17:57 GMT16 July 2020
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    To curb dependency on defense imports, the Indian government has taken steps over the last few weeks to ease defense manufacturing rules for private companies. Experts wonder if the government knows the risks it runs into by rushing into privatizing defense contracts without testing the companies.

    New Delhi (Sputnik) Among the measures taken by the government, the strategic partnership policy (SPP) has been the chosen route by nominating private defense companies as “strategic partners” for building major weapons platforms including fighter jets, helicopters, submarines and armored vehicles.

    The SPP envisages, “establishment of long-term strategic partnerships with qualified Indian industry majors through a transparent and competitive process wherein the Indian industry partners would tie up with global original equipment manufacturers (OEMs) to seek technology transfers and manufacturing know-how to set up domestic manufacturing infrastructure and supply chain.”

    It is estimated the SPP alone could generate $30 billion procurement plan for the Indian private sector which does not have technological experience and minuscule research and development program. Under the policy, India’s Defense Ministry will commit purchase of submarines worth approximately $10 billion, naval utility helicopters of $4 billion, fighter jets worth $15 billion and some other projects. But lack of technological experience combined with the policy structure may reduce them to being hosts of an assembly line for a foreign firm, instead of developing technology.

    “While the government is aiming for indigenization, a correct assessment of the capability of Indian firms, both public and private to absorb fourth and fifth generation technologies, is necessary. Even public sector undertakings as Hindustan Aeronautics Limited (HAL) are facing difficulties in licensed manufacturing of fighter aircraft, how will the private sector manufacture the same, starting from scratch, remains to be seen?” Rahul K Bhonsle, a defense analyst, said.

    Private defense firms have not shown their research and development expenditure in the public domain yet but experts said whatever it is, it will be still minuscule. Even in the case of state-owned defense companies, expenditure on research and development constitutes a mere five per cent of their turnover in comparison of 20% of some global companies.

    Most Indian companies depend on technology developed by state-owned Defence Research and Development Organization (DRDO). The Pinaka launcher system developed by DRDO is being made by TPCL and Larsen & Toubro. The Indian government allocated $1.13 billion against $1.71 billion of projected demand for research and development in 2017-18. Since 2014, Narendra Modi government has allocated a total $3.27 billion to defense research and development.

    Impact of lack of technological investment is evident from India’s self-proclaimed indigenous defense equipment. According to a report of the parliamentary standing committee on defense, the import content in the light combat aircraft Tejas is 40%, 60% in DO-228, 50% in advanced light helicopter, 58% in HAWK and 44% in Sukhoi-30MKI of HAL.

    In the last three years, the import content in defense equipment of Bharat Electronics Ltd (BEL) has increased from 36% to 44%. India’s leading shipbuilding firm Mazagon Dock Limited, which is manufacturing six Scorpene submarines in collaboration with French naval group DCNS, still has import content up to 58% in P 15 and 48% in P 17 frigate project. It is said that India has to continue with three decades older submarines due to inordinate delay in the completion of the Scorpene project. It has been delayed due to initial teething problems in absorption of new technology and delay in augmentation of industrial infrastructure at MDL.

    Indian Navy’s $3 billion LPD project has also been given to a private sector defense firm. This could be the first program that would mark the entry of the private sector into big ticket defense acquisitions. Similar to Scorpene project, the lack of technological experience of private firms may delay the project which makes India vulnerable in Indian Ocean Region even if it wants to maintain sea control in the region.

    “Technology absorption is always a complicated process. The foreign OEM has to have a robust plan and intent in place to undertake a transfer of technology whilst the Indian partner has to have its groundwork in place in order to absorb the technology. The Indian partner has to also work on an ecosystem to support this tech transfer and ensure that over a defined period a high degree of system fidelity gets built in to ensure sustainability of the platform,” Ankur Gupta, Vice President — Aerospace & Defense, Ernst & Young, said.

    "Battles and wars are never won by just going all over the world and asking for defense equipment. No country perpetually continues to secure itself by only depending on others for its armaments and equipment, which are extremely crucial," Indian defense minister Arun Jaitley said on Sunday.

    The minister’s statement may be true but the decision must be taken keeping in mind the capability of the firms so that critical projects are completed on schedule, and not left waiting for Godot.

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