Impact of Defence Offsets on Military Industry Capability and Self-Reliance: The Road Ahead

206 Pages·2012·6.87 MB·English

by  Dr. S. N. Misra

IMPACT OF DEFENCE OFFSETS ON
MILITARY INDUSTRY CAPABILITY
AND SELF-RELIANCE
THE RoAD AHEAD
S.N. Misra
Dr
Foreword by
Dr A.P.J. Abdul Kalam Former President of India
Introduction by
AirCommodoreJasjit SinghAVSM, VrC, VM(Retd)
KNOWLEDGEW ORlD
KW Publishers Pvt Ltd Centre for Air Power Studies
New Delhi in association with New Delhi
The Centre for Air Power Studies is an independent, non-profit, academic research
institution established in 2002 under a registered 'Ihlst to undertake and promote policy
related research, study and discussion on the trends and developments in defence and
military issues, especially air power and the aerospace arena, for civil and military purposes.
Its publications seek to expand and deepen the understanding of defence, military power,
air power and aerospace issues without necessarily reflecting the views of any institution or
individuals except those of the authors. 1
Jasjit Singh
Director
Centre for Air Power Studies
P-284, Arjan Path
Subroto Park
New Delhi 110010
Tele: (91-11) 25699131
E-mail: [email protected]
© 2012, S.N. Misra
All rights reserved. No part of this book may be reproduced or transmitted in any form
or by any means, electronic or mechanical, including photocopying. recording or by any
information storage and retrieval system, without permission in writing.
Published in India by
Kalpana Shukla
KW Publishers Pvt Ltd
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T: [phone] / 43528107 E: [email protected] • www.kwpub.com
ISBN 978-93-81904-08-4
Printed and bou1ld in India
Contents
Abbreviations ix
Foreword xiii
Preface xvii
Overview xxi
Defence Offsets: An Introductory Essay xx.iii
I. India's Defence Sector 1
2. Review of Literature and International Experience 13
3. India's Offset Policy and its Impact 35
4. Indirect Offsets and Economic Development 99
5. Major Policy Issues 119 \
6. Summary, Suggestions and Conclusion Uil
Bibliography 173
Index 185
Dedicated to
Nandita
Abbreviations
AESA Active Electronic Scanned Array
AFVP Advanced Futuristic Vehicle Programme
ATAM Air-to-Air Missile
ATGM Air-to-Ground Missile
ATVP Advanced Technology Vehicle Programme
AWACS Airborne Warning and Communication System
BDL Bharat Dynamics Limited
BEL 'Bharat Electronics Limited
BFSR Battlefield Surveillance Radar
C&AG Comptroller & Auditor General
CAPS Centre for Air Power Studies
CDE Customs Duty Exemption
CEMILAC Centre for Military Aviation Certificate
CEO Chief Executive Officer
CIDSC Chief of Integrated Defence Staff Committee
CII Confederation of Indian Industries
CKD Completely Knocked Down
eve
Central Vigilance Commission
DAC Defence AcquisitioIJ Council
DC Developed Countries
DG(ACQ) Director General Acquisition
DGAQA Director General Air Quality Assurance
DG,IDSA Director General, Institute of Defence Studies and Analyses
DGQA Director General Quality Assurance
DIB Defence Industrial Base
DIOA Defence Industry Offsets Association
DIPP Department of Industrial Policy·and Promotion
DOFA Defence Offsets Facilitation Agency
DPSU Defence Public Sector Undertaking
DPP Defence Procurement Procedure
DSO Defence and Security Organisation
X IMPACT OF DEFENCE OFFSETS ON MILITARY INDUSTRYC APABILITY
DWT Dead Weight Tonnage
BASA European Air Safety Agency
EDA European Development Agency
EO/IR Electro Optic I Infra Red
ERV Exchange Rate Variation
EU European Union
EW Electronic Warfare
FAA Federal Aviation Agency
FDI Foreign Direct Investment
FE Foreign Exchange
FGFA Fifth Generation Fighter Aircraft
FPA Focal Plane Array
FRA Fuel Refuelling Aircraft
GAO General Accounting Office
GDP Gross Domestic Product
GHE Ground Handling Equipment
GOCO Government Owned Company Operated,
GPS Global Positioning System
GSE Ground Support Equipment
GT Ground Tonnage
HAL Hindustan Aeronautics Ltd.
HDB Helicopter Design Bureau
HSL Hindustan Shipyard Limited
IC Integrated Circuit
ICV Infantry Combat Vehicle
IDI Indian Defence Industries
IDSA Institute of Defence Studies and Analyses
INS Inertial Navigation System
IOC Initial Operation Clearance
IP Industrial Promotion
IPT Industrial Participation Teams
ISRO Indian Space Research Organisation
IT Information Technology
N Joint Venture
ABBREVIATIONS xi
L&T Larsen & Toubro
LCA Light Combat Aircraft
LDC Less Developed Countries
LOA Letter of Agreement
LRU Line Replacement Unit
LTIPP Long-Term Integrated Perspective Plan
LUH Light Utility Helicopter
MOD Ministry of Defence
MBT Main Battle Tank
MBRS Multi-Barrel Rocket System
MCMV Mega Container Marine Vehicle
MDL Mazagon Dock Ltd.
MHA Ministry of Home Affairs
MHR Man Hour Rate
MIC Military Industrial Complex
MMRCA Medium Multi-Role Combat Aircraft
MRO Maintenance Repair and Overhaul
MRTA Multi-Role Transport Aircraft
NATO North Atlantic Treaty Organisation
NBC Nuclear Biological Chemicals
NIC Non-Industrial Countries
NMCC National Manufacturing Council Committee
OEMs Original Equipment Manufacturers
OFs Ordnance Factories
OFB Ordnance Factary Board
OPV Offshore Patrol Vessels
PMO Prime Minister's Office
QA Quality Assurance
QRSAM Quick Reaction Surface-to-Air Missile
RFP Request for Proposal
RLG Ring Laser Gyro
RTA Regional Transport Aircraft
SA to RM Scientific Adviser to Raksha Mantri
S&T Science & Technology
xii IMPACT OF DEFENCE OFFSETS ON MILITARYI NDUSTRYC APABlLITY
SIPRI Stockholm Institute of Peace and Research
SKD Semi-Knocked Down
SME Small and Medium Enterprises
SRI Self-Reliance Index
SRSAM Short Range Surface-to-Air Missile
STC State Trading Corporation
TCS Tactical Communication System
TOT Transfer of Technology
TWT Travelling Wave Tubes
UAV UnmannedAerial Vehicle
UK.TI United Kingdom Trade and Investment
VSAT Very Small Apperture Terminal
WTO World Trade Organisation
I
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FarmePr residenotfI ndia --
Foreword
I am very happy to write the foreword for the book Impact of Defence
Offsets on Military Industry Capability and Self-Reliance - The
Road Ahead by S.N. Misra. India in the 2181 century is poised for a
1
knowledge resurgence in the;i ndustrial and services sectors. Historically,
India has been a buyer of state-of-tlte-art defence equipment aµd now
there is a gradual transformation from being a total buyer to a limited
manufacturer and system designer, working towards progressive self
reliance in critical technologies. The self-reliance index of the nation has
risen from 0.3 during the 1990s to nearly 0.45 in the first decade of the
21"1 century. We have a long way to go and the country aspires to raise
this index to at least 0. 7 by the year 2020. This self-reliance, apart from
facilitating the nation to formulate its own independent foreign ·policy,
will also be an economic contributor, especially when other forms of
export will become difficult due to the economic turbulence faced by
the West. What is the methodology which the country has to follow for
realising this goal? The way forward towards this, is the subject of Mr
Misra's book.
After the industrial liberalisation capied out by the government in
1991-92, there has been a considerable number of innovative policy
measures taken by the government .to improve the technological growth
and competitiveness of the manufacturing sector. Today, the manufacturing
sector is contributing nearly 25 percent of the Indian Gross Dome~tic
Product (GDP). Though the industries in the civilian sector have grown
at a phenomenal rate, the growth in the defence sector has been slightly
lagging behind. The reasons are: the long duration involved ,in the
defence procurement process, particularly of large high value systems,
the dynamics in the technological environment and underutilisation of
xiv IMPACT OF DEFENCE OFFSETS ON MILITARYI NDUSTRYC APABILITY
production capacities in the Western world contributing towards reduction
in our capacity to field state-of-the-art equipment at or below the prices
offered by international competition.
In fact, when the country can provide a large amount of subsidy in
the essential sector, import r_eductionb y the Services due to indigenous
procurement should itself merit consideration of deemed exports and
subsidies to the extent the environmental factors in the country contribute
towards reduction in competitiveness.
The government, in the last decade, has evolved an offset policy
for defence imports, wherein for every import made by the country, the
exporter has to execute 30 percent of the export value within India itself.
However, this offset can be in any form, at the discretion of the system
supplier. In fact, the condition for this offset should be such that the
technology oflndia is upgraded in those areas which have been responsible
for the import. This, in practical terms, is .not taking place· due to the
vested interests of the suppliers. They would like to keep the importer as
a continuous importer of the present system, the nexLgeneration system,
and the maintainer of all such equipment, by keeping the technological
know-how up their sleeves. This requires an attitudinal change, in both the
supplier and importer, to have a win-win situation. Ideally, there should be
free-flow knowledge sharing which will be b'eneficial to both the supplier
and importer who can collectively' produce the next generation system
using their individual core competencies. India has an example of such
collaboration where India and Russia got together and produced the first
supersonic cruise missile, the type of which is yet to come into the market
from the Western laboratories.
The major shift in policy should be targeting and getting the key
technologies, in both design and manufacture, for the Indian defence industry,
based on their projected needs of futuristic systems by the armed forces. The
public-private partnerships and joint venture arrangements with Indian and
foreign design houses havy to be made simpler on mutually agreed terms.
The Foreign Direct ,Investment '(FDI) policy has to be more realistic and
enhanced to 50 percent as against the present 26 percent. These measures
have been brought out in detail in the book and require the attention of