1.1 What is Indigensation of defence ?

Indigenisation is the capability of developing and producing any defence equipment within the country to achieve self-reliance and reduce the burden of imports. It involves creating an ecosystem to design, develop and manufacture different types of equipment indigenously.

1.2 Background of Indigenisation

But over the years, the overdependence on the Soviet Union for defence equipment had forced a change in India’s approach to defence industrialization from license-based production to indigenous design-based production.

In the mid-1980s, the government started pumping resources into research and development to help DRDO to undertake high-profile projects.

The most relevant development in defence indigenization was made in 1983 when the government-sanctioned the Integrated Guided Missile Development Programme (IGMDP)to develop five missile systems:

1. Prithvi (surface-to-surface)
2. Akash (surface-to-air)
3. Trishul (the naval version of Prithvi)
4. Nag (anti-tank)
5. Agni Ballistic missiles with different ranges, i.e. Agni (I, II, III, IV, V)

In 1990 Self Reliance Review Committee(SRRV) under A.P.J. Abdul Kalam, formulated a 10-year self-reliance plan which proposed a self-reliance index (SRI) (defined as the percentage share of indigenous content in total procurement expenditure), to be increased from 30% in 1992-1993 to 70 % by 2005. This target has not been achieved till today.

The efforts in indigenisation were not enough to meet the requirements of the armed forces, which caused a shift of focus towards co-development and co-production in partnership with foreign companies. In 1998, India and Russia signed an inter-governmental agreement to jointly produce Brahmos supersonic cruise missiles. India has also partnered with other countries such as Israel and France for several projects.

1.3 Need of Indigenisation

• The Stockholm International Peace Research Institute (SIPRI) reported that  India was the world’s second-largest importer of major arms in 2014-18 and accounted for 9.5% of the global total and India’s military expenditure rose by 3.1%.
• C&AG report, 2011 to the Parliament, highlighted the 90% import dependency of Hindustan Aeronautics Ltd (HAL) for ‘raw materials and bought-out items for the production of indigenous equipment.
• India has been spending around 4% of its GDP on defence. The Self-Reliance Index (SRI) (the ratio of indigenous content of defence procurements to the total expenditure on defence procurements in a financial year) is at a low of 0.3.

In addition the Indigenisation of defence is needed due to following factors:

1. Reducing India’s Fiscal Deficit: Currently, India’s defence sector imports stand at 70%. This makes India the 2nd largest arms importer in the world, only next to Saudi Arabia. According to the Stockholm International Peace Research Institute (SIPRI), in 2019, India became the third-largest defence spender in the world. So, indigenisation of the defence sector is necessary to reduce the Fiscal Deficit.
2. Catering to Natioan security: India shares porous borders with hostile neighbours. Currently, imported equipment in India are creating multiple challenges related to their Maintenance, Repair & Overhaul (MRO) due to non-availability of spares and assemblies. These equipment without proper MRO can put India under major risks mainly during the war like situation. For example, recent military standoff with China. This will put India’s national security at risk. So indigenisation is necessary.
3. Generation of employment: Defence manufacturing is one of the very few sectors that will lead to multiplicity of employment benefits. As per the government estimates, just 20-25% import reduction will directly create 100,000 to 120,000 additional highly skilled jobs in India. Apart from that, it will lead to large scale innovation, a huge number of spin-off industries and start-ups etc.
4. Boosting Indian exports and generating forex reserve. The SIPRI data mentions India as the 23rd largest country in terms of defence exports. This shows under-performance considering the fact that, India spent $71.1 billion in the defence sector in 2019 alone. India can export indigenously produced defence technology and equipment to the neighbouring nations. Like space and nuclear research, R&D in defence sector will increase the focus on both civil and military economy.
5. Indigenous equipment will increase the trust and confidence of the Indian defence forces. It will also strengthen India’s image in the global arena.
6. Promote R&D- This could lead to innovation and R&D in the defence sector.

1.4 Government Initiatives/policies to boost Indigenisation

The Government has taken several policy initiatives and brought reforms to promote self-reliance in defence manufacturing. These policy initiatives are aimed at encouraging indigenous design, development and manufacture of defence equipment in the country, thereby reducing dependency on imports in long run. Important policy initiatives and reforms are as under: -

(a) Defence Acquisition Procedure 2020 (DAP-2020)

(i)  DAP-2020 promulgated by MoD in October 2020, is aligned with the Government’s vision of Aatmanirbhar Bharat and lays emphasis on higher indigenous content in procurement and faster acquisition for the Armed Forces.

(ii) In order to promote indigenous design and development of defence equipment, ‘Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)}’ category has been accorded top most priority for procurement of capital equipment. 

(iii) Reforms in Offset policy have been included in DAP 2020, with thrust on attracting investment and Transfer of Technology for Defence manufacturing, by assigning higher multipliers to them.

(b) MAKE Projects: A comprehensively revamped ‘Make’ procedure has been introduced in DAP-2020 to facilitate indigenous design and development of defence equipment both with government funding and Industry funding, as follows: -

(i)  Make I’ sub-category is aimed at addressing projects involving design and development of major equipment/ systems/ platforms necessitating critical technologies and large infrastructure investment, with development periods not less than one year. Such projects involve Govt. funding of 70%.

(ii) Make II and Make III acquisition categories have been tailor-made to encourage Pvt Sector participation with provisions that lead to assured orders after successful development.  In Make-II, if solutions have been offered even by a single individual or a firm or Suo- Moto proposal, the cases can be progressed as a Resultant Single Vendor. Make-III is a new category added in DAP-20 that allows for manufacture of products in India as import substitution for support of weapon systems/ equipment held in the inventory of the Services.

(iii)     63 MAKE projects are being co-developed with the Indian defence industry, including MSMEs and Start-ups.

(c) FDI Limit in Defence: FDI limit in defence manufacturing under the automatic route has been increased from 49% to 74%, and 100% after Govt clearance. With large platforms like ships & submarines, Mini UAVs, Electronic Warfare/ advanced Communication systems, technology intensive armament/ ammunition/ missiles falling under the purview of imports embargo, many opportunities will open up for JVs/ collaboration with global majors.

(d) Enhanced Budget for Domestic Procurement: The quantum of funds earmarked for domestic industry has risen from 57.67% of Capital Budget in FY 2020-21 to over 64.09% in FY 2021-22. Approximately 71% of proposals accorded AoN in the Annual Acquisition Plan (AAP) 2021-23 fall under the Indigenous category, out of which more than 15% have been earmarked for Indian private entities.

(e) iDEX: An innovation ecosystem for Defence titled Innovation for Defence Excellence (iDEX) has been launched in April 2018. iDEX is aimed at creation of an ecosystem to foster innovation and technology development in Defence and Aerospace by engaging Industries including MSMEs, Start-ups, Individual Innovators, R&D institutes and Academia and provide them grants/ funding and other support to carryout R&D which has potential for future adoption for Indian Defence and Aerospace needs.

(f) Technology Development Fund (TDF): Government has set up the Technology Development Fund (TDF) to encourage participation of public/ private industries especially MSMEs through provision of grants, so as to create an ecosystem for enhancing cutting edge technology capability for defence applications.

(g) Mission Raksha Gyan Shakti: The MoD has instituted a new framework titled ‘Mission Raksha Gyan Shakti’ which aims to provide boost to the IPR culture in indigenous defence industry.

(h) Import Substitution of High Value & Complex Spares: Through the efforts of the Department of Defence Production and the Services, drive for identification and indigenisation of all high value and complex spares through domestic Indian industry is underway. Towards this, a user friendly hub portal “Srijan” has also been hosted by the Ministry of Defence.

(i)  Projects by DRDO: 52 projects are underway by DRDO in Mission Mode to meet critical defence equipment requirements of the three Services, wherein the DPSUs/ Private Industries are the production agency.

(j) Defence Industrial Corridors: Government has established two Defence Industrial Corridors, one each in the States of Uttar Pradesh and Tamil Nadu. The investments of Rs 20,000 Crore have been envisaged in Defence corridors of Uttar Pradesh and Tamil Nadu by year 2024. Moreover, the respective State Governments have also announced their Aerospace & Defence Policies to attract private players as well as foreign companies including Original Equipment Manufacturers (OEMs) in these two corridors.

(k) Preference to MSMEs: Cases with AoN cost ≤ Rs 100 Crs have been reserved for MSMEs (provided at least two or more MSMEs are eligible to participate in the category).

(l) Transfer of Technology (TOT) to Industries: DRDO developed technologies are being transferred to industries by entering into Licensing Agreement for Transfer of Technology (LATOT). These technologies are hosted on DRDO website and Indian industry can take these high end defence technologies as per the provisions on DRDO policy and procedure for transfer of technology. In year 2021, 182 LATOTs were signed with industries.

(m) Test Facility support to Industries: Several world class test facilities have now been opened for industries in DRDO labs and necessary SOP has been formulated.

(n) Scientific and Technological Support: Scientific and Technological support is provided to industry by DRDO on need basis.

(o) DRDO Patents: The details of the DRDO patents are available on DRDO website for use by industries. These patents are available free of cost to industries to enable Aatmanirbhar Bharat.

(p) Government-Owned Company Operated (GOCO): Under GOCO, private industries will operate and maintain DRDO assets, sparing them from the need to invest in land, machinery or other support systems.

1.5 Challenges in indigenisation of defence sector:

1. Private sector participation is very low: Currently, India depends on DRDO and defence PSUs for the majority of its needs. There is an issue of land acquisition in India. This, coupled with non-availability of Permanent arbitration committee to settle disputes in India leads to lower private participation.

2. Manufacturing and procurement-related delay: There are bureaucratic and political hurdles in India. Indian defence suppliers also take more time to complete the projects. There is also a problem of delay in the delivery of the projects. This hurts India’s image as a trusted supplier. In the past few years, the government has approved over 200 defence acquisition worth Rs 4 trillion, but most are still in relatively early stages of processing.

3. Conflict between the manufacturers & defence forces: Defence forces being on the ground of the battlefield, know that the border areas demand some specific design and characteristics of the equipment. But there is a conflict between the manufacturers and defence forces in India regarding the  design, capacity etc of the defence equipment. All this leads to inefficient coordination between the military, academy and industry.

4. Most of the Indian defence budget goes towards salaries, retirement benefits, perks and benefits, MRO of equipment etc. This limits the government capacity to focus on long-term budgeting towards the defence sector.

5. Lack of Critical Technologies: Poor design capability in critical technologies, inadequate investment in R&D and the inability to manufacture major subsystems and components hamper the indigenous manufacturing.

1.6 Current developments in Indigenisation:

a) The govt has released the third positive indigenisation list of 101 equipment and platforms, which the Services can procure only from the domestic industry.

b) Handing over 30 agreements to domestic defence industry for transfer of 21 DRDO technologies

c) DRDO is currently working on an indigenous unmanned aerial vehicle named Nishant.

d) 68 per cent of the capital procurement budget will be earmarked for domestic industry in 2022-23, up from 58 per cent in the previous year.

e) To promote private industry, MSMEs and start-ups in defence production ecosystem, 25% of the Domestic Capital Procurement/ Acquisition Budget, amounting to Rs 21,149.47 Cr, will be earmarked for domestic private industry in FY2022-23.

f) In the first export order for the BrahMos supersonic cruise missile system, the Philippines has approved a $374.96 mn contract for the purchase of a shore-based anti-ship variant of the missile from India.

1.7 Way Forward/Suggestions

1. The government can implement the Shaketkar committee recommendations on the closure of Army Postal Establishments and Military Farms in peace locations swiftly. Apart from that government can also consider the Chief of Defence Staff opinion. He mentioned increasing the retirement age to improve government spending on other relevant activities.

2. Boosting private sector participation is the need of the hour. This can be achieved by creating a permanent arbitration cell, ensuring level playing field for private companies like that of PSUs.

3. The government can provide an autonomous status to DRDO. It will improve the number of sub-contracts to the private sector and also instil the confidence to private sectors.

4. The government have to improve the in-house design capacity like that of Naval Design Bureau. This will reduce the conflict with manufacturers in design and capacity. Shaketkar committee recommended transformation of ‘The Military Intelligence School’ at Pune into ‘tri-service intelligence training establishment’.

5. To become a major defence manufacturer, India needs to reexamine its structure of governing defence production, as the Chinese did in 2000. Earlier, the Chinese defence industry was separated, Soviet-style, between R&D and manufacturing units. The R&D element (the DRDO) functions separately from the manufacturing segment (the defence PSUs). That has to change.

• The definition of indigenisation itself needs to privilege technology over value or volume.
• Investment, Indian or foreign, will be viable only if the door to defence exports is opened, with a transparent policy.

1.8 Conclusion

The government has rightly clarified that self-reliance would not be taken to overzealous extremes. The thrust for indigenous research and development will coexist with the import of cutting-edge military technologies to obviate near-term defence vulnerabilities. Of the key components of any major reform — money, method and mindset — mindset is the most critical and the most intractable. It takes a crisis to change it.