled' MiG series, Jaguar and Sukhoi-30 aircraft for decades. They never built it. Now they face issues with LCA, because there is no company to built and ship as modules (which can be assembled by HAL)

  3. Invaild! how aptly you have named yourself. Building an aeroplane is not joke and running HAL is not as easy as running a maggie noodles factory. If our govt makes russians angry by leaning towards US ,its HAL that suffers.Is there a company which manufactures mil qualified ICs and components in india? Every thing is made in USA ,UK,France.so if americans gets angry they put embargos. some mPs wanted to please their people, HAL korwa is established in a remotest corner. HAL is a company whose progress heavily depends on govt alignments. We have lost heavily by relying on russia. We still have to maintain equipment designed in 1950s for the sake of our airforce. HAL is treated like a whore by IAF. All substandard TOT projects will be signed by IAF in the presence of delhi babus and dalals and dump them on HAL for maintenance and blame HAL for poor quality.Its easy to kick HAL in the butt! but its not easy to kick russians,the English ,the french and now the israelis. BHEL tried to build a simple aircraft designed by DGCA called "SWATI" some time back. The aircraft broke structuarlly in to pieces and the pilot got killed. DRDO and everybody knows that its not easy to build an aircraft with out huge investment. True! HAL may not be a Lockheed martin or northrop grumman or a boeing! The present chairmen has done a lot for the growth of the company. projects are to be monitored meticulously by
    customers who fund the programmes.

  4. nice report and pictures

  5. nice report and pictures, Ajay. Just hope they get past the engine issues quickly and commence serial production. The venerable Kirans have been flogged way too much. Also I would love to see the Surya Kiran team graduating to the Sitara. A nine aircraft Sitara formation would be a sight to behold.


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