Implosion (45 page)

Cohen and Dasgupta acknowledge that not everyone agreed with their interpretation when it first appeared (and became a surprising best-seller in India). They note in the paperback edition – optimistically from their viewpoint – that ‘many Indians do not see their country as being bound by strategic restraint’, and instead ‘want India to behave like a great power in the mold of the United States, Britain, and China – assertive powers willing and able to defend their interests with military forces when necessary’. Arguably, however, they are seriously underestimating the strength of policy opinion that does not want India to play a big international role beyond its regional interests, irrespective of how much that might annoy policy hawks both in Delhi and in Washington DC (including experts at the Brookings Institution).

One needs therefore to look to other catalysts for change on arms purchasing. One is technological because software and electronics are playing a growing role in defence equipment and are making it easy for foreign suppliers and countries, including seemingly friendly ones such as the US, to undermine the effectiveness of guns, helicopters or aircraft that they supply by withholding sensitive and sophisticated refinements. ‘This is no longer just a question of strategic autonomy; today it is also a military-technical issue, in an era when the capabilities of defence equipment depend more on software than on hardware and when it is increasingly easy to compromise weaponry sold to another country through the introduction of malware and kill switches,’ says Shukla.
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Public Failings

Output per employee in the DPSUs and ordnance factories is less than half the average level in India’s general manufacturing industry in the public as well as the private sector, according to a Boston Consulting Group report.
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The report put the defence public sector figure at Rs 15 lakh per year compared with Rs 20–40 lakh in industry generally,
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and suggested that the defence figure should be double its present level at around Rs 30 lakh. Despite the navy’s relative successes, Indian warships are being built way over cost and time estimates – frigates of the Godavari class took 72 months to build and Delhi class destroyers 114 months, while more recent Shivalik class frigates are taking 112 months compared with a 60-month target, says Manoj Joshi.
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A basic problem with both the defence research and production corporations is that they focus on developing and manufacturing a specific gun, aircraft or ship, instead of building the sort of general engineering capabilities that private sector companies such as L&T, Godrej and Tata Power have done with finely tuned metals and engineering systems, according to Naresh Chandra, a veteran civil servant who headed a government taskforce on national security in 2012. ‘Don’t beat your brains out over developing a gun or a tank, but find your overall strengths, buy in what you need with a well-developed supply chain and assemble your platforms,’ he says.

The DRDO has a hefty budget – Rs 10,610 crore for 2013–14 – and 52 laboratories. It employs some 5,000 scientists and about 25,000 support staff who are involved in projects ranging from combat vehicles and armaments to submarines and aircraft. But instead of being a centre of excellence, it has frequently failed in both technical and financial terms to meet the needs of the military, which then buys abroad. According to a report by the ministry’s Controller General of Defence Accounts (CGDA) in 2012, only 29 per cent per cent of the products it developed in the previous 17 years were being used by the armed forces.
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That is mainly because of DRDO failings, but it is also the result of the defence forces enjoying buying abroad and consequently resisting, or at least not welcoming, some DRDO developments.
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The CAG report noted that, in several cases, the DRDO bought equipment after spending large amounts of money on its own unsuccessful research and development, or offered equipment that was more expensive than was available on the open market. It spent Rs 6.85 crore developing explosive detectors, which it offered to the army for Rs 30 lakh each at a time when foreign versions were available for Rs 9.8 lakh each, including the cost of repairs and maintenance.
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The main DRDO successes have been surface-to-surface missiles called Agni and Prithvi, but it has failed to produce smaller missiles for the army and navy, which bought instead from Israel. The army resisted buying its Akash surface-to-air missile for a decade but now recognizes that it is a success. After 30 years of work, the DRDO’s Aeronautical Development Agency (ADA) has also failed (initially hampered by US sanctions that blocked component deliveries) to produce an acceptable version of a light combat aircraft called the Tejas to replace Russian MiG 21s.
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HAL, which should be focusing on developing the technological and manufacturing capability to produce aircraft of Indian design, prefers to focus instead on building foreign fighters and other aircraft under licence where it has had a monopoly for decades. Russia’s Sukhoi-30MKI, ‘which was initially bought fully-built from Russia for Rs 30 crore per fighter, is now made by HAL (substantially from Russian systems and subsystems) for well over 10 times that figure,’ Shukla wrote in a report in December 2012 that went unchallenged.
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‘Building expensively suits HAL well; since its profits are a percentage of production costs, higher costs mean higher profit.’

The development of the army’s Arjun battle tank is a story of almost 40 years of delays, performance controversies, specification changes, increasing use of foreign components, and indecision about how many tanks to order or whether to abandon it.
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The DRDO began work in 1974 and continued for 35 years till the tank entered service with an armoured regiment in 2009, during which time popular Russian tanks were used. Foreign component purchases still account for nearly 60 per cent of Arjun’s production cost, and there is a strong lobby in the army which prefers Russia’s old T-72s and more recent T-90s, even though the Arjun has done well in comparative desert trials against the T-90. Shukla argues that it is poor production facilities at the ordnance factories for the Arjun, and for the Tejas at HAL, that deter the army and air force from favouring Indian tanks and jets. ‘The Tejas and the Arjun have a common problem: they are excellent indigenous designs that are undermined by poor production quality,’ he wrote.
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The DRDO is now beginning to change under a new director general, Avinash Chander, who was appointed in June 2013. Previously in charge of the successful Agni missile programme, Chander has introduced top-line management responsibility for equipment development and production programmes by placing each of the DRDO’s seven technology clusters under executive directors who have been moved from the organization’s palatial Delhi headquarters to work in laboratories in Bengaluru, Hyderabad, Pune and elsewhere. They will no longer be advisers and co-coordinators, working separately from project managers, but will be responsible for projects developed by their laboratories. There is also a plan to build up India’s export of equipment and partnerships with foreign manufacturers – the US is discussing jointly manufacturing anti-tank missiles in India and arranging for the DRDO to work with Lockheed Martin and Raytheon on future missile developments.

Private Sector

The public sector’s dominant role was introduced when defence production was included in the Industrial Development Regulation Act of 1951. This was not changed by the 1991 reforms, but it was relaxed in 2001 when private ownership was formally allowed into defence manufacturing. Non-lethal items were opened up on a general basis, and lethal products were also released subject to licences issued case-by-case by the commerce ministry’s Department of Industrial Policy and Promotion, with the approval of the defence ministry’s Department of Defence Production. Foreign direct investment was also permitted up to 26 per cent of a company’s equity. More than 26 per cent was allowed in 2006, but most applications were rejected (26 per cent is a significant figure in Indian company law because it gives an investor blocking rights on decisions since it can call emergency general meetings).

Little of significance happened in the following years because of opposition from the defence establishment. In 2005, a committee headed by Vijay Kelkar, a leading economist and government official and adviser, recommended, along with other reforms,
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that the best private sector firms be given the status of Raksha Udyog Ratnas (defence industry jewels or champions). These companies would be treated by the government on an equal footing with DPSUs when allocating projects. In 2007, the ministry examined 40 companies and found 15 eligible including Larsen & Toubro (L&T), Godrej & Boyce, Tata Power SED (Strategic Engineering Division), the Mahindra group, and Tata Motors, together with information technology companies such as Tata Consultancy Services (TCS), Wipro, Infosys and HCL, and various public sector corporations that do not come under the DPSU classification.
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The private sector had been demonstrating its ability to produce the necessary sophisticated engineering as early as the 1950s and 1960s. That was when Godrej & Boyce, one of India’s oldest family groups, built aluminium shells and research equipment for India’s first nuclear reactor at Trombay. By the mid-1980s, it was making rocket parts for the country’s space programme, along with L&T, a leading engineering construction company. These two firms had skilled welders, fabricators and engineers who enabled them also to become competitive internationally on pressure vessels and process equipment for the oil and petrochemical industries, which led to work on rockets and similar projects. ‘We had skilled workmen who could do anything, fabricating sheet metal with precision machining and high-tech welding,’ Jamshyd Godrej, chairman of the family-controlled company told me in 2007.
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(Godrej’s metal bashing and welding skills have produced thousands of more mundane office safes, filing cabinets and other metal products, and even made the world’s last manual typewriters.)
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These two companies, and others such as Tata Power SED, developed similar skills and could therefore have been the basis, decades ago, of a flourishing international defence manufacturing industry, along with shipbuilders and others. This was stymied however, primarily by the defence establishment’s opposition and its appetite for readily available imports. Significantly, India’s development and production have thrived in areas such as nuclear science and rockets – as the Mars launch showed – where imports were not possible because of international bans on high-technology co-operation that continued till the 2009 deal with the US.

Indian companies had not been welcome in the West to participate in strategic programmes because of international worries over leakage of dual-use technologies, and America’s space agency, NASA, would not consider working with them, explained Godrej. That boycott was strengthened by bans imposed after India’s two nuclear tests in 1974 and 1998, and so ‘we were isolated’, he said. Illustrating the private sector’s potential, the company is now contributing to building the Indo-Russian Brahmos missiles and supplying space and defence customers in the US, Europe, UK and Israel, in addition to India.

There was an early breakthrough for companies in 2006, when the army awarded two $20m contracts for rocket launchers to be used in its Pinaka missile system to Tata Power SED and L&T. This was the first time that private-sector Indian companies had been appointed as prime contractors on a defence project, however small, with overall responsibility for system integration. Tata and L&T had begun design work on the launchers for the DRDO 17 years earlier, in 1989, but had to wait till policy changes began to catch up with the army’s needs for rapidly advancing technology. ‘Like Israel, India has the right skills and low-cost design and testing capabilities to compete internationally,’ Rahul Chaudhry, chief executive of the Tata company told me at the time.
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These and other companies, however, needed assurance of a flow of orders before they would commit investment and resources to product development, and they also needed help with research costs, none of which was forthcoming till recently. Government officials sometimes suggest that the private sector should have bid for contracts abroad to offset uncertainty at home, but companies were loath to shoulder the risks in highly competitive and complex export markets when they had not already developed expertise and sales in India. Some now admit that they should probably have acquired foreign defence manufacturers to gain access to technology and new markets, as the Indian auto industry has done, for example, most notably with Tata Motors buying Britain’s Jaguar-Land Rover business from Ford of the US, but these groups had other priorities.

The Raksha Udyog Ratnas proposal would have given the companies the confidence to build capability in India and maybe abroad but, faced with strident opposition, A.K. Antony shelved the proposal in 2010 after he took over from Mukherjee, who had appeared to be in favour. Antony did so partly in response to complaints from the DPSUs, but there was also pressure from smaller private sector defence equipment companies, which argued that they would lose out. The crucial opposition, however, came from three trade union federations linked to Congress, the BJP and the CPI(M), which most unusually united to argue against the Kelkar proposals and especially the one on Raksha Udyog Ratnas.
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Antony found these complaints irresistible, thus halting the most quickly implementable of reforms. The only proposal that went ahead was to introduce ‘offset clauses’ in projects that require foreign suppliers to buy 30 per cent of a contract in India, but Antony bowed to foreign pressure and watered down the plans that could have forced foreign suppliers to transfer significant technology.