Indigenisation: A New Awakening- Where are We Headed?

Setting the Perspective

The Recent Past

It was not very long ago when the word ‘indigenisation’ of defence equipment used to draw passive and uninspiring thoughts in the mind. Handled by a solitary branch under the Corps of EME in the Army, and similar for the other two Services, the act of indigenisation of defence equipment remained a distant dream.

Cut to Today

Today is a whole new world where all the passivity, non-action and complacency associated with indigenisation per se, is passé. Things are in a dynamic flux getting a review by no less than a Defence Secretary himself on an unbelievable ‘weekly’ basis!

Purport of this Work

This work takes the reader through the transformative journey of indigenisation of defence equipment from ‘nowhere to somewhere’ and states a few points in reflection of the state-of-things.

More than What Meets the Eye

Beyond the obvious answer of cutting down on the sky-rocketing import costs, indigenisation of foreign systems and assemblies is essential on two other counts:-

1. For the continued survival of old and legacy defence equipment that is still operational in our forces but for which, the production lines have long been closed down by the Original Equipment Manufacturer ( OEM).
2. For replacing fault-prone foreign equipment with better and more reliable Indian substitutes.

The Non-days

Not too far in the past, indigenisation, as stated earlier, was on paper. Devoid of the right talent, resources and infra and more importantly, the political will, the Directorates concerned with indigenisation struggled at a snail’s pace to produce Indian substitutes of some systems and assemblies that were critically required by the Services. This was however not the state of the Navy which always remained strong on indigenisation and has over the decades gone by, built a glorious record of being a ‘shipbuilding Navy’.

Tracing the Transformation Journey

Following points are stated:-

1. Picking up the threads from the non-days, the reality of sub-optimal performance on indigenisation became more and more pronounced as to be felt strongly by the defence procurement eco-system.
2. Defence Procurement Procedure or DPP (the rule book governing defence procurements) over its successive editions (DPP 2011, 2013, and 2016) continued to emphasise in their pages the urgent need to push up indigenisation efforts^[1][2][3]. Nothing much really changed on ground. Indigenisation throughput remained minimalistic.
3. While the Navy had already a strong Design bureau (established way back in the 60s), it was in the period between 2012 and 2016 that the Design Bureau of the Air Force and the Army were set up.
   Comprised of the ‘technical component’ and the ‘simulation, innovation and design’ component the bureaus were to provide the specific understanding of the forces’ requirement to the academia, industry and research organisations ( IITs, Universities, Defence Public Sector Undertakings or DPSUs and Defence Research and Development Organisation or DRDO) to push up design and manufacture of indigenous products.^[4]
4. By this time the Make-in-India (started in Sep 2014) had already got off to a start (albeit a slow one). The Design Bureaus derived some strength and momentum by connecting themselves to the larger Make-in-India theme^[5]
5. It was in 2020, the MoD came out with two important and base reference documents that would give a definitive push to the indigenous sentiment with specific action points. These two documents were:-
   - Draft Defence Production and Export Promotion Policy ( DPEPP)
   - Defence Acquisition Procedure (DAP) 2020.
6. DPEPP set an ambitious aim of achieving a defence manufacturing turnover of $ 25 billion USD by 2025 that included an export turnover of 5 Billion. Besides this, it set the course to indigenisation by promulgating an Indigenisation Policy that set the target of indigenising some 5000 components by 2025^[6]. Frankly, going by the state of things in 2020, this target looked unrealistic.
7. The DPEPP addressed indigenisation agenda per se, on two counts:-
   - By providing support to Micro Small and Medium Enterprises (MSMEs) and start-ups.

   - Enforcing indigenisation through banning export of selected items in a phased manner.

8. The basic idea was to hand-hold the small units, industries and enterprises and encouragethem to produce more and more combat-ready goods and services on the indigenization route.
9. This hand-holding of MSMEs took multiple routes. At the onset, the earlier classification of MSMEs done on the basis of investment put in the business was changed to the turnover criteria. This eliminated the cumbersome process of checking out investments and instead looking at the GST database for turnover figures - a much easier and accurate exercise^[7]. This change brought transparency and fair play.
10. To tide over the Covid blues (read casualties), the Govt. came out with collateral free loans of up to 3 Lakh Crs for MSMEs. This was followed up with three other measures in 2020-21, namely infusion of 50,000 Crs in equity listings of MSMEs on hand-holding basis (called mother-daughter scheme), debt provisioning upto 20,000 Crs for 2 Lakh MSMEs and setting up a fund of Rs 10,000 Crs dedicated for the capacity enhancement of small units^[8].
11. In addition, a timely amendment to General Financial Rules was affected by the Govt. whereby all goods and services valued less than 200 Crs were to be procured from domestic firms only. This provided an indirect push to serve the overall indigenization agenda. ^[9]
12. Around the same time when all the above was happening, the Govt. launched the Atmanirbhar Bharat Abhiyan (on 13 May 2020) with a macro vision of making the country and its citizens self-reliant in every sense of the word.^[10] This gave a shot in the arm to the indigenization efforts under progress through DPEPP and DAP.

Checking for Effects: 2020-2022

Multiple policies of encouraging the MSMEs and start up to push the indigenization agenda started to show effect. Some points are stated:-

1. The number of MSMEs in the defence sector has been steadily rising (FY 2018-19:7591, 2019-20:8643, 2020-21:10,506, 2021-22 >12,000) ^[11]
2. Moving up from their erstwhile role of being just the supply chain partners of DPSUs, today the MSMEs are realizing the depth of their potential as independent manufacturers of a host of defence goods (drones, electronics, spares, ammunition, simulators and more). With the result, the DPSUs are procuring more and more from the MSMEs (FY 2019-20 – 4842.92 Crs, 2020-21 – 5463.82 Crs) ^[12]
3. Experts estimates predict a business of something like 10,000Crs in the defence MSME sector alone in the FY 2022-23^[13]. This is likely to translate into a huge push to the overall indigenisation dream.
4. Outside of the MSME domain and embracing the manufacturing sector including the big players, the indigenization efforts are finding a place through multiple policies and provisions. Some of these are briefly captured:-
   - Efforts to increase Ease of doing Business (EoDB) index have shown results. In that the index for India has reportedly improved by 14 notches in the period 2019-2021 and now stands at 63 among 190 nations whose details are captured^[14]. The Govt. aims to touch 50 by 2025.

   

   - The iDEX (Innovations for Defence Excellence) initiative launched way back in 2018 is well past its infancy blues and is slowly finding traction in promoting a degree of self-reliance riding on the two wheels of innovation and technology development^[15].

   - India may now be looking up at the next generation of scientists, engineers and innovators capable of realizing niche technologies and platforms at par with the best in the world. To give them feet is the successive initiative of iDEX called the Defence India Start Up Challenge or DISC. This initiative throws out ‘open challenges’ to industry/MSMEs/start-ups/individual innovators and more to come forward and show their potential.^[16]

5. Along with the above initiatives, the indigenization drive received a positive push with the launch of SRIJAN portal in Aug 2020. SRIJAN is one window portal that provides information to the vendors about the items which they could take up for indigenization. It classifies the itemsas put out by DPSUs/OFB/ SHQ by numbers including their value of imports. The challenge to indigenise is available both through the DISC route or the SRIJAN route.

Enforced Indigenisation

Besides all the above voluntary measures and initiatives, a bit of enforcement also became a part to drive the indigenous sentiment. This is briefly enumerated.

1. Bitten by the infamous tag of the world’s second-largest importer of defence items (USD 16.75 billion between the period 2014-19^[17]) the concept of ‘Negative Import List’ was born as of the recommendations of DAP 2020. The idea was to upfront promulgate a list of items which India will stop importing from a specified date. To that end the word ‘enforced indigenisation’ finds relevance.
2. With a hand on the pulse of the defence industry both public and private, a sense was to be drawn from time-to-time as to what items could now be included in the list. Therefore successive lists were planned to be announced from time to time in pace with the growing muscle of the domestic industry.
3. The first such list was announced by the Defence Minister on 11 Aug 2020. Some points^[18]:-

   - The list was captioned ‘Import Embargo List of Weapons and Platforms.

   - It contained 101 items which spanned the entire domain from basic technologies (e.g. water jet fast track attack craft, chaff rockets etc.) right up to the advanced ones (e.g. GSAT-6 terminal radars, survey vessels, multi-barrel rocket launchers, surface-to-air missiles, light combat helicopters and more).

   - The cut-off date for the embargo to come into effect was in the time window from Dec 2020 to Dec 2025 based on item-to-item.

   - The financial weight of these items could be judged by the fact that as per estimates given by the Defence Minister, the Army and the Air Force’s requirements of the items on the list was a whopping 130,000 Crs while for the Navy it was 140,000 Crs. Imagine all this money wouldnow get ploughed in the indigenous market. What a shot in the arm for the Atmanirbhar Bharat Abhiyan!.

   - The Defence Minister further elaborated that in the period Apr 2015 to Aug 2020 some 260 items on this list were contracted by the Armed Forces at a cost of 3.5 lakh Crs.

   - As to the windfall for the domestic industry, it was expected that orders worth 4 lakh Crs are likely to be placed in the period of some 6-7 years.

4. Boosted by the sentiments generated in the first list, the Govt. announced the Second Negative Import list in May 2021. Following points are stated as to this list^[19]:-
   - The list contained 108 items, taking the total import-embargoed items to 209 (101+ 108).
   - The time period for the embargo ranges from Dec 2021 to Dec 2025.
   - The list includes many a big-ticket items in the niche technology domain - Medium Range Surface to Air Missiles (MRSAMs), Airborne Early warning and control System (AEW&CS), next generation corvettes, attack helicopters and more.
5. Soon after the release of the second list , the Govt. realized that a course correction is required wherein, the armed forces must be allowed to procure certain items which are either required urgently from the operational point of view or the ones which have not fructified indigenously in the datelines specified in the list.

   One case in point is of the inclusion of Artillery guns and howitzers in the first Negative Import list. It was expected that the indigenous Advanced Towed Artillery Gun System (ATAGS) and the Dhanush towed howitzer will be realized in time. Since both suffered time and cost overruns the Govt. had to lift embargo and allow the Armed forces to consider inducting 400 artillery guns from M/s Elbit Systems Israel.

6. To cater for contingencies as stated above, the Govt. in Dec 2021 came out with the following policy guidelines^[20]:-
   - The Govt. allowed the import of items even if these were on the negative import list if such an import meets the following criteria:-
   The domestic industry has not been able to supply the equipment in the stipulated time frame or quantity.
   There are inadequacies in equipment that are affecting the safety of our troops in the field.
   The armed forces require the item(s) as an urgent operational need.
   Also, the import restrictions to apply only to the fully formed equipment included in the list and not to its constituents.
   - The Govt notified that it was constituting a Defence Indigenisation Committee (DIC) under the then Chief of Defence Staff (CDS) which will oversee all indigenisation efforts and to which emergency procurements will be referred to for clearance^[21] .

   - The DIC was to have membership comprised of industry leaders, DPSU leadership and stakeholders in the Service HQ. Nothing further is available on the current status of the DIC in the open source^[22]

7. Finally, as recently as on 07 Apr 2022 the Govt. issued the third Negative Import list now rechristened as Positive Indigenisation List (change of name is not semantics it is reflective of an attitudinal tilt as well) . Following points are stated^[23]:-
   - The list includes 101 items taking the total number of embargoed items to 310 (101+ 108+ 101)
   - The embargo timelines cover a time span from Dec 2022 to Dec 2027.
   - The emphasis is on new generation high-tech items mostly big ticket (anti-radiation missiles, anti-ship missiles, multi-function warship radars, anti-drone systems, electronic warfare equipment and more).
   - The Govt. has cautioned about the software vulnerability of imported components (beyond the required indigenous content) and the need to ensure its security. The component may be imported but the software controlling muscle must be wholly Indian; that is the intention.
   - In addition to the regular three Positive Indigenisation Lists, issued in the environment, MoD till date has also issued two indigenisation lists to the DPSUs for indigenisation of subsystems and assemblies.

   - The first list of 2851 items was issued in Dec 2021. Out of these 2500 items already stand indigenised and the balance 351 are in the process.

   - The second list issued in Mar 2022 contained 107 major line replacement items.Out of these, Expression of Interest (EoI) has been issued to the industry for 98 items. Action for balance 9 is in progress.

Some Reflections

That is the dynamic scene on the indigenization front. To end this piece here are some reflections

1. Starting from a state on inaction, inertia and complacency, we have come some distance on the indigenization route.
2. The erstwhile Directorate-based indigenization efforts by the Services (sans the Navy) was a big NO GO.
3. Setting of the Design Bureaus initially by the IAF and later by the Army actually set the things in a thaw.
4. The arrival of the two cardinal documents, namely the DPEPP and the DAP in Aug and Sep 2020 respectively, actually set the pace on indigenization.
5. The pursuance of the policy guidelines related to indigenization contained in the above two documents actually got a shot in the arm with the launch of the Atmanirbhar Bharat Abhiyan.
6. While such measures as sustaining the MSMEs, providing them indigenization support, IDEX, start-up challenge and more all positive steps towards indigenization, the real wheels of the indigenisation engine are the Positive Indigenisation Lists.
7. Following points are stated as to these lists:-
   - While it is one thing (the easier one) to issue the list, it is quite other (the difficult one) to make it happen. Why so? Probably because of constant need to monitor the following with a sharp eye:-
   • Progress on the indigenous development of the item in the run-up to its time deadline.
   • As the deadline is crossed – is the item there or NOT?
   • What specific action needs to be takenon the serials whose development has crossed the deadline? (shift forward? how many years?)
   • Consideration on exemption demands of the Services based on the criterialaid down.
   • Need to issue reminders, advisories and warnings to defaulting players delaying the development.
   • Requirement of fund infusion into promising players proceeding well with development but getting stymied due to fund support.

   - For all the above and more the DIC must become more active than what is known of it in the open source.
   - While it is heartening to note that the MoD has intensified the efforts to monitor the indigenisation efforts with reviews by no less than the Defence Secretary every week, it cannot replace an active DIC in monitoring the indigenisation on a daily/weekly/monthly basis.
   - In the same breath while the issuance of a separate list of indigenisation of line replacement units to the DPSUs is a great idea, the litmus test will be of monitoring its implementation.

Having taken the reader all the way, one thing which can be stated in all certainty is – YES WE ARE ON OUR WAY.

Endnotes

^[1] “Defence Procurement Procedure 2011” at https://www.mod.gov.in.Accessed [4] on 24 May 2022.
^[2] “Defence Procurement Procedure 2016” at https://www.mod.gov.in.Accessed [4] on 24 May 2022.
^[3] “Defence Procurement Procedure 2016” at https://www.mod.gov.in [5].. Accessed on 25 May 2022.
^[4] “7 points to know about the Army Design Bureau,” at www.ssbcrack.com.Accessed [6] on 25 May 2022.
^[5] “Make-in-India,” at www.mod.gov.in.Accessed [7] on 25 May 2022.
^[6] “With defence production and procurement policies in place- are we correctly headed?,” at www.vifindia.org [8]. Accessed on 26 May 2022.
^[7] “The new classification of MSMEs based on turnover,” at www.charteredclum.com.Accessed [9] on 26 May 2022.
^[8]ibid
^[9] “Govt notifies changes in rues disallowing global tender for procurement up to Rs 200 Crs,” at www.e,economictimes.com [10]. Accessed on 26 May 2022.
^[10] “Atmanirbhar Bharat Abhiyan, “ at www.investindia.gov.in,Accessed [11] on 27 May 2022.
^[11] “Make-in-India : How Govt is turning to MSMEs to make India self reliant in defence manufacturing?” at www.financialexpress.com [12]. Accessed on 27 May 2022.
^[12] “MSMEs-an untapped force multiplier…,” at www.assets.kpmg.com.Accessed [13] on 27 May 2022.
^[13]10 ibid
^[14] “No irregularities found in World Bank’s “Doing Business’ data on India,” at www.m.economicstimes.com [14]. Accessed on 27 May 2022.
^[15] “iDEX-Home,” at www.idex.govin [15]. Accessed on 28 May 2022.
^[16] “Defence India Start up Challenges,” at www.idex.gov.in [16] Accessed on 28 May 2022.
^[17] “Explained: The negative import list for defence announced by Rajnath Singh,” at www.indianexpress.com [17]. Accessed on 28 May 2022.
^[18]ibid
^[19] “Second negative import list,” at www.sps-aviation.com [18]. Accessed on 29 May 2022
^[20] “Negative Import List : MOD exempts emergency items,” at www.m.economictimes.com [19] Accessed on 29 May 2022
^[21] “Negative import list: MoD exempts emergency items,” at www.economictimes.indiatimes.com [20]. Accessed on 29 May 2022.
^[13]MoD revises its import ban decision,” at www.spsaviation.com [21]. Accessed on 30 May 2022.
^[23]“India announces 3rd Negative Import List,” at www.m.timesofindia.com [22]. Accessed on 30 May 2022.

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