The latest initiative of the Defence Ministry to manufacture arms and ancillaries indigenously is not likely to benefit smaller companies as touted by the Centre
G Manoharan, proprietor of Anu Industries based in Chennai is rather flummoxed. He had come to the Defence Industry Development Meet flagged off by Defence Minister Nirmala Seetharaman, with hopes of boosting his business.
The Meet was touted to be a new Make in India initiative by the Defence Ministry to make parts and ancillaries for the Army, Navy and the Air Force within India itself. “We are the third largest importers of defence products in the world,” said Minister Seetharaman when she inaugurated the event on January 18. “We are importing products to the tune of Rs 45,000 crore. If we make these products in India itself, it will generate employment,” she said.
The Ministry had delisted 143 items from the Reserved List – these products can now be made by any Indian company that expresses interest.
What was to be a grand innovation though, found more sceptics than enthusiasts. Manoharan, for instance, is doubtful about how he would execute any of the projects thrown open to the public. “I already manufacture some components for the Heavy Vehicles Factory in Avadi,” he told The Lede. The Heavy Vehicles Factory manufactures tanks for the Indian Army.
“To meet the Army’s standards is very difficult,” he continued. “I have invested Rs 1 crore in my current project for HVF. I thought I would be able to increase my business with the Defence Ministry through this new opening. But it will require too much investment from my side. I think if the government can arrange initial capital for us, only then we can contribute to this project,” he said.
This view is echoed by many other medium and small entrepreneurs who were hoping to bag contracts from the Defence Ministry. The problems are many.
The first problem is with certification – for instance, any component used in the defence aircraft must be certified ‘air-worthy’ by the HAL (Hindustan Aeronautics Limited). In order to get this one certificate itself, these small companies would have to upgrade and improve lab and other infrastructure – this involves a large investment, something which entrepreneurs say is not within their means.
The second problem is that many components within the existing defence equipment are made by foreign companies. An example is the ‘fire control system’ within the T-90 tanks manufactured for the Army. This system is Russian technology. If an Indian entrepreneur wishes to bag the contract and manufacture the same ‘fire control system’ indigenously, he/she would have to communicate with the Russian Army to get the requisite details of the technology and design. This is not possible for a small or medium entrepreneur to accomplish.
The third problem is in terms of volumes. The easiest contract for local entrepreneurs to bag is that of clothes, uniforms, shoes and belts for the Armed Forces. “This is something that can be done easily but because of the large volumes, the contracts will go only to the big players and we will not get them because of scale,” said Anil Menon, a vendor who attended the event. “Whatever we, as smaller companies are able to do, is not feasible in many ways for us.”
The fourth problem is that the design and prototype making process itself is a very expensive one. “The Defence Ministry may be open to the idea of start-ups and small and medium entrepreneurs coming up with fresh designs, but hiring a weapons expert, designer and creating a prototype using the right materials would be well beyond the means of small firms,” continued Menon. “It is too much of a risk for people like us,” he said.
So if the Defence Ministry’s latest Make in India project is not finding takers amongst the micro, small and medium enterprises, or start-ups, which it is meant for – who then will make in India?
“This is a helpful but premature scheme,” V Sundaram, president of the Coimbatore District Small Industries Association (CODISSIA) told The Lede. “Defence is a different kind of sector. It is not like the automobile sector. We cannot simply take parts and give it to the Defence Ministry directly. We need to engage with the integrator, where the whole equipment or weapons are being built. For example, let us say we are supplying rotors for a defence aircraft. There needs to be a large company that gets the order for that and then all of us smaller companies can prepare the parts needed for the rotor and then give them to that one large company. But we do not have that kind of integrator,” he explained.
“The Defence Ministry has promised to allocate a fund of Rs 20 crore to train small scale industries. We have just started. It will take at least 2 years for any progress. We have to restructure our setup entirely to be equipped for defence production,” he said.
So Who Benefits?
India is a USD 1.5 trillion market for the global arms industry, according to news reports. In 2016, as part of their flagship Make in India scheme, the NDA government at the Centre began to open their doors for private firms to work with the Defence Ministry – for instance, until 2016, only the Mazagon Dock Limited, a public sector undertaking could build warships and submarines. Aircraft for the armed forces
could only be manufactured by HAL. Since 2016, private firms such as L&T have been allowed to enter the shipbuilding arena for the Defence Ministry.
As a result, large corporates began to enter the defence sector. Anil Ambani bought over Pipavav Defence in Gujarat in 2016 and named it Reliance Defence and Engineering Limited. In 2017, the company changed its name to Reliance Naval and Engineering Limited and is engaged in building ships for the Navy and Coast Guard.
Gautam Adani too has forayed into the defence sector, hot on the heels of the younger Ambani, with his Adani Aero Defence Systems and Technologies Limited. They have tied up with an Israeli firm for production of Unmanned Aircraft Systems in India.
In 2017, engineering and construction firm L&T also announced that they would focus more on the defence sector. Their joint venture, called L&T-MBDA Missile Systems Limited, is working closely with the Defence Ministry to develop missiles.
Mahindra & Mahindra as well as the Tata Group, which have already been making vehicles for the Armed Forces since the early 2000s, have also begun to invest more in the defence sector.
Defence experts say that this move of opening up the sector to MSMEs (Micro, Small and Medium Enterprises) is mainly to bolster the fortunes of the large corporates as listed above who have the capacity to manufacture arms and ammunition.
“Since 2016, the changes in defence procurement procedure opened up the sector for big companies to enter defence manufacturing,” said KV Prasad, senior defence correspondent. “Big companies though cannot manufacture every component. They need to depend on smaller companies for parts. It will help both the big corporates as well as the small companies. Since 2000 itself, the Centre has attempted to do public-private partnerships in the defence sector. The outcome has not been as planned. At the same time, it is unclear as to how they will protect national security and defence security with this move,” he said.