The aerospace industry in India is replete with internal contradictions and conundrums. India is now the world’s largest arms importer far ahead of China. The Indian Air Force (IAF), the fourth largest in the world, depends heavily on imports or licensed manufacture. In the civil aviation domain, India aims to be the world’s third largest aviation market by the end of the current decade. However, India lacks indigenous capability to build commercial transport aircraft. In the regime of aerospace design, development and manufacture, the public sector rules the roost. However, here again there is a sharp incongruity. The Indian Space Research Organisation (ISRO) has achieved a successful launch of GSLV-D5 recently using indigenously developed cryogenic engine, making India the sixth nation in the world to possess such technology after the United States, Russia, France, Japan and China. ISRO has another notable accomplishment to boast of.

With the certification of its global positioning system (GPS)-aided geo-augmented navigation (GAGAN) system, India has become the fourth country in the world to offer space-based satellite navigation services to its aviation sector. Paradoxically, the other two major aerospace public sector undertakings (PSUs), namely the Hindustan Aeronautics Limited (HAL) and National Aerospace Laboratories (NAL) as the nuclei for military and civil aerospace development respectively, have performed abysmally. HAL’s designs barring the Dhruv helicopter family, have been unimpressive and inordinately delayed while NAL’s Saras design is struggling to become an operational aircraft. It is possible to hypothesise that the stunted growth of aviation manufacturing industry is largely attributable to the fact that public sector has been at the forefront of this industry at the cost of keeping deserving, capable and willing private entities out.

Current Status

According to an estimate by the International Air Transport Association (IATA), India’s domestic air travel market is projected to grow at the second highest compound annual growth rate (CAGR) of around 13 per cent globally over the next three years. Projections also expect Indian airports to handle 336 million domestic and 85 million international passengers by 2020, three times the current domestic (121 million) and twice the current international (41 million) passenger traffic respectively. One estimate by Boeing projects a requirement of 1,450 new airliners in the next two decades. The opening up of the civil aviation market, despite major regulatory irritants, is inexorable and is manifest in the large number of aircraft ordered by airlines as also by the interest shown since the relaxation of foreign direct investment (FDI) rules, by foreign players in flying into and from India. Hence a steadily increasing demand for commercial aircraft is a certainty.

In the military domain, budgetary allocations have shown salutary ascent paths. The IAF is aggressively modernising and its ongoing and future plans to acquire assets include the Dassault Rafale combat aircraft, the C-17 Globemaster III strategic airlift aircraft, C-130J Super Hercules transport aircraft, Airbus A330 multi-role tanker transport for in-flight refuelling, Embraer 145 airborne early warning (AEW) aircraft, Chinook CH-47F heavy-lift helicopters, Boeing’s Apache AH-64D attack helicopters, Mi-17V5 medium-lift helicopters, BAE Hawk jet trainers and Pilatus PC-7 Mark II turboprop trainers. Meanwhile, a joint Indo-Russian endeavour is on to develop a fifthgeneration fighter aircraft (FGFA) for the IAF. There are also plans to upgrade the Mirage 2000 and Sukhoi Su-30MKI fleets. The focus on modernisation and the extent of financial commitment is evident from the fact that just the Rafale deal is worth around Rs. 1,20,000 crore— a figure large enough to change the countenance of aviation manufacturing industry in France. The Indian Navy is also purchasing the P-8I long-range maritime reconnaissance and anti-submarine aircraft in addition to helicopters, while the Indian Army and the IAF are looking for 384 light helicopters. Thus in the military aerospace domain also there is a growing demand for aerial platforms for all the three services apart from the Coast Guard and paramilitary forces.

Defence Procurement Procedure

Recognition of India’s status as a prolific military spender and the enormous opportunities it offers to foreign aerospace companies was evident from the fact that over 600 companies, representing 78 nations, were present at Aero India 2013. Indeed, according to a report by Deloitte Aerospace and Defence, while the global defence industry is expected to shrink, India continues to be one of the most attractive aerospace and defence markets globally and is likely to remain a favourite destination for global defence entities. This is despite the changes in the defence procurement procedure since its introduction in 2005. According to the current dispensation, a foreign vendor entering into an Indian defence deal worth more than Rs. 300 crore is obliged to reinvest 30 per cent of the contract value into the country’s industry. In 2012, the rules were revised to put a 20 per cent cap on the penalty for foreign companies that fail to fulfil their defence offset requirements within the set time frame.

The requirements for transfer of technology have been introduced as the government is well aware of the need to build up internal industrial aviation base especially in the military field. According to Nidhi Goyal, Director at Deloitte India, “Due to the huge offset requirement and the Indian Government’s objective of building up an indigenous manufacturing base, the global industry has an opportunity to integrate with the Indian industry to set up their manufacturing lines in India. This could be achieved either through joint ventures or collaborations.” However, original equipment manufacturers (OEMs) will not readily implement transfer of technology that India will have to be alert to ensure proper implementation. An even more important consideration is the question of who is the eventual beneficiary of the transferred technology: Will it be the patently inefficient public sector? Or is the private sector ready to salvage the nation’s aerospace industry?

Private Aerospace Industry

In May last year, the Ministry of Defence floated a tender for transport planes to replace IAF’s Avro HS-748. As India has no indigenous capability to manufacture transport aircraft, the tender envisaged 16 aircraft to be supplied by a foreign OEM with another 40 to be manufactured in India through collaboration with an Indian private sector firm with transfer of technology so that the plane could be manufactured by the domestic industry in future. This move was loudly objected to by the public sector and strong lobbying commenced by HAL with letters being written by Praful Patel, Heavy Industries and Public Enterprises Minister to the Defence Minister. The end result was political and industry pressure on the Defence Minister to review the tender conditions to open up the tender to state-owned industries also. This unfortunate decision will prolong the breakout of Indian aerospace industry from the mediocrity of state-owned public sector inefficiency.

Vested interests have been perpetuating nurturing of the public sector inefficiency at the cost of the private sector market forces driven entrepreneurial endeavour. It may be worth mentioning here that HAL came into existence only in 1964, the original company having been started as a private venture by Seth Walchand Hirachand in association with the State of Mysore in 1940 with the government subsequently taking over the company. On account of government policies, HAL has dominated as the monopolistic aerospace manufacturing company with huge public fund investments in facilities without due consideration to cost versus benefit studies or basic focus on operational efficiency. With the new policy on defence offsets, the objective was to turn things in favour of domestic manufacturing in aerospace industry et al. Industrial groups like Tatas, Mahindra and Larsen and Toubro (L&T) amongst others, showed considerable interest in investing big money and partnering with new OEMs. Left to market forces, these new entrants would have possibly benefitted enough from transferred technology to produce an indigenous aircraft in good time. However, Indian establishment’s blind devotion to public sector enterprise at any cost has not let the private sector in aerospace industry empowered adequately to ensure India its rightful place globally despite abundant capability in the private domain.

Mahindra Aerospace has acquired two Australian companies and is well on its way to produce a five-seater aircraft in partnership with the Council of Scientific and Industrial Research-National Aerospace Laboratories (CSIR-NAL) at a stateof-the-art manufacturing facility in Bengaluru. Reliance Industries Limited (RIL) is another major private sector entrant into aerospace industry and has signed a memorandum of understanding (MoU) with Boeing for the offset work when Boeing supplies the P-8I to the Navy. As part of the Rafale offset business, Dassault was keen to partner with RIL but HAL had taken the precaution of getting itself stipulated as the beneficiary in the original agreement. Thus, whenever the Rafale deal does come through, Dassault is destined to partner with HAL and the national aerospace industry to bear the consequences thereof. QuEST Global has been the driving force behind a special economic zone (SEZ) at Belgaum. This is the first aerospace precision engineering and manufacturing SEZ offering support to the aerospace engineering sector. One of the first companies to have set up shop at the SEZ is Aerospace Processing India Pvt Ltd, a joint venture between Magellan Aerospace and QuEST Global, QuEST Global Engineering and QuEST Global Manufacturing. Tata group has also been in aerospace for some time. Tata Lockheed Martin Aerostructures, a joint venture, is producing C-130 centre wing boxes since August 2012 while Tata Sikorsky Aerostructures, another joint venture, has been delivering S-92 cabins to Sikorsky since 2010. Both ventures were established in Hyderabad by Tata Advanced Systems, with Greenfield facilities designed and constructed by Tata HAL Technologies, another joint venture formed in 2008 to combine Tata Technologies’ engineering-services experience with HAL’s design and manufacturing expertise. The foregoing is not a comprehensive directory of aerospace companies in the private domain. Instead, it is a glimpse of the potential which, if given a level playing field, could produce results appropriate to the nation’s technological prowess.

Open up the market

The picture that emerges is that the government needs to shed its protectionist stance towards the public sector and open up the market to the dynamics of free enterprise in the context of the defence procurement offsets policy. That is not to say that it should eliminate public sector from the reckoning altogether. Instead, the suggestion is to “let the best man win”. China, an arch rival, has already produced a 90-seater jet and is on the verge of producing a 168-seater jet to match the Airbus 320 and the Boeing 737, while in the military domain it has produced fourth-generation fighters besides other fighter and helicopter types indigenously. Given India’s preoccupation with China, is enough motivation for the government to end the stranglehold of the public sector by enabling private aerospace manufacturing industry to compete under a fair set of rules. A grateful nation shall then reap the benefits in the years to come.