On indigenisation of defence products: Adding economy to defence

News: On Independence Day, Prime Minister handed the indigenously designed & developed Light Combat Helicopter (LCH), over to the Indian Air Force (IAF). It has been manufactured by Hindustan Aeronautics Ltd (HAL).

The issue here is, it’s confusing how the PM chose the LCH as an indigenous product, even while the cabinet has not given manufacturing clearance for 15 LCHs till now.

Despite the LCH qualifying under,

– The Defence Procurement Procedure of 2016, that mandates a minimum indigenous content of 40%, and

– The Defence Acquisition Policy of 2020, which requires the indigenous content to be above 50%.

The Cabinet Committee on Security, has been objecting to the LCH on the grounds that its indigenous content is too low for it to qualify as a “Made in India” product.

Why genuinely Indian-developed products fail to qualify for indigenous status?

The central reason for this, is the tendency of the Ministry of Defence (MoD) to place such small orders (for example, 15 LCHs) that it remains uneconomical to manufacture many components in the country to carry out import-substitution.

For example, Indigenisation costs for components that are not used in large numbers will be very higher than buying from a global original equipment manufacturer.

What needs to be done to increase the indigenisation of Defence equipments?

India needs to create more demand, such that it remains economical to manufacture many components.

For instance, instead of building just a few dozen LCHs, a manufacturing of several hundred would genuinely lower costs.

Hence, more and more indigenisation of components, sub-systems and systems needs to be done.

How the demand can be increased?

Firstly, there should be a large-scale employment of the LCH in the defence services. This creates demand and an economic feasibility for manufacturers for indigenising more and more components.

Secondly, there is a need to boost export orders. It can be done via:

– combination of a low prices, and a maintenance and overhaul package.

– providing prospective customers with lines of credit that would incentivise purchase.

– Organising exporters into trade bodies that can lobby in prospective buyer countries

Finally, need to focus on areas of technology and equipment that presents the maximum opportunities for indigenisation. For India, the answer is Aero engines. Because, aero engines account for one-third the cost of a new military aircraft.

What is the way forward?

– Development of Aero engines: India is going to buy foreign military aero engines worth Rs 3.5-4 trillion over the next two decades. Yet, successive governments have neglected the development and manufacture of aero engines. Also, DRDO has been less successful in developing highly efficient aero engines with limited resources. For instance, the Kaveri engine for the Tejas fighter.

The need of the hour is, India needs to replicate its successful missile development program.

By clearly identifying an aim, allocating technological manpower and leadership, and spending about enough can make the aero engine project successful.

Source: This post is based on the article “Adding economy to defence” published in Business standard on 3^rd Dec 2021.