Modi Government has liberalized the defence aerospace Industry for India’s private sector. It is now time for India’s entrepreneurs, technocrats, industrialists and technology institutes to deliver and make India an aerospace industrial powerhouse
In September 2021, India’s highest decision-making body on security affairs, namely the Cabinet Committee on Security (CCS) cleared an estimated $2.5 billion proposal for acquisition of 56 C-295 medium tactical transport aircrafts for Indian Air Force. Barely a few days before that, it was reported that Indian Army has signed a contract with India based Alpha Design (partnering Israel’s Elbit Systems), for acquisition of 120 Sky Striker loitering munitions with ability to strike targets around 100 km away. During the same time, the Indian Army also signed contract with Bengaluru based NewSpace Research and Technologies for acquisition of swarm drones that are capable of synchronized attacks. Likewise, the Indian Army also signed another contract with India based startup Raphe Mphibr for swarm drones that are capable of both drone-based surveillance and payload transport. Meanwhile, Indian Army, Navy and Air Force also signed contracts for anti-drone systems with defence PSUs like Bharat Electronics Limited and startups like Zen Technologies.
This month, it was also reported that Indian Navy has signed a Memorandum of Undertaking (MOU) with NewSpace Research and Technologies for exploring potential development of future combat drone systems. Meanwhile, HAL is collaborating with NewSpace Research and Technologies for development of Combat Air Teaming Systems (CATS) UAVs that can be launched from land, aircraft carriers or fighter jets acting as motherships, and are aimed at undertaking strike missions as well as surveillance missions.
The CCS clearance for C-295 aircrafts was followed by clearance for a Rs 11,000 crore project to DRDO for development of six Airborne Early Warning and Control (AEW&C) aircraft on Airbus A-319 platforms that would be acquired from the existing fleet of Air India. Earlier this year, in January 2021, CCS had also cleared the Rs 46,898 crore deal for production of 83 Tejas Light Combat Aircraft (LCA) MK-1A by defence PSU HAL for Indian Air Force. In that same month, Indian Army had signed a $20 million contract with another Indian drone startup namely ideaForge Technology for an unspecified number of fixed wing SWITCH surveillance drones.
The above-mentioned cases are but a few of the innumerable such developments that are driving India towards developing its own aerospace industrial complex.
The Pivotal Point
In both the cases of clearance for 83 LCA and 56 C-295, the most interesting part of the story is not just about how they help IAF shore up its combat and tactical transport capabilities in the long run but also about how both these platforms namely, the LCA Tejas and C-295 would be playing key roles in developing the much-needed aerospace industrial complex along with a viable domestic supply chain consisting of a large array of tier-1 and tier-2 vendors, mostly from the private sector. It is not that the supply chain was entirely non-existent before this but its scope was limited because of various factors including the fact that for more than seven decades, successive governments in India did not show any inclination to develop a military industrial complex within the country, never took the private sector into confidence and depended on a limited number of state owned defence undertakings which seldom delivered quality, and requisite quantity, on time that resulted in India’s perpetual dependence on imports. But now things are changing.
The C-295 Deal and the Tata Factor
To understand the metamorphosis that is gradually taking shape, let us first take the case of the deal for 56 C-295 medium tactical transport aircraft. The most unique aspect of this contract is that it would be for the first time that a time-tested military grade tactical transport platform, of considerable tonnage, would be manufactured entirely in India and that too by an Indian private sector entity in collaboration with Airbus Defence and Space.
While the first 16 would be procured from Spain, the remaining 40 would be made in India by a consortium of Tata Group companies, which over the last few years have steadfastly worked to develop aerospace proficiency by emerging as a key supplier of critical components for global aerospace majors like Lockheed Martin. Incidentally, it is a foregone conclusion that once the project starts rolling, the deal for 56 C-295, for replacement of Avro HS-748 fleet of IAF would be complemented by potential future deals to eventually replace India’s ageing fleet of AN-32s, around a hundred of which are in operation with IAF, and which has suffered disruptions in its upgradation program owing to deteriorating relation between Ukraine and Russia. Therefore, India eventually procuring around 150 C-295, and possibly more, for IAF’s tactical transport operations, Indian Coast Guard’s maritime surveillance operations or even AEWACS programs of IAF, remains a distinct possibility, thereby making India the potential future global hub for C-295 production. This invariably is going to have a major positive impact on India becoming a key player in global aerospace supply chain in future.
The LCA Tejas Saga
Modi Government’s approval for acquisition of 83 LCA MK1A has been both a game changer and like a life-saving exercise for India’s indigenously developed combat jet platform. In the run up to the Lok Sabha elections in 2019, much hue and cry were made by some of the opposition political parties on why India was directly procuring Rafales from France instead of making them through HAL in India. A lot of allegations, eventually proved to be junk, were made that time as to how HAL was being ‘deprived’ (sic) of contracts.
Two years down the line, in January 2021, by signing a Rs 46,898 crore contract with HAL, Modi Government once again exposed the bluff of his detractors. Not just that, it is only a matter of time before similar contracts are signed by Central Government with HAL for indigenously developed Light Combat Helicopters (LCH) and Light Utility Helicopters (LUH, running into several hundred units, worth several thousand crores, and for which a separate helicopter production facility has been developed by HAL in Tumakuru, Karantaka.
In fact, one may say that it was Modi Government which gave a fresh breath of life to the Tejas program. The ball is now in the court of HAL to not just deliver both the MK1 (previously contracted deal) and MK1A series on time but also to develop the Mark II version and AMCA in given timelines. HAL knows that its ‘good old days’ of working at its own pace and leisure is almost over as India is on the cusp of creating a domestic aerospace production industry wherein HAL would just be one of the many players. If it performs, innovates and deliver quality products within scheduled timelines, it would survive. Or else, it would face a similar fate like BSNL in the face of competition from India’s private sector with deep pockets, unwavering professionalism and impeccable industrial proficiency.
The Tejas Supply Chain Development
Nevertheless, HAL has a golden opportunity to emerge as a systems integrator and utilize the proficiency of private sector majors for making key components for the Tejas program.
As per media reports published in the recent past, HAL is roping in L&T for making wings of the LCA, Dynamatic Technologies to make the front fuselage and ‘main body’, while Alpha Design Technologies is expected to make the rear fuselage. As per reports, of the entire deal for 83 LCA MK 1A, an estimated Rs 6,000 crore of sub-contracts for subcomponents would be going to the MSME sector while another Rs 3000 crore worth of contracts for ground support equipment and related stuff, would be going to major Indian companies partnering HAL.
Given the pace at which China is modernizing its air force, one should not be surprised if in the near future, Government of India ropes in private sector majors, and bifurcate production of Tejas MK2 and AMCA, as well as MRCA projects between HAL and private sector players, or entirely entrust the private sector for production of certain combat platforms, because India’s future security cannot be at the mercy of the disappointing production rates of state-owned PSUs. The Government of India has made it clear by dismantling OFB.
The Rafale Offset Impact
In September 2016, Government of India entered into a Government-to- Government deal with the French Government for procuring 36 Dassault Rafale combat jet at an estimated cost of Rs 59,000 crore. Even through the jets were to come directly from France, after being manufactured at Dassault’s Bordeaux-Merignac facility, a key clause of the contract has been the 50% offset clause wherein Dassault and its tier-1 OEM vendors such as Saffran, Thales and MBDA were to set up joint ventures with India companies for fulfilling the near Rs 30,000 crore offset obligations that included production of aerospace related components either for Rafale platform or for other related platforms in the realm of aerospace sector.
As part of this plan, and as per media reports, Thales initiated the process to set up joint ventures with BEL, Samtel, Reliance, L&T Spectrum, Astra Microwave and Cyient, to name a few. Meanwhile Dassault Systems, the lead systems integrator started the process to collaborate with Lakshmi Machine Works, Mahindra Aerostructures, Defsys, Reliance Aerospace Limited, L&T, Malini Precision and Wipro Infrastructure Engineering among others, while Saffran set up ventures with Bharat Forge, HAL, Godrej Aerospace and several others.
In all, more than one hundred Indian companies are offset partners for the Rafale deal. The primary objective of offset clause for many such deals was not just to source a set of components from India for platforms being procured by India from foreign OEMs (Original Equipment Manufacturers) but also to make sure that eventually many of these Indian companies become key player in the global defence industrial supply chain.
Emulating the Automobile Sector Template
In fact, the template of offset obligations that were meant to source components from Indian ventures was planned to emulate the model followed by India’s automobile industry wherein, many of India’s ancillary, sub-systems and component suppliers in the automobile sector, who were initially only supplying to Indian companies, eventually became global players. Most of the names such as Motherson Sumi Systems, Balkrishna Autos, MRF, Sona BLW Precision, Endurance Technologies, Minda Industries, Exide Industries, Apollo Tyres, Amara Raja Batteries, Sundaram Clayton, Varroc Engineering, Suprajit Engineering, JK Tyres & Industries, Eveready Industries, and Sandhar Technologies, to name a few, may not be household names but are key players in the global auto-component supply chain. Their upward graph of success has gone hand in hand with that of many of the automobile majors of India, who initially were either mere local players or junior partners of global giants for Indian market but eventually emerged as major players on their own in the global arena. Names such as Tata Motors, Mahindra & Mahindra, Hero Motors, Bajaj Auto, TVS Motors, Ashok Leyland, Force Motors or Eicher Motors need no elaboration separately given their stature today.
From offset gains to Atmanirbhar in defence production
In August 2020, Modi Government took a giant step in terms of setting up the roadmap to completely do away with India’s dependence on defence related imports. It came out with the first list of 101 items that were put in the negative list of imports in the realm of defence procurement, as part of Atmanirbhar Bharat policy. The embargo that would be implemented in a calibrated manner over the next few years is aimed at making sure that almost the entire spectrum of weapons systems and related platforms that are procured by the Indian armed forces would be sourced from Indian manufacturers who can either make those products on their own in India, or in collaboration with foreign OEMs while necessarily making sure that a lion’s share of the equipment is made in India.
The initial list of 101 items were complimented by another list of 108 items that was added in May 2021. The overall list thus included the entire gamut of systems and subsystems, both offensive and defensive, such as artillery guns, surface-to air missile systems, cruise missiles, offshore patrol vessels, sensors, corvettes, helicopters, airborne early warning systems, radars and tank engines among others.
This policy, in addition to dismantling of OFB, and ending its monopoly over hundreds of items that hitherto the armed forces had to mandatorily procure from OFB, often at highly inflated rates, has given a major filling to Indian private sector which now has got the level playing field and is poised to leapfrog India into a major military industrial powerhouse over the next one decade or so.
It is PM Modi’s vision for developing a resilient domestic defence supply chain that has made India take the initial baby steps towards putting reliance on Indian companies to make quality products in India, either on their own or in collaboration with foreign vendors. Also, it is this faith on ‘Make in India’ that has been reflected in some of the recent acquisitions of drone and anti-drone systems by Indian Armed Forces from Indian companies.
Not just aerospace, In the realm of artillery, small arms, rockets and military grade accessory manufacturing, India’s private sector is showing promising results.
Also, the decision of Government of India to allow 74% FDI in defence sector paves way for major investments of global aerospace industrial giants to set up production facilities in India that would also help in facilitating transfer of technology and development of the sector on the likes of India’s automobile industry.
Recently, it was reported that French defence major Thales would be investing $1.2 billion in India over the next five years and a major portion of the same would be in drone sector. Such investments ensure that even when India buys a strategically important weapon system from a foreign defence vendor, it is manufactured in India, the critical supply chain is created in India and technical knowhow is absorbed by India gradually.
Missile development by private sector
In April 2021, DRDO, under the Development cum Production Partner (DCPP) programme, allowed the private sector to codevelop and subsequently produce missile systems for Indian armed forces, in collaboration with DRDO. Since DRDO already has similar arrangement with private sector majors for product development in the realm of infantry combat vehicles (such as Tata WhaP) and artillery (ATAGS with Bharat Forge and Tata SED), taking it forward to missile co-development is a natural conclusion. In fact, the Indian private sector already has considerable experience in mass production of rocket systems. India’s Pinaka Multiple Launch Rocket System (MLRS) designed and developed inhouse by DRDO are being produced by Tata Power and L&T. Therefore, for the likes of such companies to scale up and develop missiles might not be too uphill a task. Once private sector takes up that onus, DRDO then can focus more on next generation warfare planning and futuristic weapon systems development like DARPA of US.
Opening up of the Space Sector
It is also important here to mention that the decision of Government of India to open up the space sector to private players is also a major fillip for India’s nascent aerospace industry. ISRO, even though has created a special niche for itself globally, having successfully placed more than 100 Indian satellites and more than 300 foreign satellites in space through more than 100 space missions, ideally should now focus more on deep space explorations, future manned missions and related research work while letting the private sector take over the development and launch of mini, micro and polar satellites.
Further, reorienting India’s space programs from a ‘supply driven model’ to a ‘demand drive model’, through the creation of New Space India Limited (NSIL) and Indian National Space Promotion and Authorisation Centre (IN-SPACe), India may eventually witness client specific satellite launches for specific purposes to cater to the requirement of the economy.
A day may eventually come where from funding to development to subsequent launching of satellites would be done by India’s private sector itself. Given India’s industrial proficiency, solution driven frugal engineering approach and vast entrepreneurial ecosystem, there lies a tremendous potential for India’s startups and industrial majors to come up with most effective space solutions, development of reusable space vehicles as well as create the next generation of homegrown Space-X kind of entities that may revolutionise not just space programs but also how people travel from one place to another. Also, there lies tremendous opportunity for convergence of India’s entities working in the development of military and civilian aerospace systems through civil military fusions and create a series of futuristic Indian companies that would play a critical role in the global aerospace and outer-space program supply chain in times to come.
A Liberalized Drone Policy has set the ball rolling as well
Last but not the least, another critical decision of Modi Government that is set to play a major role in making India has major aerospace power is the new Drone Policy announced by Government of India. The preamble of the drone policy notification released by Ministry of Civil Aviation states the following,
‘Unmanned Aircraft Systems (UAS), commonly known as drones, offer tremendous benefits to almost all sectors of the economy like – agriculture, mining, infrastructure, surveillance, emergency response, transportation, geo-spatial mapping, defence, and law enforcement etc. Drones can be significant creators of employment and economic growth due to their reach, versatility, and ease of use, especially in India’s remote and inaccessible areas. In view of its traditional strengths in innovation, information technology, frugal engineering and huge domestic demand, India has the potential to be global drone hub by 2030.’
The drone policy has been significantly liberalized to enable the drone to act as a critical force multiplier for the Indian economy through its proficiency in seamless last mile connectivity. With an estimated 150-200 drone-based startups operating in India, with India being home to almost 100 odd drone manufacturing companies, as per reports, with venture capital companies now showing unprecedented keenness to fund drone startups post the release of the new drone policy, and with major Indian conglomerates like the Reliance Industries, Adani Group, the Tatas and Kalyani Group taking active interest in this sector, the possibilities of India’s drone industry are immense. This becomes even more profound with Government’s keenness to support some of the most promising Indian startups in the drone sector to create the cutting-edge systems for future non-contact warfare.
By buying an estimated Rs 640 crore worth of drone and anti-drone systems from Indian players in the recent past, Indian’s armed forces have also reposed their faith on them. Drones meanwhile are expected to play a key role in medicine delivery in remote areas and in the overall ecommerce sector.
Also, Modi Government’s decision to end government monopoly on cartography and geospatial data has opened a plethora of opportunities for India’s drone sector to conduct aerial surveys and create specialized products such as digital maps and client specific data for sectors such as logistics, transportation, ecommerce, agriculture, forestry and municipalities.
Backward integration for R&D
The market for both civilian and military grade systems having been created, it is time for developing a strong research base for drones in India and a robust supply chain for drone components, most of which though are sourced from abroad yet. It is expected that as the supply chain for aerospace industry would develop, as an offshoot of the same, the supply chain of critical subsystems and components of drone sector would improve as well. The only thing left is for the Government to allow private sector to take the plunge in development of Medium Altitude Long Endurance (MALE) and High-Altitude Long Endurance (HALE) drone systems because this is one area where the Chinese have considerable edge over its Asian peers.
Time for Industry to deliver
Like many other areas of defence industry that has been unchained and unleashed by Modi Government for India’s private sector, wings of India’s aerospace industry have been unchained too. It is now for India’s entrepreneurs, technocrats, industrialists and technology institutes to deliver and make India the aerospace industrial powerhouse that it deserves to be.
The Indian industry through its success in manufacturing in sectors automobiles and consumer durables have demonstrated its proficiency in the past. Their ensuing success in making India an aerospace player of reckoning is hopefully only a matter of time. Perhaps that day is not far away when India can boast of its home-grown commercial jetliners as well.
(The writer is a well-known policy analyst and commentator who writes extensively on policies, governance, defence and strategic issues. Views expressed are his own)