Defence Production and Export Promotion Policy 2020: Effective Implementation is the Key

Following closely on the heels of Draft Defence Acquisition Procedure (DAP) 2020, which was open for comments till 10 Aug 2020, the Ministry of Defence (MoD) has formulated another document called Defence Production and Export Promotion Policy 2020, in short referred to as DPEPP 2020¹.

The two are differentiated in the sense that while the DAP is centered towards ‘acquisition’ the thrust of DPEPP 2020 is ‘production’ and ‘export’.

DPEPP flows out from the concept of Atmanirbhar Bharat. The key word in this macro concept is ‘self-reliance’. This is proposed to be achieved following the twin-track approach of enhancing boosting defence production and catalyzing defence exports².

It is the sense of the author that DPEPP or no DPEPP, unless there is an ‘attitudinal change’ and there is a will to address the very many imperatives that lie in the way of implementation of the policy guidelines, self- reliance will remain an elusive dream. This article visits the DPEPP in detail and flags the imperatives that must be addressed if the laudable dream of self-reliance, as envisaged in this over-arching document, is to become a reality someday.

In that sense this article will serve as ready-reckoner to the stake holders tasked to oversee the implementation of DPEPP.

Visiting DPEPP 2020

DPEPP is anchored on the vision of making India a leading country of the world in defence, aerospace, naval and submarine sector both in design, as well as, production through the participation of public and private sectors

DPEPP sets the goal of Defence production turnover of 25 Bn USD (175,000 Crs) and export target of 5 Bn USD (35000 Crs) by 2025. How big is this target can be assessed from the facts that the defence production turnover for the year 2018-19 was 8 Bn for the public sector and 2.4 Bn for the private Sector (total 10.4 Bn USD) while the figures for export for the year 2018-19 was 1.5 Bn USD³.

The Policy lists several goals and objectives. These include making the defence industry dynamic, robust and competitive, reducing import dependence (current global share 15%), and promoting exports, encouraging R&D, rewarding innovation, creating more and more Indian Intellectual Property (IP) etc.

The above goals and objectives are translated into eight thrust areas. For each of this thrust areas a strategy has been evolved in the form of specific action points which are planned to be implemented. It is in these action points where most of the imperatives lie. These are elaborated.

Procurement Reforms

The statement of proposed reforms makes a departure from the oft-stated. Sample the following:-

1. Negative import list⁴

Making a negative list of weapon, platforms and spares that must not be imported was an idea initially mooted by the Defence Minister when the Ministry of Defence (MoD) laid an import embargo on 101 defence related items early this year. DPEPP has formulated the above assertion of the Minister as the first procurement reform giving year-wise timelines after which the import of a particular item will stand banned.

Duly formulated after consulting with Services and the stakeholders, the timelines for embargo extend from 2020-2024. The list is progressive and more items will be added in future.

If implemented properly, it will not only reduce import dependence to a large extent, but also, a windfall of orders of some 4 lakh Crs are likely to be placed on the domestic industry.

2. Setting up of Project Management Unit (PMU).

With due representation from the Services there is a proposal to set up a PMU to support the acquisition process by bringing in best practices and expert advice.

3. Technology Assessment Cell (TAC).

A TAC is planned to be established which will carry out an assessment of Technology Readiness Level (TRL) fromtime-to-time and advice on grant of Acceptance of Necessity (AoN) based on the status of TRL (import/buy indigenous?). More importantly, the TAC will assess the industrial capability and classify the industry players as ‘system integrators’ (those have the grip on the whole cycle from design to development to production to testing and certification) or as ‘support partners’ to big players (those who can only develop and produce). TAC will also carry out technical scan at the global and regional levels.

4. Other Reforms

Other proposed reforms include a comprehensive review of the trial and testing procedure to cut out delays, adopting a ‘family of weapons’ approach to optimize inventory, spares and consumables, reviewing all procurements from domestic sources for delays, and providing greater visibility to the industry into the likely opportunities in the defence sector etc.

Imperatives

The span of suggested reforms is very huge. In fact, it nearly addresses almost all the ills that presently affect the procurement monolith for what it is today. To make it a success following imperatives must be followed:-

1. The initial Negative List as drawn up now must not become a static document. A mechanism needs to be put into place that mandates the review of the said list after every one/two years. The way the industry (especially the private industry) is moving forward, there will be lot to change in each review either by way of preponing the cut-off dates of import ban or by adding new serials.
2. The proposed PMU must not become yet another layer in the procurement hierarchy already crumbing under the weight of ever-increasing ‘stages of processing’ and ‘number of sanctions and approvals’. A small body driven by ‘management best practices’ must act like an ombudsman which keeps a suo moto sharp eye on the flow of procurement cases. The reference tools to check must be all digital and automated and driven by ‘time-lines’ acting as checkpoints. The aim must be to make stakeholders accountable for their actions or lack of it.
3. The TAC has a huge agenda to separate weed from the grain as many a stakeholders will over-claim their capabilities as system integrators in order to usurp a larger share of prospective contracts. Strict on-ground scrutiny of claimed capability is the only way out. It is a great idea to keep a prospective rival in the scrutiny team as he /she will report the bottom line ruthlessly (which can be later moderated for undue bias).
4. Trials slated to finish in 12-24 months stretching for 5-8 years (sic) is the Achilles’ heel in the procurement process. It must be the business of the PMU to ensure that this rot is removed. The entire trial cycle must come underscrutiny. Some check-points:-
1. Time delay in making the trial directive.
2. Adequacy and do-ability of the directive.
3. ‘Smart conduct’ – adherence to directive, grant of waivers, addressing vendor queries, timelines etc.
5. The proposal for reviewing domestic AoNs is very timely as the biggest source of unending delay is attributed to the prospective vendors making big commitments upfront in order to usurp the contract and then hanging the ‘captive buyers’ for years simply because their initial ‘initial big claim’ passed muster without tight scrutiny.

Another aspect in the AoN review should also be the ‘defaulting user’ who fails to issue the Request for Proposal (RFP) within the currency of AoN. The bottom is fixing accountability and responsibility.

Indigenisation and Support to MSMEs

In this field as well, very ambitious set of reforms have been proposed in the DPEPP. These include indigenising some 5000 items by2025, setting up an ‘indigenisation portal’ to provide development support to Services and industry, further strengthening the Make II procedures, taking forward the Inter-governmental (IG) processes, hand-holding domestic sector, start-ups and MSMEs through Defence Investor Cell, tasking public sector to indulge in pro-active domestic vendor development, ensuring continued import of critical items even from a single vendor and keeping alive institutional platforms for MoD-Indusrty interaction

Imperatives

That is a very huge and impressive agenda. Implementation? That of course will demand many things. Some points:-

1. The indigenization is easier said than done. It must start bottom upwards with users taking initiative in identifying parts, systems, sub-assemblies that are critical and are either not available or are within easy reach to indigenize. Some sort of a mechanism needs to be put into place to seek these inputs from grass-root level and build it upwards.
2. Army has established its Design Bureau few years back, Air Force and Navy are well ahead (Navy in the lead). These Bureaus must totally mesh with respective Indigenistaion Directorates and fix targets to indigenize; 5000 by 2025 is a very tall order.
3. As regards forums for institutional interaction (FICCI, ICCI, PHD etc), experience has it, that while it is all very good in workshops and seminars, the implementation of decisions taken therein, leaves much to be desired. The single one culprit for this anomaly is the near total void of ‘real decision makers’ attending such institutional interactions.

The above void needs to be addressed. There is a requirement of ’self-correction’.

Optimisation of Resource Allocation

Under this head, the proposal for carving out a separate budget head for domestic capital procurement is indeed a novel step. It will end up in securing fund support for domestic purchases without being usurped by foreign OEMs (a 52,000 Crs budget has recently been announced by the MoD).

The other proposalof setting a target of 15% enhancement in domestic production year-on-year in getting to the destination of 75% in five years is also very appreciable. Same goes for the proposal of scrutinizing defence expenditure to check out how the funds are being spent and mandating the Defence PSUs for upping their productivity and quality, downing product costs and ensuring timely deliveries.

Imperatives

The reform proposals appear to be quite ambitious in nature. Some imperatives:-

1. The budget head for domestic procurement must remain non-lapsable and capable of being carried forward.
2. 15% enhancement target must be backed by a corresponding increase inthe order quantum flowing to the private industry. Some guidelines and reference benchmarks on how to measure 15% enhancement also needs to be promulgated.
3. The proposed team to scrutinize defence expenditure must include tri-Service procurement experts and an overruling body with a casting vote (CISC/ CDS). This activity must remain in Service arena (for reasons of domain expertise).
4. While it is easy to tell the DPSUs what is desired, what is important is to ensure that it happens. If it does not, the penalty regime must start flowing. Also, some quantifiable enhancement targets need be set year-on-year for the PSUs (15% increase in productivity, 10% reduction in overall costs etc.).

Investment Promotion, FDI and Ease of Doing Business ( EoDB)

Many a do-able proposals have been cited under this head. These include encouraging investments in many of the emerging fields like aircraft build up, aircraft maintenance and repair activity, helicopters, engines, line replacement units, UAVs, upgrades, retrofits, filling gaps in critical technologies and FDI.(The last quoted is especially relevant as the Govt. has just scaled up the Foreign Direct Investment to 74% on the automatic route)

Imperatives

This is a win-win head if implemented as proposed. Given the state of world economy and the black shadow of sinking demand in the defence sector (mainly due to high expenditure related to pandemic), foreign OEMs are more than willing to jump at the first opportunity of a JV/MoU/ co-development/co-production and the like.

It is not for nothing that in a period of just 5 years (2014-2019) India’s EoDB ranking has jumped from 142/190 to 63/190. The aim is to reach 50/190 before the current year runs out. Therefore, it will be a great idea to selectively open up various sectors to selected foreign OEMs. Only the following always needs to be ensured:-

1. Every JV/MoU/ deal must always remain ‘advantage India’
2. No deal must ever usurp any opportunity whatsoever, for an Indian player.

Innovation and R&D

Several useful proposals have been listed under this head as well. DRDO in consultation with other scientific and industrial establishments is tasked to set upmissions in select areas with a view to develop futuristic and critical systems/platforms and materials, a further push to the ongoing iDEX initiative to support the startups in the defence industry, strengthening the mechanizations of Make II, creating more and more IP by scaling up the ongoing Mission Raksha Gyan Shakti, reforms in offset regime and more.

Imperatives

Again a very huge agenda but the good news is that it is kind of already rolling. Sample the following:-

1. It was heartening to see the DRDO put out a list of some108 items for local industry manufacturing⁵. While all of these may not relate to new innovations, it will certainly push many a small players to come forward.
2. DRDO ‘Dare to Dream 2.0’ is a repeat exercise to attract young minds (‘ignited minds’ to quote Dr. Kalam) and startups to innovate and bring out that ‘BIG IDEA’ of the future by ‘their small spark out of the box’⁶.
3. Though not directly connected, ‘CHUNAUTI’- the ‘Next Generation Incubation Scheme’ (NGIS) launched by the Govt. on 28 Aug 2020 under the Digital India platform is a vision to drive the rise of India as a Software Product nation.⁷

So what imperatives lie in this area? The following following need attention:-

1. Realisation by the stakeholders and organisers that announcing the contests and competitions is simplest of the thing, the ‘challenge’ lies in carrying them through after the award function/ closing ceremonies.
2. ‘Money is the real puller’. If the schemes are not lucrative financially, real talent will find it ‘not worth the effort’. This must be guarded against.

DPSUs and OFB

This is indeed a big-ticket proposal as it promises to address a major source of delay and stagnation in the entire procurement and defence manufacturing regime. Major reform proposals like the ongoing efforts to corporatization of the OFB monolith, positioning the DPSU’s as system integrators, disinvestment of DPSUs to the extent of cutting the flab and aligning these with Industry 4.0 practices (digital threading, internet of things, time stamping, disruptive technologies etc.) are on the cards.

Imperatives

These are huge proposals which are likely to be met by huge obstacles, requiring a ‘firm hand’ to take it through. Some points that merit attention are:-

1. The only way to bring the ‘long simmering’ corporatization issue to a conclusion is to deal it with a firm hand. Sure, there will be seemingly insurmountable resistance from the 82000 work force used to a different culture. The recent setting up of a ‘strong team’ by the PM for implementing this proposal is a step in the right direction.
2. More important than the disinvestment and 4.0 etc. is to try and enforce an ‘attitudinal change’ in the DPSU style and culture. For instance, the much professed idea of a ‘level playing field’ between the DPSUs and the private industry needs to move from seminars/conferences to shop floors, where orders must flow on merit and open competition and not on public/private inequality.
3. The covert and thinly disguised practice of award of contracts to the public sector through the nomination (though officially banned) must be routed out completely.
4. Also there is requirement to ensure certain hygiene measures in forcing a change in the existing work culture of DPSUs such as fixing accountability in loss and profit, fixing responsibility for inordinate delays and time-cost overruns etc. All these are easier said than done since the same are very deep-routed practices. If there is one thing that can make a dent, it is the ‘survivability stake’. If the work force knows- that ‘either we deliver or we cease to exist in a competition’, things will move. Thoughtful disinvestments can infuse such a culture; though that will also be resisted tooth and nail.

Quality Assurance and Testing Infrastructure

This thrust area deals with DGQA reforms. The plan is to enforce a ‘time bound delivery regime’ (generally rare) besides organizational reforms, identification of accredited third party inspection bodies etc.

The proposed guiding mantra for the MSMEs is proposed to be ‘zero defect zero effect’ encouraging them for ‘self-certification’ and ‘green channel route of the DGQA/DGAQA.

Imperatives

Like for several other points earlier, the proposal is laudable; the buck may stop short of implementation given such deep-rooted processes practices and cultures. The only way out seems to be ‘fixing accountability’ for any kind of default especially the invariable and inordinate time delays.

In this context it is also worthwhile to recall the announcement by the Defence Minister on 15 May 2020in unrolling the Defence Testing and Infrastructure Scheme (DTIS) at a massive investment of 400 Crs. In this also, it is imperative that the follow up steps of MoD inviting consortiums from Industry, associations and academia to set up and run the eight green field ranges on the Built Operate Maintain or BOM model, or the creation of the Special Purpose Vehicle comprising industry associations, academic institutions, R&D organizations etc. for implementing the DTIS are followed up in letter and spirit.

Export Promotion

Pegged to a very ambitious target of 5 billion by 2025 (1.5 Bn in 2018-19), the export strategy like all the previous points contains many a good points. These include mandating the Defence Attaches and providing them adequate support to undertake export promotion, boosting exports by providing lines of credit/funding to friendly foreign countries, setting up of an export promotion cell to drive a coordinated effort, mandating the DPSUs and OFBs to achieve amark of 25% revenue from exports, optimal utilisation of the twin vehicles of Def Expo and Aero India to showcase our domestic defence muscle including ‘exportables’ and optimal utilisation of open general export license to encourage exports of selected defence equipment.

Imperatives

1. More than any strategy or proposals, what is needed in this field is an attitudinal change. In that, the decision makers and stakeholders must get out of the earlier mind-set that we have no ‘exportables’, or our products are unlikely to make the grade in a multinational forums.
2. It will be worthwhile to quote here that while India may have the infamous tag of world’s second largest arms exporter, it for the first time has also made an entry in the list of defence exporters albeit at 23rd position (this ranking is poised to rise sharply in the years to come)⁸.
3. In fact, India has tremendous defence export potential. This is not an empty claim. The same is backed up with the export worthiness of many indigenous platforms - Astra 2A Beyond Visual Range Air-to-air Missile, BrahMos supersonic cruise missile, Akash Missile system, sea-going platforms designed and built indigenously such as fast track crafts, Offshore Patrol Vessels (OPVs),Tejas, artillery guns and howitzers, indigenous SAMs, Battle management and control systems…. to name a few.
4. The requirement is of aggressive marketing and maintaining a proactive stance by the decision makers.

That was the big canvass of DPEPP 2020 and a slew of reform proposals and driving strategies contained therein. What is required now is an effective implementation of the policy in order to achieve the aims and objectives of the same.

End Notes

1. Draft Defence Production & Export Promotion Policy 2020,” at www.ddpmod.gov.in [3]. Accessed on 01 Sep 2020.
2. ‘Building Atmanirbhar Bharat and overcoming COVID -19,” at wwwindia.gov.in.Accessed on 01 Sep 2020.
3. MoD invites suggestions, comments on Defence…2020” at www.bharatshakti.in [4]. Accessed on 01 Sep 2020.
4. ‘Explained: The negative Import List for Defence ….,” at www.indianexpress.com [5]. Accessed on 07 Sep 2020.
5. “Indiadefence research and development organization lists 108 systems and subsystems for local industry manufacturing,” at www.defence.capital/2020/08/24.Accessed [6] on 07 Sep 2020.
6. “Igninitedminds:spread your wings in unmanned, aser and stealth technologies,” at www.defence.capital/2020/08/23 [7]. Accessed on 12 Sep 2020.
7. “CHUNAUTI-The NextGen Start-up Challenge Contest,” at www.mygov.in.Accessed [8] on 13 Sep 2020.
8. “In a first India figures on the arms exporters list,” at www.economictimes.com.Accessed [9] on 14 Sep 2020.

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>

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