Reports in the media in the recent past indicate that the Ministry of Defence has cleared a project for the replacement of the 56 Avro aircraft in the transport fleet of the Indian Air Force (IAF). The unique feature of this decision is that the this project will be executed by the Indian aerospace industry in the private sector in collaboration with a global aerospace major and not by the sole Indian aerospace major Hindustan Aeronautics Limited (HAL), a defence public sector undertaking (DPSU) that all along, has had complete monopoly on production of military aircraft, most of it manufactured under licence. The private sector has so far been excluded from participation in defence-related industry, especially those related to military aircraft.

In February 2013, speaking at an International Seminar on “Aerospace Products—Challenges in Design to Development”, Air Chief Marshal N.A.K. Browne, the then Chief of the Air Staff stated, “We will release a request for proposal to acquire 56 cargo aircraft from the private sector to replace the obsolescent fleet of indigenously-built medium-lift Hawker Siddeley HS-748 Avro transport aircraft with the IAF.” He went on to say, “Acquisition from non-public sector undertakings will encourage the Indian private sector to design and develop a modern transport aircraft for military operations.” The plan as available in the public domain is that of the 56 aircraft, 16 would be procured off-the-shelf from the selected foreign vendor and the remaining 40 would be built in the country by a private consortium of foreign and domestic aerospace companies. The indigenous component in the first 16 aircraft will be 30 per cent and in the remaining 40, it will be 70 per cent.

This decision by the government is a clear indication of its intent to develop an indigenous military-industrial complex beginning with the establishment of manufacturing infrastructure in the military aviation segment. A successful venture of this kind will encourage small and medium enterprises to undertake manufacture of sub-systems, accessories and spare parts for both the Indian and overseas markets.

While the intention of the government is undoubtedly noble and the general view is that the decision was long overdue, it must take into account a number of factors that possibly could prove to be serious impediments that the private sector may find insurmountable if left to fend for themselves. Given the plethora of controls, regulatory mandates and bureaucratic indifference, the environment in the country is not business-friendly. The government would have to address this comprehensively and take positive steps to remove this malaise. Besides, for the Indian aerospace industry in the private sector to prosper or even to survive in the regime of the defence industry, the essential prerequisites for them are low investment, easy availability of funds, ready access to high-end technology, economy of scale, market opportunities as also speedy and handsome returns. Also, in defence-related production, certification can be an issue as the company could well find itself in distress if its product fails to clear this hurdle. For the public sector company, this factor is not critical at all as with assured funding by the government, the project can continue endlessly.

A venture in the aerospace industry entails sizeable investments and for it to be viable, the market would have to provide a high degree of assurance and would have to be proportionately large enough. In the project in question, the number of aircraft to be produced in India being a mere 40 and the prospects for export not guaranteed, it is unlikely to inspire much confidence in the leading players in the Indian private sector who have the financial strength to foray into capital-intensive aerospace industry.

Largely in the hands of the private sector, the aerospace industry across the globe that has registered phenomenal technological progress over the last seven decades in the post-World War II era, has not only become highly advanced but fiercely competitive. This would pose a formidable challenge for any new player aspiring to foray into this field especially the Indian aerospace industry in the private sector.

In the final analysis, mere ending of the monopoly of HAL will not be sufficient for the private sector to deliver. This unprecedented step by the government may appear as good news for the Indian aerospace industry; but will not be able to produce the desired results unless it is supported by a far more liberal policy on foreign direct investment, well beyond the current level of 49 per cent. Besides, as the Indian aerospace industry in the private sector cannot hope to survive only on the domestic market, it will be incumbent on the part of the government to facilitate its integration with the global aerospace industry. Without these, the exercise may not takeoff.