An incident related by Lt Gen Baljit Singh, a veteran gunner officer that took place as far back as 1974 comes to mind when analysing the role that the MSMEs (Micro, Small and Medium Enterprises) can play in realising the national goal of ‘Make in India’. He was then commanding a SP Artillery Regiment equipped with the ABBOT Field Gun. At that time, recalls the General, 11 of the 18 Guns in his Regiment were declared “out of action” for want of replacements for the electric diode that activated the firing mechanism. This status prevailed for over a year as their was an embargo in the warranty clause that they could not use any derivatives and the spares had not been bid for in the contract. The regiment took the initiative of stripping the circuit and finding a replacement from the Bangalore electronic market for a mere Rs 20/- per piece. The guns were made functional and they all fired successfully in the Annual Practice Camp which was overseen by a Gunnery Instructor who reported that “All 18 guns fired to perfection on all ten days.”
The above incident simply highlights the fact that great capability exists within the country to manufacture a vast amount of equipment and spares required by the armed forces, which as of now is being imported. Let us now take a look at the more recent experiences of an Indian entrepreneur, Mr Sanjay KA, Director CbS. His firm indigenously developed in a period of two months, a ‘high technology engineering component’, which was being imported by one our defence ordnance factories in the hundreds at a price of Rs 30,000/- per piece. In a chance meeting with one of the defence GMs, the latter waxed eloquently on the ‘Make in India’ focus being given by the government to defence equipment. In the course of the discussion, the GM apprised Sanjay of a particular equipment being imported and casually enquired whether such a component could be developed in India, on a ‘No Cost, No Commitment’ (NCNC) basis. Sanjay took a sample and gave him the product within two months, of course on a NCNC basis. This was tested by the ordnance factory and found to be totally suitable. The cost of the equipment was a mere 7000/- which was less than 25 percent of theimported cost and the head of the ordnance factory gave a letter of appreciation to the firm for indigenously developing a high technology product in two months, which was being imported in large numbers. The firm has not taken any money for its prototype nor has it been given any order, but that is not the purpose of relating this incident. It is simply to highlight the fact that a great deal of talent is still lying untapped within the country, which if exploited could give great impetus to the ‘Make in India’ thrust, reduce foreign exchange outgo, increase employment and as importantly, strengthen the defence industrial base of the country.
As of now, India is mindlessly importing hundreds of defence related components which can easily be developed and manufactured by the MSMEs. A question that can legitimately be asked is ‘what prevents Indian industry from manufacturing such equipment on its own’? Apparently, the answer is rather mundane. Indian industry does not know what is required by the user. There is thus a need to make the information available through web sites, display rooms, regular exhibitions, interactions with industry, etc. The government must publicly disclose the information related to parts and components being imported (obviously, without intimating the end use), to enable Indian industry to become a player in India’s defence growth. In all probability, for many of the components, core capability already exists to manufacture such products of similar if not enhanced and superior quality. Only if private industry knows what is needed, will it be in a position to produce the same. As of now, in the name of secrecy and national security, Indian industry is not aware of what is required. The only people to benefit from such a situation is obviously the import agents, most of whom know how to tweak the system to their advantage. Thereafter, if the equipment is suitable and cost effective, there must be a commitment to buy the same. This would require a change from NCNC to NCFC – No Cost Full Commitment.
As of now, the Directorate of Indigenisation in the Army Headquarters compiles information pertaining to imports. However, this pertains only to direct imports. The Directorate has no mechanism to capture the imports by ordnance factories (OFs) and defence public sector undertakings (DPSU). Obviously, something needs to be done to provide all information in a format conducive for taking business decisions i.e. grouped for electronics, rubber parts, machined components etc. with approximate annual requirement and target price. This falls within the purview of the MGO’s Branch, which should take corrective action.
A suggestion given by Mr Nalin Kohli, President, Association of Small & Medium Knowledge Industries andMember, National MSME Board, is that the principles that apply to‘Make Procedure’, should apply to indigenisation contracts also. In the former, (where only large companies can participate), two important principles are incorporated. First, 80 percent of the development cost is borne by the Government and second, there is an assured initial order/s. As of now, revenue purchases are governed by Defence Purchase Manual, which has a provision for paying 80 percent of development cost but there is no provision for an assured order. However, even the provision for a 80 percent development cost has not been used even once. Mr Kohli suggests that if make principles are incorporated in indigenisation orders and made applicable to MSMEs doing development work for armed forces, ordnance factories and PSUs, it could lead to a sharp increase in the indigenous content of defence procurement.
Evidently then, if MSMEs have to come into their own, they need conducive policies which will enable growth. There is an information vacuum which must be filled, to at least let industry know what is required. That is the first step. Once Indian industry is aware of what the defence sector needs and is provided information of the components that are being imported, it would be in a position to step in to fulfil the requirements. But that is only the first step. There must be firm commitments to buy the products, once they are found to be of the requisite quality and of reasonable cost, otherwise there is no incentive for the manufacturer to invest his time and resources. The government could also step in with financial assistance for the development of components for which policies must be framed.
From the user point of view, quality control is of prime importance. Replacing imported items with indigenous manufacture is only worthwhile if the items perform to the desired standards. The Army has had bad experience of indigenised components manufactured by ordnance factories and that acts as a dampener, besides losing confidence in own products. A recent report in the Financial Express states that US defence major Boeing has terminated a contract with state-run Hindustan Aeronautics (HAL) for component supplies to the former’s war and commercial planes being inducted into the Indian Navy. This decision of Boeing came after repeated reminders to HAL about its “poor quality” of production. Evidently, better strategies are required by India’s policymakers in order to bolster the order books of defence PSUs.
Finally, MSMEs do not have the clout of large companies. It is important that they collectively address the issues that concern them, and also use the MSME Ministry in the Government of India to act as an evangelist. We are at a defining point in our history where the nation has a political leadership that is focused on taking the nation forward. It is now for the other players to also do their bit in this effort.