Defence manufacturing needs long-term strategy

The burgeoning demand from Indian defence establishments for aeronautics and defence electronics has really propelled Indian manufacturers to think differently to take on the design-led manufacturing. The Indian defence manufacturers are emulating the great strides made by Indian information and engineering technology to come up with an ecosystem to compete globally.

As per the Defence Electronics and System Design Policy Recommendations report brought out by the India Electronics and Semiconductor Association (IESA) and Nasscom, along with global strategy consulting firm Roland Berger, the aeronautics and defence electronics market in India is estimated to be in the range between $70 billion and $72 billion in the next 10-12 years. Almost $53 billion to $54 billion comes from electronics spend as part of platforms.

The just-concluded conclave of aerospace and defence electronics industry players, DEFTRONICS 2016, was an eye-opener of sorts for the Indian defence industry, as Indian manufacturing and software industries found a level playing field to address the global business opportunities at the same time meeting new requirements at the local market.

The Indian defence manufacturing has been under the firm control of ordinance factories and DPSUs (Defence Public Sector Undertakings), supported by research arms like DRDO (Defence Research and Development Organisation), CSIR (Council of Scientific and Industrial Research), and other leading educational institutes. As defence manufacturing takes long gestation and critical technologies were not accessible, the government played a key role in it. India’s aeronautics and defence demands have increased as there was need for procuring products off the shelf where licensing and upgradations were in the hands of the supplier.

When the ‘Make in India’ and offset clause came into existence, Indian companies came up with continuous efforts of design-led manufacturing. This has opened up opportunity Indian industry to create capabilities. To facilitate the Indian industry to optimise this opportunity and create world-class companies and capabilities, there is a need to integrate Indian companies into global value chains of OEMs (Original equipment manufacturers), and to build an ecosystem.

According to Bharat Electronics (BEL) General Manager (Technology Planning) C P Suresh, support systems are very much required in the defence industry. “But the key issue is that when the product is getting inducted it will become obsolete. We have to look into design-led manufacturing where we should have system level understanding of the process,” he said.  Suresh said the full-life cycle of a defence product is 15 to 20 years and for this process to sustain we need a design-led manufacturing. “We should have a collaborative IP development programme. A classic example of this project is Akash missile system where DRDO, DPSUs and a cluster of private firms participated,” he said.

M N Vidyashankar, IESA president, opined that one of the major issues for Indian companies is the lack of visibility in defence manufacturing. “This lack of visibility limits the ability of Indian companies to proactively plan and create competencies knowing that there is a strong government orientation to look at similar segments,” he said.

Delays distract
It is evident from experience that one of the best ways to help establish a deep and robust industrial base is placing orderers to local OEM players. Electronics is a level 2 industry. The companies in this segment secure contracts once OEMs receive contracts. Delays in an award of contracts distort the abilities of players.

Structural issues must be sorted out in order to streamline the transfer of technology and push manufacturing in India. From the manufacturing perspective, DPSUs have traditionally occupied the entire breadth of the supply chain, and limited outsourcing from DPSUs is depriving the Indian industry of considerable opportunities. On the other hand, the private industry has its own set of issues which includes critical shortages of key infrastructure and talent. The recommendations for each of the above issues have been categorised into short-term, medium-term and long-term action plans.

According to Rahul Gangal, partner of global strategy consulting firm Roland Berger, electronic is a horizontal that cuts across verticals in defence. “The key challenge is to build a local defence electronics industry that can meet the needs of the Indian programme and also be a basis for an export launch-pad,” he said. Gangal said for the creation of a viable defence electronics industry, the creation of common infrastructure is a key aspect. “Such infrastructure can usually not be built by individual companies and globally the norm is for the government to create this infrastructure that private industry can access on a service fee basis. The same model should be replicated in India,” he said.

Robust industry
For creating a robust industry, it is important to ensure cost base of Indian suppliers, including their profitability expectations are aligned with global needs and norms.
“Currently, this is difficult as profitability expectations of Indian manufacturers, driven by high cost of capital in India, is much higher than the global average. In such a scenario, it is critical to come up with a structure that subsidises the Indian cost structure. Hence, a model similar to ESDM (Electronic System Design and Manufacturing) can be leveraged to provide incentives for A&D electronics manufacturing. In the case of technology transfer, it is also important for encouraging  design by Indian OEMs so as to retain full product IP and future commercialisation potential in India,” said Vidyashankar.

Uma Maheshwar, Executive Chief Consulting Engineer, GE Aviation- India, said “India will have to see the global technological changes in the aerospace and electronics to become the leader in the space.”

“ Since a digital wave is happening globally, all the flying material now onwards will have a hybrid propulsion, combining both electricity and gas turbines. The warfare space will shift from electronics to digital. Additive manufacturing will bring a sea change and there will be no more component manufacturing but only system design and manufacturing,” he said.

Rohit Joshi, co-founder of Logic Fruit Technologies, said “there is a glimmer of hope in the system as the government is pursing I-Highway Programme to secure entire India from digital attack, UAV-based security system and videos surveillance very systematically.

“Indian companies have forgotten the fit and finish in the product development in the aviation and electronics industry. We have seen how our auto industry has been evolved by building the entire ecosystem in the country,” said Joshi.

To cater to the market opportunity, the Indian defence industry should create world-class companies and capabilities that address not only India opportunities but also leverage from integration into global value chains of OEMs. The government should take steps with a long-term vision to make it happen.