CAPITALIZING ON THE INDIGENIZATION PUSH

It is time that the Indian Defence Manufacturing industry took a leaf out of the electronics industry playbook to build a strong defence industrial ecosystem. To do this, India needs to focus on certain key areas to tap into the country’s rich mineral resources and widely available talent pool.

The multi-billion dollar defence deals recently signed between India and the US are a testament to the former’s commitment to strengthen its Arms and Aerospace industry. Unlike the previous era when the focus was more on imports, the recent deals revolve around gaining access to the technological prowess in military equipment of nations like the US to embolden India’s defence manufacturing capabilities.

India has repeatedly emphasized the need to reduce imports, enhance export competitiveness, and strengthen its indigenous capabilities while doing both. India has made its intentions evident through multiple policies including the 100 percent Foreign Direct Investment (FDI) through the Government route as well as the Defence Production Policy of 2018 (DPrP) that at the end of the day, the country wishes to be self-reliant.

This is not a mere pipe dream —the success of the approach has been proven by the Electronics industry where the indigenization push led to domestic mobile manufacturing capabilities rising from `18,900 crore in 2014-15 to `2,75,000 crore in 2021-22. And now with the Government pushing for domestic manufacturing of semi-conductors after bearing the brunt of international logistics snarl-ups post-pandemic, the Electronics industry is almost on the verge of building its own ecosystem in a step closer to self-reliance.

It is time that the Indian Defence Manufacturing industry took a leaf out of the Electronics industry playbook to build a strong defence industrial ecosystem. To do this, India needs to focus on certain key areas to tap into the country’s rich mineral resources and widely available talent pool. However, to begin with, there are at least three areas where the Defence Manufacturing industry needs to invest and build immediate capabilities for a strong industrial ecosystem.

Build strengths in materials and manufacturing capabilities

The private Indian Defence Manufacturing industry has come a long way ever since the sector was opened up in 2001. For the first time, defence production in India crossed `1 lakh crore mark in 2022-23. Yet, this is only the tip of the iceberg. Today, the Government is looking for technology for multiple defence projects, of which 14 mega defence projects carry a total investment potential of US$1.05 billion. Already, the likes of Airbus, Boeing, Lockheed Martin, and Rafael are touted to be major investors in these projects.

However, such and many more upcoming projects, be it in Aerospace, Defence Equipment or the development of indigenous technologies such as radars  and tracking systems, will require more and more domestic participation which can only be attained by building manufacturing capabilities.

Keeping a long-term view of potential opportunities, the Defence industry will have to tap into the country’s rich mineral resources for developing key components that build and support the entire defence industrial ecosystem. The full potential of materials like ceramic, aluminum, steel, composites, graphene and others that are used in defence manufacturing needs to be released through strengthening the supply chain and building infrastructure and expertise in refining, testing and standardization.

Nurturing a talent pool for defence manufacturing and technology 

Many of the deals India has been signing with other nations in defence manufacturing revolve around the transfer of technology (ToT). Also, every import opportunity in Aerospace and Defence is going to create offset opportunities for the domestic Defence Manufacturing industry.

Yet, there is still a significant talent gap that acts as an impediment to building a strong industrial ecosystem. On the upside, a McKinsey report cited that talent costs in India are available at 50–60 percent of the costs in developed markets. On the flip side, despite being one of the world’s largest producers of engineers at more than 1.5 million per annum, only a fraction are aeronautical engineers and hardly 16 percent are employed in core engineering jobs.

For Indian aeronautical and defence companies to build an ecosystem that propels the country towards self-reliance, the lack of skilled talent and expertise must be addressed. Keeping a long-term perspective of building such an ecosystem would mean that collaborating across the industry to invest in programs with academia and skills building, creating upskilling opportunities, and even attracting global talent. Given that an entire industrial ecosystem is being nurtured, talent planning must include both blue collar and white collar and span across technical and non-technical competencies.

Invest in technology, research & development

On its part, the Government has not only increased the overall outlay for the Defence sector by 13 percent to `5.94 lakh crore but also for research in the sector by 9 percent to over `23,000 crore. But when compared to other nations like China that spend nearly 10 percent of their budget allocation for defence on research, the Indian figure looks paltry. 

Given that policy efforts and diplomatic relations have unlocked vast opportunity for the Indian Defence Manufacturing industry, it is time for industry players to step up by investing heavily in research and building technological prowess as complementary efforts to the Indian Government. Again, such investment in research and technology must be made while keeping a long-term horizon, akin to what the Semiconductor industry is doing within the electronics ecosystem.

Also, investment in technology and R&D cannot be left to merely large manufacturers. A strong and healthy industrial ecosystem for defence would mean hand-holding small and medium players in building their research and technological capabilities. Tapping into the country’s thriving innovation excellence as well, large players and industry collaborations with startups on defence will also give the sector the technological edge. India already has around 194 high-tech defence startups building innovative solutions for defence.

The groundwork has been laid for India’s Defence and Aerospace industry to grow and thrive, making the country not only self-sufficient, but to become a key exporter. The private sector must take cognizance of this opportunity and collaborate to achieve
this dream.

SUBBU VENKATACHALAM Head of Marketing Carborundum Universal Ltd

---

---