Introduction
This article delves into ‘Make In India’ and India’s aerospace industry. The two have a lot in common: each has immense potential but is hobbled by policy dilemmas; each is characterized by an exterior of hyperbole which conceals a hollow internal growth; and each has the potential to make a significant contribution to the nation’s objectives of economic well being and industrial self reliance, but has so far been unable to do so in a significant measure. There is also another shared feature: the establishment’s good intent and fond patronage has not been adequate to make either one of these a success story. Globally, commercial aerospace sector is a key growth sector driven by increased production demand (Covid-19 is an irksome but transient impediment) at the aircraft production level as well as for retrofit conversions and in service Maintenance, Repair and Overhaul (MRO) essentials. Aerospace programmes are complex and their sustenance expensive in terms of infrastructure and investment — increasingly so as aerospace systems become more sophisticated and challenging. Indeed international collaboration has become a preferred model for some aerospace Original Equipment Manufacturers (OEMs). Indian aerospace industry’s hitherto laggardly performance is increasingly becoming harder to improve upon as the technologies developed by other aerospace powers become more niche and valuable and hence more difficult for them to part with. Thus Transfer of Technology (ToT) is a retreating objective which will become increasingly harder to grasp. The other alternative — indigenous technology Research & Development (R&D) — has been stunted in India due to unfair patronage to an internally inefficient public sector at the cost of capable but wary private participation being cold shouldered till recently. Aerospace and defence industries are Siamese twins and the leading aerospace OEMs in the world have defence and civil programmes; this article will look at ‘Make In India’ in the context of aerospace industry including defence aerospace
Make In India
The idea of Make In India has been around even before India gained independence; ‘Swadeshi Andolan’ was the first avatar of Make In India and dates back to 1850. After 1947, Indian aspirations to reduce dependence on goods manufactured in foreign lands spawned the Public Sector Undertakings (PSUs). That the PSUs (with very few exceptions) adopted cultures that did not encourage productivity is an evolutionary process that successive governments bear responsibility for. As the PSUs had government patronage which the more efficient private enterprise did not, growth was affected adversely. The credit for rejuvenating the concept of ‘Make In India’ and raising it to the level of a national slogan goes to Modi. In September 2014, he launched a campaign by that name and put all his weight (and his government’s) behind it. The sentiment underlying Make In India (of indigenization of industry) is admirable and much needed but its success as a campaign (despite the Prime Minister’s personal backing) has been unremarkable. In the aerospace industry arena, Modi lent special emphasis to ‘Make In India’ by inaugurating the 2015 Aero India Show in Bangalore and employing ‘Make In India’ as the theme of his inaugural speech. Related themes have been promoted at irregular intervals (at air shows and Defexpos et al) and the idea has been kept alive in public perception; the latest is the Atma Nirbhar Bharat concept announced by Modi on 12 May this year. Its construct is premised on ‘Make In India’ and it enumerates five pillars: economy, infrastructure, system, vibrant demography and demand. However, the 20 lakh crore package mentioned by Modi as the stimulus for Atma Nirbhar Bharat turned out, in effect, to be only about a tenth of that figure in real terms and, as at the time of writing, it does not appear likely that either ‘Make In India’ or Atma Nirbhar Bharat hold out any reason for Indian aerospace sector to cheer about.
Defence Aerosapce
According to the latest report on international arms transfers from Stockholm International Peace Research Institute (SIPRI), India is the world’s second largest arms importer accounting for 9.2% of the global imports and the 23rd biggest exporter (with a miniscule 0.2% of the global share). According to another SIPRI report titled ‘Trends In World Military Expenditure, 2019’, India is the third-largest military spender in the world, after the US and China, with its military spending growing by 6.8% to $71.1 Bn in 2019. India’s defence forces are the second largest in the world and its defence budget the fifth largest globally and yet the defence forces are woefully short of almost all types of combat aerial platforms. The current Chief of Air Staff (CAS) has reportedly been very loud and clear about supporting indigenous manufacture of aircraft under ‘Make In India’ auspices and has asserted that there will be no imports of aircraft in the foreseeable future. The Chief of Defence Staff (CDS) went a step further and said the IAF planned to buy the indigenous Light Combat Aircraft (LCA) Tejas instead of the 114 Multi Role Fighter Aircraft (MRFA) it had been looking for; the CAS was quick to counter that iteration publicly a couple of days later. Possibly, the difference in perception is on account of the CAS thinking of indigenous production of 114 MRFAs and the CDS imagining a ‘no import’ policy to exclude all foreign design aircraft. Therein lies the predicament of the Indian aerospace industry. Despite being in existence for eight decades (Hindustan Aeronautics Limited (HAL) was formed in 1940 as Hindustan Aircraft Limited), it has produced only one combat aircraft (HF 24 Marut) and failed to build on its experience with what could have been a stepping stone to modern combat aircraft; its second combat aircraft — Tejas — is still not really combat worthy. HAL’s failure to produce indigenous combat aircraft has been a major factor in the IAF’s combat strength gradually eroding with old aircraft being de-inducted and new aircraft being unaffordable in the numbers required. As a result, the IAF, instead of having a 42 squadron sanctioned strength (a figure itself inordinately due for an upward revision), has 30 squadrons only and that strength is also reducing rapidly.
As a rough projection, the IAF needs about 450 combat aircraft over the next three decades or so (36 Rafales under order, 114 MRFAs, 100 Advanced Medium Combat Aircraft (AMCAs) and around 200 of Tejas variants). IAF has 40 Tejas on order and another contract for 83 is in the pipeline (Defence Acquisition Council has approved the deal and the Cabinet Committee on Security is yet to finally clear it. The Tejas programme is four decades old and the first Final Operational Clearance (FOC) standard Tejas first flew only in March this year. The naval version of the Tejas (naval Light Combat Aircraft Mk1) demonstrated its first arrested landing in September last year and is expected to be the first indigenous aircraft to be inducted by the Indian Navy. While Tejas plods on to operationalisation, the AMCA is following its lead but, given its public sector parentage, there is apprehension that the AMCA programme will follow a similar pattern and add to the IAF’s frustration. Nonetheless, the current CAS has reportedly given the go ahead to the AMCA programme. HAL is the only industrial complex large enough to handle the Tejas, AMCA, MRFA and any future orders of Rafales, and that is where the problem begins; its record so far has been unexceptional and it does not look like its culture could be altered in an evolutionary process. The IAF needs 300 odd aircraft as soon as possible but, at HAL’s current speed of 10 to 12 aircraft per year, that could take 25 to 30 years; there is a need for HAL to at least double its production rate.
Moving away from combat aircraft, the IAF, under severe budgetary constraints has decided to do away with the option to buy 40 more Hawk and 38 more PC-7 trainers and, on August 11, the Defence Acquisition Council (DAC) approved the procurement of 106 HTT-40 basic trainers developed by HAL (although the aircraft is yet to successfully complete spin trials, an essential criteria for trainer aircraft. Considering the resistance (based on professional assessment) to this trainer by the IAF, the step is a retrograde one for the force while being a brownie point for ‘Make In India’ and ‘Atma Nirbhar’.
The replacement for IAF’s dwindling fleet of HS-748 Avros is the C-295, to be produced jointly by Airbus and Tata in India; a total of 56 are planned and the deal is under process at the acquisition department of the Ministry of Defence (MoD). HAL is also the production agency for the NAL designed SARAS Mk 2 transport aircraft as and when it goes into production; the IAF is ready to buy 15 of these. The decision to keep HAL out of reckoning for this project was atypical and bold but the delay in finalizing the contract has robbed it of its sheen.
The IAF is also processing a case for procuring the HAL Light Utility Helicopter (LUH). India and Russia had entered into an inter-governmental agreement to manufacture 200 Kamov-226T light-utility helicopters in India in December 2015; the deal is reportedly stuck in the technical evaluation stage over the “low level of indigenisation” being offered by Russia. Again, the production is to be undertaken by HAL in a brand new project near Tumkur. A vital programme to develop next-generation airborne warning and control systems (AWACS) that will act as a major force multiplier for the IAF was cleared in 2015 for an estimated Rs 5,200 crore but orders have not yet been placed for the platform.
In the field of UAVs, DRDO organisations such as the Aeronautical Development Establishment (ADE), the National Aerospace Laboratories (NAL), HAL, and Bharat Electronics Limited (BEL) have been working on projects but are yet to produce noteworthy results. Private organisations such as Israel Aerospace Industries (IAI), ideaForge Technology Pvt Ltd, and Edall Systems are involved in the development or part manufacture of these UAVs in collaboration with DRDO. Academic institutions such as the Indian Institute of Technology (IIT) Bombay and IIT Kanpur are also playing a role in the development of these Indian UAVs. However, indigenous progress has been very slow in contrast to the developments worldwide. DRDO’s painfully slow progress and very low levels of technology and the high prices of import have kept military inventories low. In February this year, HAL, Israel Aerospace Industries Limited (IAI) and Dynamatic Technologies Limited (DTL) signed a Memorandum of Understanding (MoU) for marketing, manufacturing and selling of IAI’s Unmanned Ariel Vehicles (UAVs) to Indian potential customers such as Indian defence services, paramilitary forces and central armed police forces at DefExpo 2020.
Civil Aerospace
HAL has been license producing the Dornier Do-228 and had produced a 6200 kg All Up Weight (AUW) version for possible use in the Udey Desh ka Aam Nagaraik (UDAN) scheme but produced another version with 5700 kg and received the DGCA modification document in February this year. This was to meet the civil aviation requirement that a Commercial Pilot License (CPL) holder can fly an aircraft with weight upto 5700 kg, but to fly a heavier aircraft, a pilot requires the higher category of licence (Airline Transport Pilot License, or ATPL). The civil version of SARAS will be produced by or in cooperation with private entities yet to be identified. Both these aircraft are designed to seat 19 — the magic figure up to which civil regulations permit flying without a flight attendant (thus saving cabin crew salaries, overhead costs and a revenue seat lost to an attendant).
Space
Indian successes in space, spearheaded by Indian Space Research Organisation (ISRO), have been spectacular in contrast to the rest of public sector largely because of its direct connectivity to the Prime Minister’s Office (PMO) through the Department of Space (DoS). This arrangement has kept the organisation free of bureaucratic wrangling and bungling. Indeed, ISRO is a ‘Make In India’ success story India can be proud of. There is a gradual tilt towards getting public sector and private participation to further ISRO’s plans; as an illustration, the high strength steel for Gaganyaan has been outsourced to Steel Authority of India (SAIL). Private participation is not yet whole hearted as companies seek more predictability in government policies. One remarkable breakthrough though, has been the test firing of an indigenous, upper stage rocket engine by Skyroot Aerospace, a first for an Indian private company.
Private Particpation
Aerospace is a sector where public sector has ruled the roost till recently when private entities achieved the technology levels and motivation to excel (but not adequate policy and government patronage). They have made impressive inroads into aerospace but the private share was not so much for Indian use as for international clients including the leading OEMs of the world. Tata Group has been making Apache AH-64 fuselages in Hyderabad for Boeing and is planned to produce its first F 16 wing by October this year. Aequs Pvt Ltd and Dynamatic Technologies produce components for aerospace industry and have Airbus and Boeing as their clients. Last year, L&T won a contract from Airbus India to manage its avionics software development, validation, verification and data analytics; it already has a joint venture with Thales, the French aerospace major. The first set of doors covering the engines of Rafale aircraft have been produced by a joint venture between Anil Ambani’s Reliance Defence and Dassault.
The above is just a limited glimpse at the private sector capabilities and not a comprehensive list which is much larger and much more impressive. No Indian private entity has produced a combat aircraft so far from scratch but some including Tata Advanced Systems, Adani Defence, Reliance Defence, Mahindra Defence and Bharat Forge Limited have expressed interest in doing so. HAL is now thinking of outsourcing upto 35% of the Tejas production to private sector and there would be significant tie ups under the strategic partnership scheme for private companies to participate in the upcoming MRFA deal. The stunted growth of private sector has been despite the fact that India’s start up ecosystem is the third most extensive after US and UK. There has been no aerospace R&D by Indian private companies while MNCs have been carrying out R&D in India as the regulatory framework discourages inventive endeavour as patents in the defence aerospace domain are tricky and there is apprehension about the rights thereto.
Foreign Collaboration and Make In India
Foreign Direct Investment (FDI) limits in defence were raised from 24 % to 49% in 2015 and recently to 74% and there should have been a flood of foreign companies ready to invest in Indian defence aerospace but there is just a trickle (when viewed against the potential). It must be mentioned though that the right noises are being made by the MRFA contenders about ‘Make In India’ content if their aircraft is selected. Lockheed Martin says the F-21, if selected, will be produced in conjunction with Tata Group in India; in fact, the company has offered that F-21 will not be sold to any other country and has also offered to help in the AMCA and LCA Mk 2 projects (if F-21 is selected). Boeing likewise promises to set up manufacturing facilities in India if F/A 18 is selected as the MRFA. Saab has a matching offer of building the 96 aircraft (out 0f 114) required to be built in India from scratch.
The million dollar question now is what will be the quantum and texture of the transfer of technology that will come India’s way from the Indian production of the MRFA selected. While India would like to further its ‘Make In India’ and ‘Atma Nirbhar’ agendas by acquiring technologies to start developing and producing own designs, foreign OEMs would zealously guard their intellectual property not only because they have invested considerable time and money into it but also to foreclose the possibility of India becoming a competitor in the near future. The technology transfer aspect should, nay must, be built into the selection process for the MRFA.
On August 9 this year, the Defence Minister announced a list of 101 major war fighting equipment, platforms and systems whose imports are to be progressively terminated from December 2020 to December 2025. One wonders what is the plan for acquiring technology required to do so.
Prescriptive Suggestions
The fundamental flaw in our approaches to indigenisation has been the dependence on the public sector and this is applicable to both — manufacture and R&D. While the public sector’s performance in both areas has been very poor and very slow, the private sector has been wary of investing in the absence of enduring and incentivising policies. If ‘Make In India’ is to move beyond sloganeering in aerospace, the biggest stumbling block is HAL. Its work culture cannot be changed, it cannot be closed down (due to the huge investment and infrastructure), and its presence (and lobbying power) is an inhibiting factor for private enterprise. Indeed, the Indian Navy remains adamant against the inclusion of HAL in the $3 billion deal for Naval Utility Helicopters (NUH), asserting that the company’s product do not meet the force’s requirements.
If a big private player were to enter the aerospace arena, it will take maybe a decade or more to catch up in some spheres of HAL activity but after that, it will leave HAL far behind (and may also goad HAL into increased productivity levels). The news of possible disinvestment in HAL to the tune of 15% is a tid bit to chew on. Meanwhile it is an unhappy compromise of private collaboration with HAL at HAL’s mercy. It is time the PMO took on a more intimate role in aerospace industry so that the loud refrains about ‘Make In India’ and ‘global aerospace hub’ are consummated.
A globally competitive aerospace industry can result only if we invest in R&D; for a long time our R&D as a percentage of GDP has been less than 1%. There is a need to increase it to at least 2% of GDP for India to innovate in aerospace to the extent that it approaches the leading edge of technology. It might be a good idea to include this as an expenditure head of R&D in annual budgets to ensure it is used accordingly. DRDO currently operates 51 laboratories; it is time to start privatising some of them so that their efficiency and productivity can be brought to acceptable levels and budgeted R&D funds utilised maximally.
The Draft Defence Procurement Procedure 2020, a 720-page document circulated in March this year, is a long winded and complex manual fraught with possibility for subjective interpretation; moreover, it does not address R&D but just procurement. It lists 13 different procurement categories as opposed to the two in the original 2002 policy. The overlap in some cases is confusing and intimidating to the private player. As an illustration, Buy (Indian –IDDM), Design & Development and Innovation contain the words “indigenously designed, developed and manufactured” and “designed, developed and manufactured by an Indian vendor” respectively; the differentiating factor is not defined. A lot of hard work has gone into the draft and the government’s good intent is evident but one hopes that the suggestions sought from various stakeholders will be heeded for the final policies and procedures adopted.
Despite HAL’s long experience in aerospace manufacturing, its technology base is mediocre as most production has been under license. Thus, even if the offset policy brings in transfer of technology there are limitations to what can be absorbed and how fast it can be absorbed. At the higher end of technology it would thus be a good idea to involve private houses already engaged in aerospace manufacture as their absorption will be better than HAL’s; this can be done through joint ventures with the foreign OEM contracted with.
The acquisition process needs to be overhauled drastically. From the Statement of Case for a major aircraft deal to Acceptance of Necessity can take up to a year. Request For Information and Request For Proposals and the selection and negotiation process takes 3 to 4 years and the production or delivery takes another 2 to 3 years. The MMRCA process started in 2007 and was declared dead in 2015 with no deal signed. The MRFA (sometimes referred to as MMRCA 2.0) has been in the news since the RFI in 2018 but nothing concrete seems to have happened so far (except the CDS erroneously announcing that the idea had been given up in favour of the Tejas!).
There is also the question of government involving itself in the selection of the Indian Production Agency under the Buy and Make category, this issue needs to be resolved through the choice being left entirely to the foreign OEM. This will bring out the best productivity results as the OEM’s business sense will elicit the best partner in India; it will also eliminate the possibility of the OEM blaming the government when things do not go as envisaged in the contract.
There is also the issue of a low defence capital budget — inadequate for badly needed aerospace products and, as a corollary, HAL’s huge complexes being left with less than capacity workload looking ahead into the near future. A high priority needs to be given to the critical needs of the defence forces.
Conclusion
There is no doubt that India’s lure of low production costs and a government promoting ‘Make In India’ has the attention of global aerospace OEMs. It depends on India now to exploit this opportunity to further its own goals of ‘Atma Nirbhar’ and technology acquisition so that it can attain a podium position in the global aerospace market. Our bureaucracy’s application to this exercise is sorely needed; as an illustration, as pointed out by Comptroller & Auditor General (CAG) report released in November 2019, there were glaring errors and non-compliances in the procedures followed for MMRCA. There is also the issue of the government waiving off critical provisions of anti-corruption penalties and over ruling financial advice on making escrow payments before signing the 36 Rafale deal with seemingly inadequate diligence and discussion. One hopes that the MRFA deal will be conducted after incorporating lessons from the failed MMRCA deal. Leading edge aerospace technology can only come through technology transfer built into new aircraft deals including engine technology which has eluded our R&D so far; the other route of original research will take a long time even if budgetary provisions are increased from present 0.7% of GDP to 2%. Unless we develop or acquire that level of technologies, our aerospace programme may, in letter, be ‘Made In India’ but will fall short of the spirit of ‘Make In India’.
Source:
This article first appeared in the Indian Defence Review.