Department of Defence Production: Biggest Obstacle in Mission ‘Make in India’

Department of Defence Production: Biggest Obstacle in Mission ‘Make in India’

Major General Mrinal Suman

One of the most bizarre dichotomies afflicting India’s aspirations of achieving self-sufficiency in defence manufacturing pertains to the role played by the Department of Defence Production (DDP) in the Ministry of Defence (MoD). Although it is mandated to facilitate promotion of indigenous defence industry as a whole, it works solely for the public sector and acts as its guardian and mentor. It is notorious for the wily ploys it employs to ensure that the private sector does not get a foothold in defence production. Many call it a Trojan Horse that undermines the system from within by ensuring perpetual monopoly of an inefficient public sector.

The government is fully aware of the fact that self-reliance would remain a pipe dream if India continued to rely exclusively on the public sector. It also realizes that the much touted mission ‘Make in India’ cannot be progressed without the active participation of the private sector. Yet, most surprisingly, it has failed to comprehend the enormity of the damage being caused by DDP’s obduracy.

Every single expert committee has exhorted the government to integrate the private sector in defence production. The Kelkar Committee, constituted in 2004, recommended that select private sector industry leaders be identified as Raksha Utpadan Ratna (RUR) and be treated at par with the public sector for all defence acquisition purposes, including design and development of high technology complex systems. 

In June 2005, the private sector was ecstatic to hear the then Defence Minister Pranab Mukherjee publically admit that a strong and healthy partnership between the public and the private sectors was an indisputable prerequisite for enhancing the defence capability and in sustaining a powerful domestic industrial base for the future. However, the euphoria was short-lived as there was no follow up action.

More recently, the Dhirendra Singh Committee, constituted to evolve a policy framework to facilitate ‘Make in India’ in defence manufacturing and align the policy evolved with the defence procurement procedure, concluded that ‘vibrant defence industrial base must necessarily include the private industry’.

Despite accepting the urgency of integrating the private sector, the government has failed to initiate any concrete steps in that direction due to the stiff resistance put up by an insecure public sector through DDP. In addition to fuelling the imaginary fears of likely threats to the national security, intense opposition is orchestrated through the affiliated trade unions by projecting private sector as a threat to the very survival of the public sector. As a result, DDP is also proving to be the most stubborn impediment in the fulfilment of mission ‘Make in India’.

Lacklustre Performance

DDP was set up in November 1962 with the objective of developing a comprehensive production infrastructure to produce weapons, systems, platforms and equipment required for defence. Secretary DDP heads the department. It  has six wings, i.e. Aerospace, Defence Industries Production, Land Systems, Naval Systems, Personnel and Coordination and Defence Offset Management.

Over the years, DDP has expanded its domain exponentially. Today, it controls the Ordnance Factory Board (OFB) with 41 ordnance factories, five public sector undertakings, four public sector shipyards, Directorate General of Quality Assurance (DGQA), Directorate General of Aeronautical Quality Assurance (DGAQA), Directorate of Standardisation and a host of other entities.

DDP deals with matters pertaining to defence production, standardization, quality assurance and indigenisation of imported stores/equipment/spares. The products manufactured include arms and ammunition, tanks, armoured vehicles, heavy vehicles, fighter aircrafts and helicopters, warships, submarines, missiles, ammunition, electronic equipment, earth moving equipment, special alloys and special purpose steels. However, as regards its track record, it can be summed up in one word –‘dismal’.

DDP is guilty of shielding inefficient public sector entities whose proverbial complacence is solely due to their confidence in DDP’s clout to force the services to buy what they produce. Their confidence is not misplaced. All ploys are tried by DDP to ensure regular flow of orders to its public sector units. With the Indian armed forces being their captive customers, they never feel the need to modernise/upgrade their skills.

Further, DDP is also to blame for the poor quality of ordnance supplied to the armed forces. Normally, it is the prerogative of a buyer to satisfy himself as regard the quality of the products. Under no circumstances can a seller acquire the authority to validate the quality of the products being supplied. Unfortunately, many soldiers have lost their lives due to sub-standard arms, ammunition and explosives produced under the aegis of DDP and passed by its own quality assurance agencies (DGQA and DGAQA).

As the TATRA case revealed, the public sector is quite happy to assemble imported sub-assemblies, mark up the prices and make enormous profits. Promised schedules are never adhered to and delays are commonplace.

‘Buy and Make’ continues to be the favoured mode of most high value deals, i.e. initial purchase of limited quantity from a foreign producer followed by licensed production of bulk quantity in India. In all such cases, DDP ensures that a public sector unit is nominated to receive the technology and produce equipment in India. However, no genuine transfer of technology ever takes place. 

Gross ineptitude of DDP got duly exposed when it unveiled the Defence Production Policy (DPrP) with much fanfare in January 2011. DPrP stressed the need to ‘synergise and enhance the national competence in producing state of the art defence equipment within the price lines and timelines that are globally competitive’. It averred that the time was ripe to achieve the goal of self-reliance by ‘harnessing the emerging dynamism of the Indian industry along with the capabilities available in the academia as well as research and development institutions’.

Huge expectations were raised as the policy promised ‘to build up a robust indigenous defence industrial base by, proactively encouraging larger involvement of the Indian private sector in design, development and manufacture of defence equipment’. It talked of harnessing private sector’s management expertise; scientific and technological skills; and ability to raise resources to achieve self-reliance in defence preparedness.

DPrP turned out to be an exercise in futility. It was rich in semantics and rhetoric but totally bereft of any fresh ideas and innovative initiatives. Worse and most disappointingly, assertions made in DPrP were vague and lacked specifics. Neither a time bound road map was laid down nor major mile-stones identified for guidance and periodic stock-taking. In other words, the objectives spelt out were a compilation of a wish list rather than a practical action plan.

Most significantly, the policy stated that the Defence Minister would hold an annual review of the progress made in self-reliance. It will come as a shock to many to learn that six years have passed and not a single review meeting has been held. It is indicative of DDP’s utter apathy and incompetence.

Restructuring of DDP is a Prerequisite for ‘Make in India’

The government launched mission ‘Make in India’ in 2014. Three years of the present regime’s tenure are already over and not a single discernible measure has been allowed by DDP to integrate the private sector. True to its disposition, it has been bitterly opposing the introduction of the concept of Strategic Partnership, considering it to be a threat to the exclusive domain of the public sector.

If MoD is genuinely sincere in building up India’s defence industry and make mission ‘Make in India’ a success, it is essential that the full potential of both the public sector and the private sector are duly harnessed. For that, the government must provide  equal opportunities to the private sector in an environment of open competition. And, that cannot be achieved without restructuring DDP and the public sector entities under it.

DDP should in its present form is archaic and should be disbanded. To look after the interests of the defence industry as a whole, a Department of Defence Industry (DDI) should be created with two wings – one for dealing with the public sector and the other one for the private sector. Officials of DDI should possess breadth of vision to view all issues in larger national perspective rather than in narrow parochial and blinkered manner as at present. Lateral induction from the industry will be immensely beneficial.

All provisions of the defence procurement procedure that accord primacy to the public sector should be rescinded to facilitate a level playing field for all companies. Creation of two separate sections for ship building in 2011 (nomination and competitive) was a retrograde step. All orders should be placed on competitive basis. Private sector should also be considered for the receipt of imported technology. In many fields it is far ahead of the public sector. Therefore, it is in national interest that the most suitable company be selected to receive technology. This will save considerable time and resources as only incremental technology may be needed to be purchased.

MoD has no business to get involved in industrial activities. All DPSUs should be transferred to other ministries: there is no justification whatsoever for shipyards and HAL to be under the control of MoD. Similarly, as recommended by numerous expert committees, all ordnance factories should be corporatized.

In addition, there should be an institutionalized interface between MoD, services, public and private sectors for regular interaction at the policy making level. Such a platform will go a long way to promote mutual confidence and remove unnecessary irritants. Private sector associations (viz. CII & FICCI) should also be represented in various committees, albeit within the constraints of the security considerations. A mechanism should also be put in place to redress grievances. In case an entity feels wronged by an allegedly partisan and subjective decision, it should be able to seek immediate relief.  

Finally

The Comptroller and Auditor General (CAG) presented its reports for the preceding year to the Parliament on 21 July 2017. Reports Nos. 15,19 and 20  pertain to MoD. CAG has been scathing in its observations on the functioning of the ordnance factories. It noted that despite a decline of 16 per cent in assigned workload (targets), the factories could achieve only 33 per cent of targets in 2015-16. T-72 Bridge Laying Tanks (BLT) variants were scheduled to be delivered in a phased manner during 2012-2017 but deliveries were yet to commence.

CAG also observed that the cost of overheads in ordnance factories accounted for 30 per cent of the cost of production. The high overheads were a consequence of high committed cost on a workforce that was not directly deployed for production. Referring to the much-proclaimed profitability of defence public sector undertakings, CAG revealed that most of them received huge advances from MoD and interest earned on bank deposits constituted major portion of their profit after tax during the preceding three years.  

With total dependence on an inept and unproductive public sector, it is not surprising  that the modernization of the Indian armed forces is lagging behind by up to 10 years, with over 50 percent of equipment nearing obsolescence and needing immediate replacement. Whereas there are many contributory reasons for this sorry state of affairs, DDP’s culpability far exceeds all other factors.

No improvement can be expected unless DDP is totally overhauled. Minor tinkering with a few irrelevant provisions of the procedure will result in cosmetic changes of peripheral importance. Radical reforms need a paradigm shift in approach. It is for MoD to display its resolve to reform the system through bold and innovative initiative. Mission ‘Make in India’ should not be allowed to degenerate into a meaningless exercise due to DDP’s intransigence.*****