For the private sector to flourish or even to survive in the regime of the defence industry, the essential prerequisites are low investment, easy availability of funds and cutting-edge technology, economy of scale in production as also high and quick returns

If there is practically no partnership today between the Indian Air Force (IAF) and the Indian aerospace industry in the private sector, it is certainly not for lack of intent, desire or effort on the part of either one or both. As early as in September 2011, while addressing a gathering of chief executive officers of the Indian aerospace industry in the private sector, Air Chief Marshal N.A.K. Browne, Chief of the Air Staff (CAS), revealed plans of the IAF to invest as much as $50 billion ( Rs. 3,10,000 crore) in the fiveyear period between 2012 to 2017 on the procurement of new military aircraft. Getting down to specifics, the CAS spoke of the urgent requirement of the IAF to replace its ageing fleet of HS-748 Avro twin-engine, medium-lift turboprop transport aircraft for which the IAF was prepared to assign this responsibility to the private sector that could manufacture the selected aircraft in collaboration with a foreign partner both for the military and civilian application.

The compelling reason for this initiative was the fact that the Hindustan Aeronautics Limited (HAL), the Indian aerospace major in the public sector that had dominated the Indian aerospace industry scene for the past over six decades, was now overburdened with commitments and hence there was the imperative need for active participation by the private sector to offload some of its burden. The CAS went on to say that private sector participation was needed not only to support expansion plans of the IAF but also to provide life-cycle support by way of provisioning of spares for a variety of aircraft for which the IAF currently has no option but to rely on the original equipment manufacturers (OEMs) or the foreign partners. For the private sector that had so far been excluded from participation in defence-related industry, especially military aircraft, this was exciting news at that point in time. However, two years later, the IAF is somewhat dismayed to find that there has been disconcerting lack of response from the private sector to the request for proposal (RFP) floated for the manufacture of 40 of the total fleet of 56 transport aircraft required by the IAF to replace the Avro fleet. But is the private sector entirely to shoulder the blame?

On November 6, 2013, while speaking at the inaugural session of the Eighth International Conference on Energising Indian Aerospace Industry organised by the Confederation of Indian Industry (CII) and Centre for Air Power Studies (CAPS) in association with the IAF at New Delhi, Air Marshal P.P. Reddy, Director General (Inspection & Safety) representing Air Headquarters, reiterated what the CAS had said earlier and added that the IAF was going to procure equipment and platforms worth $150 billion ( Rs. 9,30,000 crore) in the next decade-and-a-half. Observing that research and development (R&D) capabilities of the Hindustan Aeronautics Ltd (HAL) had been on sharp decline since the 1980s, he said that the private sector was reluctant to participate as investments required both for R&D and production were very high and support from the government was not forthcoming.

Indian Industry Speaks The first day of the Eighth International Conference on Energising Indian Aerospace Industry also witnessed the industry leaders speaking on measures to energise the aerospace industry. Commodore (Retd) S. Samaddar, CEO and Director, ShinMaywa Industries India while giving a presentation on incentives and benefits, said that “technology is buying minds and we have the capacity to buy”. Later, on being asked by SP’s Editor-in-Chief Jayant Baranwal to elaborate on it, he said that buying minds is to get those minds which have an understanding of science, technology and the products. “To get the best talent will not cost much for the industry and the best mind which is chosen from across the global should mentor the Indian minds. The Indian industry has no time to wait.” Leanne Caret, Vice President and General Manager Lift, Boeing Military Aircraft, gave a global company’s perspective on energising the aerospace industry and said that a vibrant, sustainable, aerospace industry depends on ‘people’. “It’s all about people, capturing the hearts and minds of the workforce. We have to create the vision for the next 30 years.” Explaining further to Jayant Baranwal during the question and answer session, she said that the industry needs to invest and demonstrate that there is business there. The industry can also invest in government-sponsored projects. She said Boeing has entered into a contract with the Defense Advanced Research Projects Agency (DARPA) where both would invest. Speaking about the Indian aerospace industry, Vivek Lal, President and CEO, New Ventures, Reliance Industries Limited, said that India must aim to be a part of the global supply chain, working side by side with the western world. The Indian industry, he said, has the capability to take up complex jobs and there is the need for active involvement of the government and the private sector. “We need to have long-term vision, capability and investment.” Answering to queries by Jayant Baranwal, he said that Reliance aims to invest in people, technology and create capability in India where we can move forward. He, however, did not specify the projects Reliance is currently working on. On being asked whether the Indian industry is set to stride forward, he said that at the moment the industry is not ready and the Indian business model and plan will necessarily require foreign collaboration where the role of partners will be very important.

He expressed concern at the low level of expenditure by the private sector on R&D and believed that the best way to develop the aerospace industry in the private sector would be through unfettered access to technology from abroad and collaboration with foreign OEMs for licensed manufacture of platforms required by the IAF. He further said that Indian industry required relaxation of tax regimes, industry-friendly import and export regimes, support by way of funds for R&D and raising the cap on foreign direct investment (FDI) which was currently pegged at 26 per cent and was permitted up to 49 per cent on case-by-case basis restricted to high-end technologies and after due approval by the Cabinet Committee on Security.

Addressing the gathering at the seminar, Air Marshal (Retd) Vinod Patney, Director, Centre for Air Power Studies (CAPS), said that India cannot hope to become a major power without a flourishing aerospace industry. Small and medium enterprises (SMEs) have not enjoyed the benefits of defence offsets and government support. SMEs as well as the large companies need to be given due attention by the government. Initially, their business models ought to be based on transfer of technology (ToT) and licensed production. To increase participation by the private sector, the cap on FDI ought to be raised.

As per S.K. Mittal, General Manager, Business Development, HAL, his company has as many as 2,400 Tier-3 suppliers. As a first step, HAL needed to develop Tier-I and Tier-II suppliers. He further said that the best of the aerospace technologies cannot be parted with but these have to be developed. Majority of the raw materials are being imported and this trend needs to be reversed. Certification of airworthiness is also a challenge.

Satish Kaura, Co-Chairman of CII National Committee on Defence and Aerospace & Chairman of Samtel Group, said that the need of the day was to have in place an effective mechanism for ToT. The focus of the nation must be on capacity-building with the aim of emerging as a defence and aerospace export hub. Indian SMEs should become a part of the global supply chains of major OEMs by leveraging the cost arbitrage in component designing and manufacturing in India.

Anjan Das, Executive Director, CII, said that the tax rebate needs to be more broad-based and should also cover the cost involved beyond research as well. All the stakeholders should give higher priority to and treat aerospace/defence R&D and manufacturing as an integrated exercise to ensure orders to industry that brings in money for R&D. Global partnerships in co-development and co-manufacturing will be the key. India needs to look at this sector as a “mission”.

Earlier on in February this year, A.K. Antony, Minister of Defence, while speaking at the inaugural session of the Second International Seminar on Army Air Defence in the 21st Century, jointly organised by CII and Corps of Army Air Defence, had said that the Indian armed forces should give least priority to imports to provide impetus to indigenous production. He further stated that policy and procedural changes would be made wherever necessary to enable the private sector to play a significant and major role. The Government of India is fully committed to help and boost domestic defence sector so that it becomes vibrant and proactive contributor to defence forces. The government treats private defence industry as a national asset and recognises the services and contribution made by the private industry towards achieving the goals of self-reliance and indigenisation. The Defence Minister specially lauded the initiative by the CII to bring the Indian defence industry to the forefront and its role in promoting indigenisation efforts.

While there is frequent and reassuring rhetoric in different forums emanating from the highest levels of the establishment about the need for the private sector to enter the domain of defence production and the readiness of the government to support the effort, much still remains to be done on the ground. Unlike the public sector that has inexhaustible supply of funds from the government, the private sector is left to fend for itself. For the private sector to flourish or even to survive in the regime of the defence industry, the essential prerequisites are low investment, easy availability of funds and cutting-edge technology, economy of scale in production as also high and quick returns. But perhaps the greatest deterrent for the private industry is the uncertainty involved in the process of certification of defence equipment. Unless these are addressed effectively by the government, there is little chance that the Indian aerospace industry in the private sector will come forward to deliver.