India’s defence set for modernization – innovation exists, but where is the money?

Indian military modernisation needs a lot more spends on r&d, innovation and indigenisation. However, a recent report tabled in the parliament, pointed out insufficient budgetary allocation.

defence manufacturing

India considers national security of paramount importance. The developments in the neighbourhood over the past decade have led the country to rethink its security strategy. And, modernisation of the country’s defence, in particular, has been the government’s agenda for long.

The “potential” threats and strengthening the national defence has prompted the rising demand for new procurement and innovation in this sector. This reflects in several key initiatives taken up by the government over past few years.

Stating national security as a priority and focus on indigenization of defence, Finance Minister Nirmala Sitharaman earmarked a budget of Rs 4,71,378 crore (US$ 66.9 billion) for the Ministry of Defence (MoD) for the year 2020-2021. This is an increase of 9.37 per cent in the defence budget allocation over the previous year’s budget of Rs. 4,31,010.79 crore. 

However, if one look at the budget closely – majority (almost 90 per cent of the defence allocation) is for existing obligations, leaving a little room for new procurement and defence modernisation.

Despite that, India – already a tech innovation hub – is witnessing several startups trying to cater to this highly critical segment.

Defence – a hotbed of innovation

If you remember the incident of 26/11 in Mumbai that took many lives, asks Captain Nikunj Parashar, co-founder of Mumbai-based defence startup, Sagar Defence Engineering. Just to immobilize such happenings, the country needs newer technologies, which will act as force multipliers.

“Our unmanned surface vehicle is equipped with AI-based command control system. It can automatically detect if there is an intruder and can interdict in first place,” he informs SME about the indigenous product his company has designed under Make-in-India initiative.

Parashar further elaborates that five to ten vessels can operate together. “The unmanned vehicles are already safeguarding our coastlines. We are operating vessels in Atlantic, Indian Ocean and Arabian Sea. We are looking at swarming of vessels over the years.” The future goal is to have 100 meter vessels which are being controlled by satellite communication and RF systems from the stations, he adds.

The ultimate goal is to introduce indigenous and modern defence solutions in our naval corps, so that our soldiers don’t have to go out in the sea and fight. Rather than sending human assets, the unmanned vehicles can carry security and surveillance. They have war fighting capabilities and could bring our sailors and soldiers back home safe.

With this expanding possibilities of artificial intelligence (AI), combined with augmented and mixed reality (MR), is becoming crucial for modern warfare. Defence systems equipped with AI and MR improves human decision-making capability and human-to-machine interaction immensely.

Thus, modernisation of the armed forces and indigenization of manufacturing have emerged as focus areas for the Indian defence sector.

#AI Reality Glasses

Another Mumbai-based startup ‘Dimension NXG’, which operates under the brand name ‘AjnaLens’, has launched ‘AjnaBolt’- an AI-powered mixed reality glasses for defence. The designed and Made-in-India AjnaBolt provides advanced lethality to increase survivability, and thereby exponentially increasing a defence mission’s success capability.

AjnaBolt can be used to upgrade fair-weather weapons to all-weather weapons, enhance navigation and sight, advance training and simulation, etc. Its modular design helps the user to mount it on headgear or use it as standalone glasses.

Pankaj Raut, co-founder and CEO of AjnaLens, believes, “This will not only strengthen our armed forces and make every mission more successful but will also make our nation an exporter in defence technologies.”

#One rifle can replace five

One product can replace five different small arm weapons currently in use by Indian military, claims Hubli-based Ankush Koravi, who runs a small arm startup ‘Astr Defence’.

Talking about his modular flagship model, Koravi says, “Indian army presently uses five different types of weapons. Those are the carbine, the DMR, LMG, assault rifle and battue rifles. We are offering a single solution that can replace all these five weapons such as Dragunov sniper rifles, INSAS rifles, INSAS LMG, Sterling Carbine and AK variants.”

He further claims that the rifles are lightest in the category, weighing only 3.5 kilogram, as compared to the four kilogram+ used by global counterparts.

“Our solution is completely modular. You can simply change the rifle to convert it into a different model, according to ammunition needs. This can be done by the user on the spot, without any support of the armourer and tools,” he asserts.

Outlining defence innovation initiatives

Besides these few examples on how startups are trying to incorporate newer technologies into the defence space, the government is also promoting participation of the private sector in defence manufacturing through Make in India.

Initiatives like MAKE Projects, Innovations for Defence Excellence (iDEX) or Defence India startup challenge are pushing the defence modernisation drive – at the same time creating ample of opportunities for small businesses.

Recently, Defence Minister Rajnath Singh called for an increased participation of the private sector in the defence manufacturing. In a Business Summit earlier this year, he said, “In our envisaged Defence Production Policy, we have clearly spelt out our goal to achieve a turnover of $26 billion in aerospace and defence goods and services by 2025.”

“This will have huge implications for India’s endeavours to promote R&D, innovation and its efforts to secure a place in global supply chains,” Singh added, while admitting that the necessity of becoming internationally competitive, globally innovative and structurally efficient demands that the private sector plays a crucial role in the defence production.

With such push, many startups are collaborating and getting into strategic partnerships with bigger enterprises.

For instance, public sector undertaking Hindustan Aeronautics is sharing its workload with many small businesses for various productions. Startups such as Sagar Defence is working with ONGC. Similarly, AjnaLens developed its solutions, under iDEX programme.

According to the ResearchandMarkets study, the government is eyeing to achieve a turnover of Rs. 1.7 trillion in military goods and services by 2025, with strategic partnerships and make in India programme.

While at the same time, the export target is set up for Rs. 350 billion (approximately US$ 5 billion) in defence goods and services by 2025, the report added.

Sneak Peek: India’s defence budget

Government has announced plethora of measures in the Union Budget 2020 to strengthen defence infrastructure and facilities. The measures include two new defence corridors to encourage MSMEs contribution in the sector. The industry is also receiving much-needed push under the Make in India initiative.

The concept of import substitution is being gradually accepted by stakeholders as they foresee huge opportunities in the sector.

Of the total Rs 4,71,378 crore (US$ 66.9 billion) budget allocation, Rs. 3,23,053 crore ($45.8 billion) goes to the Defence Services Estimates (DSE) [that includes all the three forces and the Defence Research and Development Organisation (DRDO)].

The remaining chunk is going to be distributed between defence pensions (which is Rs. 1,33,825 crore or $19 billion and Ministry of Defence (Civil) (Rs. 14,500 crore or $2.1 billion). 

Infographic1-India’s defence set for modernization Story
Corridors of opportunities

According to several industry experts, setting up of Defence Industrial Corridors would catalyse indigenous production of defence and aerospace related items, thereby reducing reliance on imports and promoting export of these items to other countries. This will lead to achieve India’s goal of self-reliance in defence, generation of direct/indirect employment opportunities and growth of private domestic manufacturers, MSMEs and startups

The provisional investments of approximately Rs 6,800 crore have been announced for two new defence industrial corridors in the country. Out of this, Rs. 3,700 crore is for Uttar Pradesh Defence corridor, where six nodes i.e. Agra, Aligarh, Chitrakoot, Jhansi, Kanpur and Lucknow have been identified. Similarly, for Tamil Nadu Defence Corridor, five nodes viz. Chennai, Coimbatore, Hosur, Salem and Tiruchirappalli have been identified. Also, for this corridor the Ordnance Factory board has announced approximately Rs 3,100 crore.

“The small business already in the defence, corridors will open numerous opportunities to focus on their strengths and expand their operations,” says Ramendra Kushwaha, deputy manager at Uttar Pradesh State Industrial Development Authority (UPSIDA), which caters to integrated infrastructural facilities including industrial, residential, commercial and institutional and support facilities to business.

“The government has made many possible amendments in the policies and the schemes for successful defence activities, projecting Uttar Pradesh. A lot of companies have already shown interest in setting up their operations here.”

He further adds that the government has also designed a think tank to make policies more favourable for the companies. “Moving forward you are going to witness lots of changes.”

Infographic2-India’s defence set for modernization Story

UPSIDA, erstwhile known as UPSIDC, was into land allotment only. However, it is now developing the plots at the vertical end, keeping defence corridors and companies in mind.

“Now planning is such that MSMEs, which are into designing and manufacturing of indigenous parts, can also establish their operations under us. If they get plots or commercial plots, they will be able to work well,” informs Kushwaha.

Recently, 23 companies signed MoUs worth Rs 50,000 crore to invest in defence corridor with the Uttar Pradesh State government. In-fact, Ancor Research Labs was one of the first companies to invest in UP corridor. The firm has been allotted 25 acres of land in the Aligarh node.

UPSIDA overlooks over 144 industrial areas, under which comes 45,000 acres of land area. It facilitates and encourages MSMEs providing various services through their online portal and single window system.

There are already foreign companies which are working in UPSIDA industrial belt. For small businesses coming under this belt will help in collaborations, another official states.

“When small business collaborates with big companies, their earnings and opportunities for employment will generate and income will increase,” the official adds.

Making ‘defence’ indigenous

When the third largest military in the world is looking for maintaining in-house manufacturing, its own equipment ability still looks woeful. Currently, the country is second-largest importer of equipment globally over the past five years (2014-2018).

Saudi Arabia leads in the position, India imports twice as much as China.

To cut down on the imports and to fulfill the goal of self-reliant, indigenous defence manufacturing is encouraged. While, OFB, Defence Public Sector Undertakings (DPSUs) and Service Head Quarters (SHQs) have identified items, which are being imported. The intent is to indigenize those through Indian vendors.

To provide further impetus to building a domestic industrial base, the government announced new category of procurement policies under Defence Procurement Procedure (DPP). Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)}.

As per the DPP-2016, the government – in the last three years i.e. from 2016-17 to 2018-19 and till December, 2019 – has accorded Acceptance of Necessity (AoN) to 138 proposals, worth Rs. 2,69,465.26 crore approximately, under these categories of capital procurement that promotes domestic manufacturing.

These changes have resulted into ease of doing business and getting into joint ventures (JVs) and partnerships with foreign defence enterprises. Also, it makes the offset burden less onerous and encourage technology transfers and setting up of production units in the country.

For instance, recently Bharat Forge Ltd., a Kalyani Group flagship company, signed an MoU with Kyrgyztan-based DASTAN Corp., which is engaged in development of torpedoes with advanced homing heads for shipborne and submarine platforms, used by Indian Navy.

The firm is also collaborating with General Atomics, US. Together they will develop and integrate solutions related to surface and undersea naval platforms, and advanced projectiles for weapon system platforms. 

Meanwhile, PSU Hindustan Aeronautics (HAL) is building Make in India Tejas Mark 1 fighters for the air force. Out of 40 ordered, HAL has already delivered 16 to IAF. In addition to this, the Defence Ministry paved the way for the largest ‘Make in India’ order for Tejas Mark 1A fighters. HAL has to deliver 83 indigenous Tejas fighter jets, worth Rs. 37,000 crore.

According to officials, this procurement will be a major boost for indigenously designed and manufacturing with local vendors.

Talking about the MSMEs getting opportunities through enterprises, Vijay Shinde, chief manager-Design at HAL, states, “Defence needs are specific, thus the equipment payouts are huge and had to be imported. But, as India is aiming for self-reliance and quality defence production, Make-in-India is imperative for us. The initiative will help nurture our defence industry and will boost MSMEs and startups in this space.”

On Tejas jet orders, Shinde informs that there are specific requirements for the production of an aircraft. “Thus, we have strategic partnerships with small businesses for those requirements and they develop for us, as per the specifications,” he adds, without revealing the name of any small businesses.

Infographic3-India’s defence set for modernization Story
MAKE—Impetus on MSME

What is MAKE?

It’s a category of capital acquisition in Defence Procurement Procedure-2016. It fosters indigenous capabilities through design and development of required defence equipment or products by both public and private sector industry or organization. It has sub-categories.

What is ‘Make-I’?

It is one of the sub-categories of ‘Make’ procedure, which is government funded. Projects under ‘Make-I’ sub-category will involve the government funding of 90%, released in a phased manner and based on the progress of the scheme, as per terms agreed between MoD and the vendor. Limit to development cost is Rs 10 crore and procurement cost of Rs 50 crore per year for MSMEs.

What is ‘Make-II’?

No government funding is envisaged. Projects will involve prototype development of equipment/system/ platform or their upgrades or their sub-systems/ sub-assembly/assemblies/components, primarily for import substitution/innovative solutions.

Infographic4-India’s defence set for modernization Story
Modernisation of armed forces – budget is a concern

To meet the wide spectrum of security challenges, today modernisation of armed forces is a necessity. In order to fulfill the needs, the government is procuring new equipment and upgrading existing ones to ensure the armed forces are well equipped. 

As per the government data, during the last three years and in the current year, 197 contracts have been signed for capital procurement or upgradation of defence equipment such as missiles, aircraft, artillery guns, assault rifles, radars, rockets, helicopters, weapons, simulators, ballistic helmets, bullet proof jackets and electronic fuzes and ammunition.

Capital procurement of defence equipment is undertaken from various domestic as well as foreign vendors, based on threat perception, operational challenges and technological changes and to keep the armed forces in a state of readiness.

In addition to this, Institute for Defence Studies & Analyses (IDSA) reveals some more data on procurement for modernisation. It states that in the first 10 months of 2019-20, the Ministry of Defence has signed nearly 14 new contracts that include, T-90 Tanks (Rs. 20,000 crore), anti-submarine warfare shallow watercraft (Rs. 12,623 crore) and Akash Missile System (Rs. 5,357 crore).

Let’s take a look at the budget allocation and expenditure under Capital Budget Head under Defence Services Estimates in the last three years.

Infographic5-India’s defence set for modernization Story

On the other side, here is the comparison of last year modernisation budget versus this year’s modernisation budget.

Modernisation Budget of Indian Armed Forces
Infographic6-India’s defence set for modernization Story

The comparison clearly reveals that this year all three services got an overall increase of 11 per cent or Rs. 9,227 crore, under the modernisation Budget 2020-21. Despite this ‘marginal’ increase, the extent of budget allocations is a concern.

As IDSA study states it’s not enough to meet the modernisation requirements.

“Owing to severe resource crunch, timely payment for these and other ongoing contracts has been a major issue for the MoD. In fact, in past several years, the resource crunch has been so acute that its allocation for modernisation has been less than even the Committee Liabilities arising from payment outgo for the past contacts,” states Dr. Laxman Kumar Behera, a research fellow at IDSA.

Shortages of Modernisation Fund
Infographic7-India’s defence set for modernization Story

The study also discloses that the shortages have also led to armed forces cutting down on some of their planned procurement. For instance, the India Navy has pruned its capital procurement of some of the necessary apparatus owing to the budget constraints.

“These included mine counter-measure vessels, early-warning helicopters, landing platforms docks (LPDs) and maritime reconnaissance aircraft. However, resorting to such a measure doesn’t augur well for the modernisation and defence preparedness of the country, to say the least,” the IDSA study states.

Though there is growth in the budget, it looks like on modernisation front, the allocation is falling short.

As per the figures, the total amount allocated for Capital Acquisition (Modernisation) is 27.87 per cent of defence services estimates. That means an amount of Rs 90,048 crore, with an increase of Rs 9,088.92 crore over budget estimation of 2019-20 allocations.   

Modernisation vs manpower cost

Besides the limited grants, another factor that’s a roadblock in the defence modernisation process is expenditure on manpower. In last few years, there is a change in the spending patterns of the Ministry of Defence.

There is also a periodic upgradation on salaries and allowances. As per the IDSA study, currently the MoD’s budget directly pays to nearly 5.1 million people, of which 1.4 million are uniformed personnel, 3.2 million pensioners and 3,98,433 defence civilians.

Infographic8-India’s defence set for modernization Story

The expenditure on manpower, which includes salaries, pensions and other allowances, has drastically surged by almost 60 per cent. The increase in the manpower cost is primarily due to increase in number of people funded by the defence ministry.

For instance, pensions have doubled in last five years. It jumped to Rs. 1,33,825 crore from Rs. 60,000 crore.

Lately, the defence pensioners number has also jumped up drastically from less than 10 per cent of the DSE up to late 1980s to over 40 per cent in 2020-21.

In percentage terms, defence pensioners constitute 64 per cent of total MoD-funded people. The Personnel Below Officer Rank (PBOR), the biggest pensioner segment, accounts for 77 per cent of the total pensioners and 49 per cent of total number of people directed funded through the MoD’s budget.

Infographic9-India’s defence set for modernization Story

With the implementation of One Rank One Pension (OROP) scheme, there is an annual addition of 60,000 retires to the pension club.

With this exponential growth, the pension budget will be unhindered unless drastic reform is undertaken to contain it, the experts believe. Under the OROP scheme, the pension of retired defence personnel is to be revised in every five years, in comparison to every 10 years for the central government civilian employees.

In other words, modernisation process is suffering due to the sharp increase in manpower cost. The increase in manpower cost comes at the cost of the stores and modernisation budget – two key components of the defence services estimates (DSE) that are essential for acquiring and maintaining hard military capability.

The scenario ahead

The Indian economy is going through testing times and there is a downward pressure on it. The year 2019-20 has particularly been a difficult year.

In 2020-21, experts were expecting the economy to rebound with the gross domestic product (GDP) to grow in the range of 6.0 to 6.5 per cent. With this, the growth of 9.4 per cent in MoD’s overall allocation looks reasonable, though not sufficient to meet all the shortages it faces.

However, the present sentiments have made the situation look gloomy due to the impact of Covid-19. Also, the Ministry of Defence is unlikely to witness a major hike in its budget in the near future – thus it will be pushed to cut down on some of its planned expenditure and re-prioritize the rest.

There will be an uphill task ahead for Indian defence.

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