Indigenising defence: the 70:30 fallacy - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Monday 30 May 2011

Indigenising defence: the 70:30 fallacy

The belly of a Kolkata class destroyer at Mazagon Dock Ltd, awaiting the fitment of a propulsion train that has been sourced from overseas

by Ajai Shukla
Business Standard, 31st May 11

Defence indigenisation has long been more a MoD slogan than reality. Minister Antony pays regular lip service to reversing the 70:30 ratio: i.e. reducing the foreign component of Indian defence from 70% to 30%. In practice, indigenisation has been, with apologies to Greta Garbo, an illusion, wrapped in a fallacy, cloaked in deception.

The empirical reality of “indigenisation” is evident in the Indian Navy, the only service that pursues indigenisation systematically (the Indian Air Force and the army talk the talk but oppose indigenisation in practice, demanding aircraft, tanks and guns now, not ten years down the line). The navy takes justifiable pride in building most of its warships in Indian shipyards, but a closer examination reveals that indigenisation is only skin deep. Defence shipyards have developed the crucial skills needed for designing and constructing sophisticated warships, and for harmonising myriad sensors and weapons into an integrated battle management system. But there is little headway in indigenising the multiplicity of components and systems that are the vital innards of a battleship.

Consequently, India’s four defence shipyards --- the flagship Mazagon Dock Ltd, Mumbai (MDL); Garden Reach Shipbuilders & Engineers, Kolkata (GRSE); Goa Shipyard Ltd (GSL); and the newly acquired Hindustan Shipyard Ltd, Visakhapatnam (HSL) --- must necessarily look overseas for the engines, gas turbines, propulsion systems, gearboxes, generators, hydraulic systems, air-conditioning and countless other systems, which add up to the bulk of the cost of modern warships.

These are all lost opportunities for India’s private sector companies, which could be building these systems as their route into the lucrative business of defence production. Examine the figures. From the navy’s budget of Rs 21,000 crore this year (all figures rounded off), almost 60% or Rs 12,000 crore is earmarked for capital expenditure. Of this, Rs 4000 crore will be disbursed directly to foreign shipyards that are constructing Indian warships, while Rs 8,000 crore will be paid to Indian shipyards. On the face of it, that would appear like a healthy 66% indigenisation rate, close to Mr Antony’s target.

Unfortunately, only a small share of this goes to the Indian shipbuilder. MDL retains just 25% of the cost of each warship it produces, with 75% being paid to foreign suppliers for the systems mentioned above. GRSE pays out 65% and GSL remits 55% abroad, not because they are better at indigenising but because their vessels use lower-end technology that is available in India.

The shocking statistic is that India has a 100% indigenisation rate in jungle boots and blankets and similar low-tech equipment. But in critical technologies, we import 85% of our needs. And in warship-grade and aerospace-grade components, we have indigenised just 5% of our requirement; 95% still comes from abroad. An example is Hindustan Aeronautics Ltd’s Dhruv helicopter, designed and integrated in India, but 90% foreign in physical content.

This regrettable situation exists largely because the MoD, particularly its Department of Defence Production (DDP), has failed to coordinate and sponsor the development of indigenous capability. Warship builders still import even warship grade steel, the toughened alloy that comprises the basic structure of a modern battleship. This is not because the technology is beyond us. Years ago, India’s public sector metallurgical establishments --- the Defence Metallurgical Research Laboratory (DMRL); Mishra Dhatu Nigam (MIDHANI); and Steel Authority of India Ltd (SAIL) --- developed and manufactured warship grade steel (termed D 40S), which has been used in the navy’s reputed Shivalik class frigates. But cross-ministerial coordination is needed for producing the relatively small volumes needed for warship programmes while remaining profitable for both steelmaker and shipyard. Essar Steel had offered to produce warship steel, subject to some conditions. But the MoD has preferred to continue reliance on import.

In 2003 the navy addressed the lack of depth in indigenisation with a ‘15 Year Indigenisation Plan’, which was subsequently revised up to 2022. This forecasts the warship programme’s requirement of equipment and systems, hoping for import substitution by bringing in the private sector. A similar initiative last year, broadened to all three services, was the DRDO’s “Technology Perspective & Capability Roadmap”, which details the technologies that the military requires and urges the private sector “to offer firm commitments in partnering the MoD in developing contemporary and future technologies as well as productionalising (sic) equipment required by the Armed Forces.”

But these useful baseline documents are only a starting point for an indigenisation thrust. Private sector corporations that are interested in defence production would still require handholding and funding for their initially non-productive R&D. The funding is available --- each year the MoD has been earmarking some Rs 2000 crores for “Make” procedure projects, without a single rupee having ever been paid out --- but nobody in the MoD has taken clear ownership of such an initiative.

It is time for the defence ministry to step up to the plate. They have already identified 61 critical technologies --- especially materials and components that can be used across a broad range of sub-systems and systems --- that India badly needs for developing higher technological capabilities. A nationally synergised effort is needed, which must also explore the obtainment of specific technologies through the offset route.

We have learned how to swim at the deep end of the pool, developing the complex abilities needed for designing and integrating warships, aircraft and tanks, without developing the broader research and industrial eco-system that sustains a defence industrial base. It is time to deepen and broaden indigenisation, developing the materials, components and sub-systems that will not just substitute defence imports, but also provide technological “trickle down” to energise the national industrial base.


  1. Col. Shukla!

    Garbo would be honored and smiling in her grave if she knew how her statement came to describe the state of our defense production so well.

    Sadly, this situation is the outcome of the malaise in our attitude as a nation. Our political class and our bureaucracy, for some unknown reason, refuse to strategize and evolve to claim our rightful place in the world. or rather, we talk about it, but dont do anything about it.

    India's development and economic growth and strength is despite our babus and leaders, not because of them.

    My father used to work for SAIL. Even when SAIL was totally in the red, before MRR Nair started turning it around.. there were several projects to develop defense specific products... and no encouragement from the MOD. To know that situation has still not changed is sad. When will we leverage our own industries and at least start to become self dependent? Sigh!

  2. Hey, though there is way to go in other techs, isn't the issue about domestic production of warship grade steel resolved.

  3. If there is not more to what you have written then it is really a stupidity of highest order on parts of MOD. I am really wondering how can some-one be that thick-headed!

  4. Hi Ajai,
    The concept of actually working towards building the scientific, technological and engineering base for indigenization is quite a complex one. The effort required and the time taken is humungous.

    Do you really expect anybody of significance to devote time and energy to such a fruitless (in the short term) effort?

    It is not in the interest of anybody in the legislative or executive wings, the only people who can create the conditions conducive to this grassroots growth.

    The general public cannot be expected to exert pressure on the government to facilitate this growth either, because this is such a boring and arcane topic. Come to think of it, I'm sure it is easier to convince people that Indians were making Pushpak Vimans and Nuclear weapons back in Ramayan Mahabharat days, than to make them appreciate the massive challenges in designing and developing the LCA, forget the task of indigenizing the components.

    But anyway, thank you for bringing this way of thinking to more and more people via your blog. Great job Ajai.

  5. But isn't outsourcing production a good thing? Shouldn't one consider the extreme criticism that the military industrial complex (MIC) of USA, faces by it's domestic commentators?

    I know this is not relevant to our country yet, but considering how US's policies regarding the MIC have kept it involved in some large scale war or the other, every decade since WW2, don't you think that this could repeat in India? What are your thoughts regarding this Mr. Shukla?

  6. Glad to see you on NDTV the other night. I wish you the best, and hope that it doesn't keep you away from us.

  7. As long as MOD babus operated DGAQA,DGQA and DRDO operated CEMILAC and other military certification exists, nothing can be indigenized. These organizations with their tantrums and antics are scaring the shit out of pvt and public enterprises involved in defence products. MOD should disband these good for nothing organizations and follow the procedures adapted by IAI,LM,Boeing,Dassault etc.. These organizations operate on procedures formed during WWII by the British.

  8. Import of military equipments appears to be one of the main sources of election funding. That is why it has grown to such a proportion disallowing growth of indigenous technology and local industries. Politicians have not allowed augmentation of manufacturing capacity of Defence PSUs and Ordinance factories. All major defence PSUs must sell ten percet of their shares in the market to improve transparency and efficiency.
    Items selected for indigenisation must be advertised for corporate India to participate.
    Corruption and influence of external forces is obvious in our policy implementation.
    Hope the present movement against corruption will change the situaton.

  9. Col, don't understand as why people tags you as an american lobbyist, despite the fact that most of your articles emphasises on self reliance. In my view you are the most vocal journalist on this issues and anyway there aren't too many. Liked your presentation on NDTV, It cleared the reason for your more than frequent presence in more biased shows of the countries greatest lobbyist Barkha Dutt. However that takes away nothing from you, as you are there to earn what you deserve on the basis of your work and hard work, but bad company may spoil you any time, so beware and keep posting on good issues. Hope to see you as a news reader sometime soon, and will expect some depth in NDTV's absurd defence related shows, and please tell barkha that it wasn't a mistake of judgement of choice of wrong words at wrong time and had it not been toooooo strong media and super corrupt government she would have been behind the bars, where she should be along with her favourite Raja jee......

  10. I still think the IN policy to indigenous manufacture is the best of the 3 services. Marine sub-systems are amongst the most complex.It would require vast invest mets in public and private sector with a huge export market.It will take time to get to that stage. What has to catch up is manufacturing, modernization of processes and efficiency of production,delivery and quality.Almost unachievable with the present bureaucratic set up.
    But sadly our approach is inefficient.OFB products while good are abysmal in fit,finish and quality.Production quality is uneven. The Army especialy hates it when it has to pay much more for an OFB product when the same can be imported cheaper with much higher quality. There are ridiculous situations when OFB actually gets CKD kits from domestic manufacturers and then assembles them.Eg the TATA and Ashok Leyland trucks!Why double margins!

  11. Ajai,

    This is a cultural and change menagement issue.

    It can be overcome - and your writing about this is the first step. Some one will see light.

    Till then lazy asses will do everything to keep the status quo.


  12. Col. Shukla I am ardent reader of your blog since few months. today I found that this article which was written by you was copied by another blogger and he posted it on his own blog without even giving credit.Follow is the link of the blog, just check it although I have warned him about this plagiarism.

  13. Dear Mr. Shukla,

    Nice Article as always, exposing the actual conditions of Defence manufacturing capabilities.
    Something i would like to add is that the private sector participation for Ship building grade steel of private sector in India has started with a good vision of "future prospects". Steel manufacturer [private] named in Article are studying quit some very difficult to manufacture steel grades in India. Such steels needs MASSIVE infrastructure to be raised, very critical manufacturing parameters to be maintained, with final quantities very meager. So its quite obvious that private sector in India has been very reluctant to go in this direction.
    Even after such conditions the steel manufacturing company has taken very brave move to develop some of very crucial steels. Several very important steels needed for other critical defence applications are also in pipe line in this company and hopefully soon we`ll see gradual increase in steel sourcing from within India when more private sectors join in.

  14. Nice Article, Indigenisation cannot happen even if technical competence exists in the country as long as Corrupt Leaders are the decision makers.

    Lets wish that Anna Hazare's movement succeeds and puts our politicians accountable.

    The other possibility is we start a jasmine revolution and put the corrupt political mafia and babus in guillotine.

    If neither of these happen then we have to resign to our fate and just be mute spectators of our tax money siphoned off to Italy.

    The cost of imported weapons with bugs and stings would be paid with the blood of our soldiers. We will never let that happen.

  15. Indigenisation in the Aeronautical industry is still a pipe dream.
    The indigenous LCA and ALH are indigenous only as far as the labour input is concerned and does not exceed 20% of the cost of the aircraft and helicopter.
    Right from the engines,navigational and communocation equipment,structural aliminum,steel and composite materials are all imported.
    The MOD JS and Secy Babus do not have the foggiest ideas of what constitutes Aeronautical Indigenisation.They dish up the same statistics sent by the PSUs as it embellishes their ACR self appraisal ratings.
    Also an ancient pre war mindset in the Cemilac and other certification agencies ensure that things are static as usual.
    Dr Kota did push indigenisation in LCA but a lot more is to be done.
    Let me relate a true anecdote from my past days.
    Our Corp Office assidously compiled statistics on rubber seals and other low value item indigenised and wanted us to improve every month.
    Finally the GM and MD were really weary of the Corp Office reminders and telexed back"Indigenisation requires time and effort. Monthly reminders will only cause indigestion and not indigenisation."

  16. Ironicaly one of the greatest impediments to indigenisation is the distorted implementation of the offset policy. It is nor rocket science that nobody will transfer technology in defence production.What the government should do is make offset a mere mechanism of diverting money into some form of nation building activity. For Eg. building roads. The money thus freed from our own pockets should have been invested in a large network of high quality education, direct hiring of top quality professionals and technologists internationally., and creating world class design centres. This vigorously backed with a 15 year management plan would be the way to go.


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