Defence PSUs, an underutilised asset

One of the biggest concerns of Defence Public Sector Units (DPSUs) is that no one seems to have a kind word for them. Apparently, they cannot do anything right. The general feeling among the public is that the Public Sector Undertakings (PSUs) have not adequately armed the defence forces, resulting in huge arms imports, they have failed to produce systems required by the armed forces defeating the self-reliance objective set by the government, they are over-dependent on external sources for raw material, components and spare parts, and capital goods for production requirements.

Public apathy goes to the extremes — no detail is unworthy of mention. ‘DPSUs are deadweight. Despite outputting several products, not an iota of technology has been absorbed let alone innovated over the past so many years, DPSUs follow non-professional attitudes, are inefficient, follow low-quality practices and manage to wreak havoc on projects they take up. DPSUs neither ingest foreign technologies nor let the private sector benefit from them.’

Those who work in DPSUs know this is a one-sided portrayal. Data would confirm that the existing manufacturing infrastructure of DPSUs today contributes to approximately 63% of the defence manufacturing output of the country. With strong R&D setups and large pool of talented scientists, engineers and skilled manpower, they contribute towards product design and development, and absorption of Transfer of Technology (ToTs) and Maintenance Transfer of Technology (MToTs) so essential to addressing the needs of the armed forces.

Nevertheless, champions of reasonableness in cost of equipment purchase do admit how rational bid prices become when a DPSU is one of the bidders. We have noticed time and again that when a PSU participates among worldwide bidders, the bid and project costs drop drastically and a low-cost platform is ensured. Each of us today, obsessed with budgets and the costs of defence purchases, has got to appreciate a PSU’s role in keeping bid prices in check.

Another key element in DPSU involvement is the womb to tomb support given to each equipment supplied by the DPSU. Even after 8-10 years, a DPSU would unquestioningly continue to replace parts free of cost under warranty irrespective of the original contract. Service camps are repeatedly conducted and all repairs and parts replacements routinely undertaken. A DPSU does not transact with the armed forces purely on commercial terms.

The same applies to R&D projects. Designing, by its very nature, requires parts and layouts to be constantly reviewed and the locations frequently changed before the optimum position is determined. How can a pure commercial contract be tailored to accommodate indeterminable situations?
If it were not for the DPSUs, cost for each change would have to be laid out and the number of changes predetermined; this is impossible in the current climate of frugal engineering that Indian R&D specialises in. A DPSU can offer the flexibility and has the gumption to accommodate all the situations that ensure a satisfactory product.

Defence procurement in the highly complex and competitive Indian ecosystem, however, requires systemic decision-making at every stage. For example, all PSU’s have to subcontract a fixed percentage of their production to Micro, Small & Medium Enterprises (MSMEs). Doesn’t the rigorous accountability in the DPSUs ensure better governance since all decision-making comes under the purview of the three Cs – CBI, CVC and the CAG? 

Coming to exports of military equipment, we have three Bengaluru-based DPSUs — HAL, BEL and BEML — who have been relatively successful although export volumes may be termed meagre when compared to global standards.

It is the marketing strategy, however, that requires a thorough integration with government protocol, overseas Indian embassies, Lines of Credit, EXIM bank credit interfaces. Especially for lethal defence products, clearances from the defence ministry of the recipient government are mandatory. A government undertaking navigates this government-to-government interface much better.

After outputting several products over the years, cutting edge technologies have been absorbed and innovated. The ingested foreign technologies are passed on for the private sector to benefit from as DPSUs co-opt private sector partners and integrate them into the value chain. As major producers of advanced systems and armaments to the defence forces, they ensure value addition.

In today’s world, the universal remedy for all situations is to rush to the private sector. But when considerable money has already been spent on raising expertise in particular fields, we have capable DPSUs that are in a position to set benchmarks for the private sector in defence production.
As we transition towards self-reliance and export capability in defence procurement, DPSU facilities, expertise and manpower created from public funding must be optimally utilised for the nation’s benefit. DPSUs would be very eager to discharge this responsibility.

(The writer is Associate Professor, MBA Department, Sai Vidya Institute of Technology, Rajanukunte, Bengaluru)

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