Defence manufacturing in India: Challenges to address

While government has taken many steps to boost local manufacturing, the lack of focus on electronics and materials is key challenge for India to become a globally competitive base, says Rahul Gangal

Defence manufacturing in India is undergoing a step function change. There have been substantial measures taken to boost local manufacturing in India and to ensure that this capability is built in both the public and the private sector. The underlying basis for this focus is improved self-reliance in defence equipment.

This aim is being addressed at one level through tweaking of the policies that are redundant and at another by supporting defence manufacturing industry through orders, investments and technology. As a corollary, there is increasing focus on Indian company led local manufacture (Make focus) and supply to develop a viable indigenous defence manufacturing base. While the above unfolds, it is important to ascertain the substantial positives that are being achieved and the negatives that still require focus.

On the positives, the government has displayed a very clear focus and a mindset that is beyond the traditional to tackle the issue. There is clarity in ensuring focus on the larger issues and a willingness to rationalise policies. There has been a refreshing perspective in tackling issues logically. 

The impact of this is starting to be seen in larger quantum of participation of Indian companies in global supply chains. The overall quantum of A&D procurement from India has increased. There is an emergence of a clutch to companies with turnovers in the range of Rs 200-1000 crore with substantial credentials. This ‘club’ was sparse even till a few years back indicating at that time that while there was promise demonstrated by private sector in India, from a global perspective the players were sub-scale. Today these green shoots are no longer mere saplings of industrial activity but emerging tier 2 competitors at a global scale. A study of this segment highlights that at a tier 2 level (two levels below a platform integrator), Indian companies are rapidly emerging in the A&D supply. These companies will, it is expected, in near term, move up the supply chain and start playing in the tier 1 space as well. 

Apart from the emergence of these ‘stars’, the other trend that seems to validate the medium and long term health of this trend is the early trend of creation of small clusters of industry around these companies. These clusters are today in a phase of early development and while they are nascent, these do suggest that industrial activity in this segment is substantially deeper than a single star.

On the negatives, there are still many challenges that sustain. At this juncture, I am taking the liberty of highlighting two specific challenges that need rapid addressal and which have the risk of derailing this emerging positive story of the Indian economy. 

Rahul Gangal, partner, Roland Berger

The first challenge is around the lack of focus on two horizontals that cut across all major programmes - electronics and materials. This focus is critical because in electronics, technology lifecycles are today down to 5-7 years and hence are incompatible with a procurement model that evolves from a 20 year vision. It is usually seen that the definition of system need (qualitative requirements), changes many times over, often even before the procurement process can be effectively concluded.  Fortunately, the awareness of this issue and the need of a differentiated focus on electronics is starting to get the attention from the government.  

It is on materials though that the larger Indian challenge lies. India’s competence in material sciences has not been historically deep enough to provide for this challenge thrown by A&D sector. This problem is compounded as not having enough understanding of material sciences also limits our ability to understand, price, and deliver platforms.

Today this issue also reflects in our ability to scale up manufacture - availability of materials is a constraint. Going beyond, there has to be a sustained focus on R&D in the materials sciences space. No country in the world has been able to develop a robust A&D manufacturing ecosystem without a sustained R&D focus on material sciences. India will be no exception to this rule too. The answer lies in the hard grind of developing enough local competence in material sciences - an act that would require far closer association of industry and academia with defence research establishments.

The second challenge is around talent availability for the industry. The current sources of supply of talent are largely from the defence PSUs and user services. Neither are they adequate in quantity nor in terms of skills and quality, when evaluated from a perspective of the magnitude of demand arising from the need to build a robust homegrown industry.

Indian industry today is starting to feel the crunch of this lack of talent as it expands its base rapidly. The issue is critical not only from a managerial and technical standpoint but also from a perspective of enough capability of monitoring programmes at the government. The answer to this issue is simple but not short-term. It lies in building enough engineering and research capability in our institutions. It again leads us back to the need for a stronger industry-academia interface.

Addressing the above issues is critical to building a relevant, sustainable and globally competitive base for defence manufacturing in India.
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Rahul Gangal is a partner at Roland Berger, a global strategy consulting firm