INDIA NEEDS TO UPDATE ITS OUTDATED DEFENCE PRODUCTION SYSTEM.
The state-owned production system is inefficient from a financial standpoint, produces subpar goods, and jeopardises India's long-term security.
In the Indian situation, foreign powers have engaged in cyber attacks, electronic warfare, illegal circulation of counterfeit money and media manipulation to exacerbate internal divisions in the country. To counter such a multitude of threats, India needs to build a comprehensive national authority. More than ever, this power is a combination of economic, industrial, scientific, technological, innovative, military and intelligence capabilities.
External and Internal Threats
India is the only country bordering two nuclear powers: China and Pakistan. India also shares a maritime border with Pakistan.Pakistan, a country formed after the partition of British India in 1947, was inherently hostile and constantly opposed to the very idea of India. It fought wars with India in 1948, 1965 and 1971. A little over two decades ago, it destroyed a promising Indian peace initiative by seizing strategic land in Kargil, an Indian district of Ladakh, leading to a limited but bloody conflict in 1999, and the bitter bone of contention between India and Pakistan is Kashmir. A self-proclaimed haven for Muslims, Pakistan refuses to recognize Kashmir as part of India.He supported an armed insurgency as part of his strategy to bleed India dry with thousands of cuts. Pakistan's goal is to carve up its largest neighbor, starting with Kashmir. In the 1980s he supported the bloody Punjab uprising that eventually collapsed. Since then it has doubled in Kashmir.
Pakistan's fixation on India has defined its foreign policy from the start.During the Cold War, Islamabad allied with the US, primarily to conquer Kashmir from India. In recent years, it has allied itself with China to counter India in any way it can.
China's relationship with India is becoming increasingly complicated. This is explained by the great competition for power. It began as early as the 1950s when the two countries emerged from the shadow of imperial powers after two centuries of rule.In 1962, India lost to China in a short but traumatic war. Since then, the two countries have not agreed on a border, and the Chinese have become increasingly aggressive in nibbling at Indian territory in recent years. Basically, China's game plan is simple: China wants to become a superpower and a rival to the United States. He wants to block India's development as an Asian power and rival in the region.
Like any large and diverse country, India faces many internal security challenges.The insurgency remains a serious threat in Kashmir and the north-eastern region of India bordering Bhutan, China, Myanmar and Bangladesh. Since the 1950s, India has been in the grips of a Naxalite communist insurgency. Islamic extremism, supported and instigated by foreign powers and jihadist organizations, particularly by Pakistan and its proxies, is on the rise. India's long coastline makes it extremely vulnerable to terrorist attacks, as demonstrated by the 2008 Mumbai massacre.
Faced with these threats, it is clear that India needs a strong security apparatus made up of military, police and intelligence agencies. Importantly, the country also needs a robust arms manufacturing apparatus for three reasons.
First, India must be able to create the essential conditions for its armed forces to be combat ready. Otherwise, India would be dependent on imports and at the mercy of foreign suppliers, especially in critical times. Second, India must benefit from the new technologies and dual-use capabilities emerging from the defense industry, as France, Russia and the United States have repeatedly demonstrated.They have a multiplier effect, strengthening the country's technological base, boosting economic growth and creating new jobs. Third, given conflicting budget demands, lack of foreign exchange reserves, dependence on Middle Eastern oil and pro-social policies, India cannot rely solely on the Treasury Department to ensure its defense readiness. Private sector involvement in defense production is therefore a sine qua non.
History of Defense Manufacturing in India
India has a credible history of defense manufacturing spanning more than two centuries. In 1801 the British established a tank factory which started production in 1802 and is still in operation today.The First World War gave the British the impetus needed to increase production. The number and size of these factories increased dramatically by the end of World War II. Defense installations and their administrative structure, namely the Ordnance Factory Board (OFB), are another legacy of the British, as are the Indian bureaucracy, judiciary and military.
After the defeat of 1962, India established a number of Public Defense Sector Companies (DPSU). These are state-owned and operated entities.Like most other government institutions, these institutions have never been motivated to excel. They were not even able to partially meet the needs of the armed forces. Hence, India continues to import critical equipment from overseas Original Equipment Manufacturers (OEMs). Foreign OEMs have earned the military's trust for quality, delivery time, and even confidentiality. India continues to pay heavy royalties on technology donated to manufacture imported equipment at DPSU.
These foreign OEMs are mostly privately owned but enjoy strong government support. However, India has not shown the same level of confidence in its private sector companies. Although India liberalized its economy in 1991, it wasn't until 2001 that it allowed the private sector to get involved in defense. Almost 20 years later, private sector output of 170 billion rupees ($2.27 billion) is only about 21.3% of the 800 billion rupees (US$10.67 billion) of the total defense sector. Most of this production is made up of low-value goods.
While the US relies on Boeing, Raytheon and Northrop Grumman for many new defense technologies, India has left the task of developing these technologies entirely to its Defense Research and Development Organization (DRDO). In theory, India should produce high quality and advanced defense materials with institutions like DRDO. The reality is very different.
In short, the machinery currently available to India to meet the needs of its defense services is grossly inadequate. With border security conditions deteriorating and internal threats mounting, that failure could prove catastrophic. In the past, India's failures led to colonization.Tomorrow this could lead to balkanization.
What happened? The
armaments factories are India's oldest armaments factories. They produce a wide range of equipment and accessories. They are administered by the OFB and are subject to the administrative control of the Ministry of Defence.These OFB factories are operated by Indian Ordnance Factory Service (IOFS) officers who are part of the Indian Civil Service. They are general administrators with little technological knowledge.
Like most governments, OFB is not responsible for quality, speed and efficiency. There is no pressure to generate a return on public investment. OFB places little emphasis on operational efficiency and cost efficiency has rarely been part of their calculations.They don't even prepare annual income statements or balance sheets. They operate in complete opacity as monopolists with enslaved buyers.
The General Directorate of Quality Assurance (DGQA), another colonial legacy, is responsible for ensuring the quality of products made by OFB factories. Like the OFB, it is under the administrative supervision of the Ministry of Defence. This provision is wrong.Although OFB is the manufacturer, the DGQA is said to be responsible for the quality of OFB products. Armies are consumers, but they have no right to judge the quality of the products they use. DGQA does not produce or consume and is not responsible for the poor quality or any problems. It is bureaucratic, inefficient and incompetent. Over time, the DGQA has even earned a disgusting reputation for its honesty.This has serious implications for India's national security.
Many Indians have long recognized the need for reform. Recently, OFB has been proposed to become a public sector company. This would give 33 Indian munitions factories in the DPSU. It is important to note that the DPSU itself, as discussed above, was a failure.This reform is ill thought out, sloppy and doomed to fail.
The problems of the post-1962 DPSU model are also profound. They also operate as monopolies and their enslaved customers are the military. DPSU employees enjoy full job security, they are not liable for quality, delays or cost overruns. Strong unions resist all reforms. DPSU units operate in an environment of lacking financial discipline.A reasonable return on investment does not have to be generated and ongoing losses do not lead to closure. These losses have become a permanent drain on government coffers, consuming taxpayers' money that could have been spent on health care, education or infrastructure.
To be fair to the DPSU, they are not responsible for all of their shortcomings. They have no autonomy in managing their organizations. The Department of Defense handles recruitment, promotions, salary structure and investment decisions.DPSUs do very little internal research or development. Instead, they rely on DRDO or foreign licenses. The government's appointment of senior executives is all too often viewed as patronage. Performance and success often become secondary issues, and sometimes interventions to promote a social justice agenda undermine DPSU performance.
This achievement has dangerous consequences.When a soldier guarding India's borders receives inferior DPSU products, it reduces their combat capability. DPSU's lack of accountability for quality, timely delivery and cost control undermines India's national security. If an aircraft manufactured by Hindustan Aeronautics Limited (HAL) breaks down in flight and the pilot dies, the country will not hold HAL responsible. This means that DPSUs have no incentive to meet quality standards. Licensed products are also subject to unimaginable delays and extreme cost increases.For example, Germany can build a submarine that passes all tests in two years. In contrast, it takes more than 10 years for Indian DPSUs to assemble partially disassembled kits. It took DPSU forever to produce the Arjun, India's premier main battle tank, though most of its critical components were simply imported.
Whose fault is it?
Undoubtedly, the fault does not lie solely with the DPSU.There are deeper reasons why India has not even achieved a reasonable degree of self-sufficiency in the key area of defense manufacturing and its defense research and development capabilities.
First, India has a narrow scientific and technological base. Since the mid-1990s, India has invested less than 1% of its GDP in R&D. On the other hand, China is steadily increasing its R&D spending, exceeding 2% of its GDP.
It should be noted that China's GDP has grown faster than India's and is now four times that of its southern neighbor. Thanks to increased spending, China now produces products that are sold around the world.
Indian industry, on the other hand, continues to struggle to sell globally and lacks skilled workers. India's best tech talent keeps moving to greener pastures. Apart from a few companies, none of India's glorious IT companies have developed a flagship brand or reputable product line. The situation in manufacturing is even worse.
Second, India suffers from a shortage of skilled labor to carry out even the most basic industrial activities.An outdated education system puts millions of employees out of work. Technical jobs such as machining, plumbing, electrical, mechanical, and quality assurance are considered junior jobs. Even engineers from large institutes rarely strive for a practical job profile. They prefer to go into management or public service.
India urgently needs workers with advanced manufacturing skills.The few qualified technicians are very valuable. The public and private sectors compete for them. IT thought leaders like Narayana Murthy have often complained that the Indian education system does not produce employable candidates and that private companies are forced to set up in-house training institutes.
In order to intensify and improve the quality of industrial production, India must raise an army of skilled workers. This would lead to a cultural revolution in both industry and education.
Some Solutions to Defense Production Problems
In fact, the real answer to this problem is privatization. Taxpayers' money must not be wasted on inefficient munitions factories or DPSUs. If the military could choose suppliers in a competitive market, the taxpayer would save significant sums of money. In addition, the military would have the opportunity to source high quality products with the highest standards. Those opposed to privatization should bear in mind that India buys all of its high-end defense equipment from private players, well-known OEMs such as Dassault Aviation's Rafale jets and BAE Systems' M777 howitzers.
Not all ammunition factories can be converted into DPSU and not all DPSU can be privatized. Units that cannot be pushed back must be decommissioned. Also, not all DPSUs need to be privatized. Some would be in key strategic sectors and would require professional management and operational autonomy. A portion of their holdings could be sold in the market to introduce financial discipline and competitiveness into these PSUs.
Like any successful corporation in the world, the government should authorize the boards of the DPSU and give them operational autonomy. Each DPSU council should be able to choose its leadership and keep its feet close to the fire. DSUs must select leaders from an open market that offers competitive compensation, benefits and incentives. Likewise, they only have to hire other employees based on performance and merit. The board should set high performance standards for employees and promote a culture of excellence Board and management must exercise financial discipline to achieve a return on investment.
units of the DPSU must also conduct their own research and development. That doesn't mean they stop working with DRDO. It simply means that they are accountable for all aspects of their actions. They can and should cooperate with other institutions, especially DRDO, but one zloty depends on them for all aspects of their activity.In addition, DSUs must be able to raise capital in the form of equity and debt on the capital markets. Their stock value and debt rating will reflect the true value of their company, holding DPSU management accountable and forcing them to perform at their best.
The DRDO should, in theory, develop the world-class defense technologies that India needs to reduce its import dependency. In fact, DRDO has yet to establish itself as a reliable source for technologically advanced, battle-ready products that can more than compete with its opponents. Of course, there are notable exceptions, particularly when it comes to rockets and guided missiles.DRDO needs to replicate these achievements in other areas.
Like the DPSU, the DRDO also needs operational autonomy. The heads of the DRDO must be able to hire and fire, set salaries and standards, and manage the organization in the best possible way to produce the technology needed by the Indian Armed Forces. At the same time, DRDO must be held accountable for its actions. Their main task is to produce domestic technologies and reduce dependence on imports. Furthermore, given the growing threats to India's national security, DRDO must achieve this in a tight timeframe.
The DGQA has become completely obsolete. This colonial institution must be dissolved. The consumer of the product should have the right to decide if the product is good enough, while the manufacturer should be fully responsible for the quality and delivery of their supplies. The producer must also be punished for his mistakes. In practice, armies using defense products need to be able to choose products and manufacturers.They should also be able to take legal action and seek compensation or penalties if manufacturers deliver products that don't meet their quality standards.
Finally, the defense sector needs some of the same reforms that one of the authors proposed in a May 5 note to the Prime Minister. In her own words, India must “no longer choke off supply-side activity”. Indian entrepreneurs are doing well in the world. It is time to unleash India's entrepreneurial energy in the defense sector as well.This will improve quality, reduce costs and make India safer for years and decades to come.
India has failed for too long to foster a culture of excellence by allowing mediocrity to thrive. He scoffed at merit and achievement while tolerating inefficiency and dishonesty. This has done great damage to the country's economic progress and the well-being of its people. This culture has threatened national security.Hence, India needs to focus on developing a culture of excellence across all sectors. Faced with the multitude of threats, the defense industry must be a sector that becomes a model of excellence for this new culture of excellence.
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