The Department Defence Production (DDP), under India’s Ministry of Defence (MOD), oversees defence manufacturing in India and has direct control over nine defence public sector undertakings (DPSUs) and the Ordnance Factory Board (OFB) besides some other entities. In recent times, DDP has focused on fostering greater innovation and efficiency at the DPSUs & OFB, enhancing the domestic vendor base and facilitating ever greater participation of the domestic private sector in defence production. Delhi Defence Review’s Editor in Chief, Saurav Jha, caught up with Dr Ajay Kumar, Secretary, DDP, MOD, at his office to discuss various new initiatives presently underway at DDP.
Saurav Jha: What are your views on the further opening up of India’s defence production to private production?
Dr Kumar: We need to open up and bring in energies from beyond the public sector into the world of defence production. That is the broad thrust of what we are doing. This translates into many specific initiatives that we have taken in recent times. The larger idea is that in defence production there are some things that are obviously sensitive from a national security point of view but there are a lot of things which can be opened up and offered to the private sector. The defence production sector, is in between operational defence, which is much more sensitive and secretive, and general manufacturing. We (i.e. defence production) are, in a way, in between these domains. The whole effort is therefore to create an ecosystem wherein we are able to take advantage of India’s overall capabilities, from both the public and private sectors, whether in manufacturing, in innovation or indeed in human resources, to enhance India’s might in the defence sector.
Saurav Jha: Would you please elaborate on some of the specific initiatives that you allude to?
Dr Kumar: To facilitate greater participation of the private sector in defence production, several initiatives have been rolled out in last six months. These include the Revised Make-II procedure, the creation of a Defence Investor Cell (DIC) under the Department of Defence Production (DDP), implementation of a Trade receivables electronic invoice discounting system (TreDS) at DPSUs and third-party certification in some areas.
Take the case of the DIC, where we have said that people who have grievances in the defence eco-system can approach this cell and raise whatever grievances they might have. And we’ll take it up with whoever it is, whether it is within the Defence Ministry or outside the Defence Ministry. And we’ll try to sort out the problem.
Then there is the issue of making it easier for vendors to get working capital between orders, for which we have recently implemented TreDS in all DPSUs. Our DPSUs currently have a vendor base of nearly 5000 micro,small and medium enterprises (MSMEs) and this new measure will help these vendors get working capital from financial entities in a short period of time via a government mandated system which will provide them with immediate discounting of the invoices that they raise with the DPSUs etc.
Another key initiative aimed at increasing efficiency across the defence supply chain is the institution of third party certification for vendor supplied components and sub-systems. For HAL-related (i.e. aerospace) items this has been put in place since February this year and we are currently rolling out a similar facility for land-systems. The whole idea is that instead of having one quality testing agency, depending on the item, a vendor will now be able to approach multiple agencies. This does away with the monopoly of any one entity. Monopolies are not the most efficient systems anyway.
Saurav Jha: But you are not diluting the role of DGQA (for land systems) and DGAQA (for aerospace systems) in the process?
Dr Kumar: We are not diluting their role. We are actually enhancing their role. We are giving them a higher-role where they will now be managing third-party certifying agencies, in addition to executing their present role. So DGQA or DGAQA, as the case may be, becomes the manager of a whole ecosystem of certification, doing the higher-end work. Testing is merely like doing the foot-soldier’s job where you go and test something and give a result. But managing the people who do the testing is a higher-level job, so to speak. So DGQA and DGAQA are actually at the highest level, where they will be managing the third-party certification agencies. From a vendor’s perspective, they’ll be able to go to a third-party or they could go to DGAQA/DGQA. Besides, given that the defence manufacturing industry is growing, it will not be possible for any one agency to cater to all the requirements of industry.
Saurav Jha: So DGQA and DGAQA are now going to become some sort of assessment bodies for third-party certifiers?
Dr Kumar: Yes, that it correct. That is in addition to what they are doing. They have this as an additional responsibility. DGQA’s role has been enhanced. In addition to testing, they will be doing the role of an assessment body.
Saurav Jha: And as you mentioned earlier, DGAQA has already gone down this new path?
Dr Kumar: HAL and DGAQA have jointly come up with a mandate for third party certification because today in the aerospace sector, we have only HAL as the system integrator with a vendor base. With HAL, DGAQA has come up with a third-party mechanism which is now available to all of HAL vendors. It used to be HAL and DGAQA who used to go and certify the quality. The frameworks for third party certification are now in place and implementation is under way. An expression of interest (EoI) for inviting such third parties should be out shortly. Of course, with any new implementation scheme, there will be learnings involved, there will be some implementation issues that will need to be smoothened, etc. But we have certainly created frameworks for all of this in the last six months.
Saurav Jha: Given that the focus seems to be on measures that increase the efficiency of outsourcing by DPSUs, what is being done in terms of promoting greater innovation at the DPSUs?
Dr Kumar: To be sure we now have a major focus on generating in-house intellectual property (IP) at the DPSUs. Major OEMs around the world have hundreds, sometimes thousands of IPs that they register in their name in the course of developing a platform but this something that our DPSUs have not really focused on (with the exception of HAL), despite the fact that there is a lot of interesting work happening in our Defence Sector. Going forward, innovation is going to be the most important determinant for our capability to come up with new military technologies. After all, the defence sector has been at the frontier of technological advancements, if history is anything to go by.
Saurav Jha: It is the leading industrial sector.
Dr Kumar: It’s also the leading technological sector. It forces technology to do the next bit, in order to get an edge over the so-called enemy. Innovation is very important. We are trying to build a culture of innovation and new technological advancement. Of course, this culture exists to a degree already, given that there is a lot of indigenisation that has happened and there is some innovation that has happened. This has been there. There are a lot of platforms that have been developed in India, whether you look at the LCA, or ALH or LCH, the Arjun or indeed the Akash surface to air missile system. But IPs have not necessarily been taken. These are big platforms and if you go to the component-level, there are hundreds of components that have been designed and developed in India for which IPs have not necessarily been registered. The same is the case for a number of components that have been substituted on imported platforms through domestic efforts. So, to imbibe this culture of innovation, to underline that the creation of IP is extremely important, we have now implemented a process of registering IP across all our DPSUs. We have created an IP Facilitation Cell under DGQA that will assist DPSUs and OFB units in the process of identifying and registering IP. We have found that HAL has been one organization which has been active on this front and has done very well. Their model can be an example for others.
Saurav Jha: Yes, their patent count is growing.
Dr Kumar: Other DPSUs have also been doing some work. BEL has done some work, but I think they are still very, very conservative when it comes to registering patents/IPs. We have now created a mechanism by way of which we are now also creating IP cells in all these companies which will examine the kind of innovation that is happening across the board, then taking it up for patenting etc.
Saurav Jha: But as you said, for Indian defence production to graduate to the next level, the economy’s overall creative energies will have to be harnessed. In that context, would you apprise us about the status of the Innovation for Defence Excellence (iDEX) initiative started by you? Moreover, how does this compare with the recently liberalized Make-II procedure?
Dr Kumar: As far iDEX is concerned, at the moment, a Defence Innovation Organization(DIO) has been incorporated as a ‘not for profit’ under Section 8 of the Companies Act 2013 with HAL and BEL as its founding members. All nine DPSUs will be encouraged to become members of DIO. DIO has an initial corpus of Rs 100 crores and will basically fund and manage the iDEX team which will engage in various activities to foster innovation related to the defence sector.
Make-II has been a great success. In about four months since February 2018, we have given in-principle approval to 25 projects and in 4 cases, EoI has been floated. These are all cases where firms from both the private sector and public sectors can participate and compete. Make-II is generating healthy competition in the defence manufacturing industry, while simplifying procurement and reducing timelines.
Saurav Jha: Now while the move to liberalize Make- II and create iDEX will likely be well received, the Indian private sector is extremely concerned about the fate of long delayed mega projects that are supposed to be progressed under the Make-I procedure. I am of course talking about projects such as TCS, BMS and the FICV programme. What is the current state of affairs with respect to these programs?
Dr Kumar: I would not want to comment on the precise status of specific programs. But it is being evaluated and appropriate follow-on action is being taken. But it is clear that there are a lot of learnings from Make-II for Make -I as well.
Saurav Jha: In recent times, the private sector is also concerned about the fact that they are not really getting a level playing field to the extent that they have been promised. For instance, they point to the fact that OFB has already been nominated to produce 25 percent of the military’s new assault rifle requirement. How would you respond to this?
Dr Kumar: In the Department of Defence Production we treat public and private defence manufacturing firms on an equal footing and we are indeed committed to enhancing the role of the private sector in defence production. Today, we have designated nearly 275 items produced by OFB as ‘non-core’ and users are therefore now free to source these from the domestic private sector provided certain indigenous content level requirements are fulfilled. As far as the specific example that you mentioned, this decision was taken on the basis of the fact that OFB has built up sizeable capacity to manufacture such rifles over the years, and it would be prudent to utilize that and not let it remain idle.
Saurav Jha: But OFB will also be allowed to bid for the tender to procure the remainder of the assault rifle requirement, correct?
Dr Kumar: That is correct.
Saurav Jha: Now from the other side of things, there are also reports which suggest that the government will not make ab initio investments to create greater capacity in the DPSUs or OFB? Are these reports valid?
Dr Kumar: I don’t think one can just assume such a thing. If you look at last year, certain investments have quite clearly been made towards enhancing DPSU production capacity. Future decisions will be taken based on an appraisal of the evolving state of the defence ecosystem.
Interview transcribed by Payal Nagpal
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