How India can speed up indigenisation in defence manufacturing

India is uniquely positioned to create a vibrant defence manufacturing ecosystem that can help us achieve self-reliance

Updated: Nov 17, 2016 04:05:43 PM UTC
OEMs as well as SMEs in the defence manufacturing sector are focussing on moving from a buyer-seller to a co-developer and co-manufacturer relationship. (Image: Reuters)

India is at the cusp of metamorphosing from a top regional player to one with global clout. As India’s geo-political and economic ambitions grow, it needs to develop robust indigenous manufacturing capabilities and ecosystem to secure its ambition for self-reliance in the Aerospace and Defence industry.

Currently, the country allocates about 1.8 percent of its GDP to defence spending and imports about 70 percent of defence equipment. Owing to the dynamic security environment, India’s defence requirements are likely to increase in the foreseeable future making indigenous development of modern defence hardware and technology a top priority for the government.

Glass half full: A Sea of Opportunity
The fact that India ranks amongst the top 10 countries in the world in terms of its military expenditure, makes it one of the most attractive markets for defence. 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). Even the recently launched Defence Procurement Policy (DPP) is seen as a game changer to ensure faster pace in procurement, especially through newly introduced categories under indigenously designed, developed and manufactured (IDDM) provisions. Following the Central government’s footsteps and recognising the huge potential from the defence sector, 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.

With the Defence Minister’s intention of procuring about US$10 billion worth of defence products per year in the next 5 to 10 years, and the government undertaking several initiatives and reforms, there is a sea of opportunity available for all stakeholders in the sector. For example OEMs as well as SMEs in the defence manufacturing sector are focussing on moving from a buyer-seller to a co-developer and co-manufacturer relationship. They have not only come together and formed strategic partnerships to support the development of a sustainable supplier base for the defence sector, but have also moulded themselves quickly to foster a culture of innovation and R&D. So far, they have demonstrated a huge amount of potential and capability to deliver on this promise.

Glass half empty: necessary steps to hasten indigenisation
India offers tremendous opportunities in engineering services, supply chain sourcing and associated maintenance, repair and overhaul-related activities, however to achieve self-reliance we need to create a robust ecosystem that can address the capacity and capability requirements for the industry. While the government is taking numerous measures to bolster defence manufacturing, the pace of modernisation must be balanced with both short and long term initiatives. Here are some necessary steps that must be adopted to enable long term indigenisation:

a) Partnering for success: We believe that co-development and co-manufacturing is the way forward to achieve the vision of turning India into a global high value manufacturing destination not just for the home market but also for export. India harbours an immense amount of potential that can be tapped into by way of key strategic partnerships that add value across the entire length and breadth of R&D, manufacturing and supply chain. Foreign OEM’s have already started leveraging these benefits, and are encouraging Indian industry to adopt best practices for global quality standards in their manufacturing processes to lead to the creation of a gold standard supply chain and defence manufacturing ecosystem in India.

b) A skilled talent pool: 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. To be ready for the opportunities of the future, the industry needs to build and train talent to address the growing needs of the market. In addition, the academia and industry needs to forge partnerships to encourage research and technological advancements and create a talent pool that is industry ready.

c) Robust supply chain: A strong supply chain is critical for a defence manufacturer looking to optimize costs. Gradually, a handful of Indian SMEs are playing a key role in the global supply chain of OEMs. With the government’s offset policies, procurement policies and regulatory incentives spurring the growth of a domestic defence industry, the SMEs need to play a more active role in developing a robust supply chain.

d) Infrastructure development: Lack of adequate infrastructure drives India's logistics costs upwards thus reducing the country's cost competitiveness and efficiency. While the government is investing in this area the pace of development needs to pick up considerably and public-private participation can go a long way in hastening this process.

Road ahead
India is uniquely positioned to create a vibrant defence manufacturing ecosystem that can help us achieve self-reliance. With defence remaining within the government’s high priority focus area, I am confident that the country will soon emerge as a preferred destination for the co-development and co-creation of an indigenous and self-sufficient defence manufacturing ecosystem.

- By Kishore Jayaraman, President-India and South Asia at Rolls-Royce. Views expressed are personal.

The thoughts and opinions shared here are of the author.

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