India’s Aerospace & Defense Manufacturing – Vision ‘Atmanirbhar’ – Part 3
#Aerospace #Defence #Leadership
Need For Relief & Reforms By Government of India
Any effective reform intended to come out of the present situation will subject to the challenges of whether, (a) we are ready to take-off fearlessly without the anxiety of being caught on the wrong foot; and (b) the conciliatory reforms are qualitatively and quantitatively good enough to serve their purposes.
As part of Govt’s slew of reforms and initiatives under Atmanirbhar Bharat, it has introduced certain beneficial measures such as extending moratoriums, reducing interest rates, improving liquidity and such measures that will provide impetus to the economic recovery process, including for the aviation sector. The present situation has additionally resulted in the immediate focus to develop India as an Aircraft MRO hub that includes targeting the aircraft engine manufacturers to set up shop in India as well as airframe maintenance and component repair business to go up. However, the aviation sector requires immediate booster shots, and the subject reforms will take considerable time to generate notable benefits to the sector.
The immediate future of the aviation sector is already facing severe challenges, including because of the historically heavy operating costs that cannot be borne in the present situation and stringent protocols to be put in place for air travel. Needless to mention, convergence between Civil MROs and the Defense sector should create economies of scale and long-term benefits, which the Govt needs to always factor in its policy-making & reforms for the A&D Sector, including MRO / Manufacturing.
The Govt has brought in significant policy reforms since it took the country’s reigns in 2014, with another 4 years to go at the least. The new Defense Procurement Procedure (DPP 2020) and National Civil Aviation Policy (NCAP 2016) highlight the intent of the Govt to alter the status quo and that’s a positive sign, with the former seeding the development of a robust Defense manufacturing environment in India.
Growth Drivers of Indian Aerospace Industry
Several other factors are driving growth in manufacturing in Indian aerospace industry, which include both macro and micro factors – slow and steady economic growth that has resulted in rapidly growing domestic aircraft demand, the liberalization of civil aviation policies, offset requirements, a strong domestic manufacturing base, cost advantages / low labor costs, high availability of engineering, design and technical manpower and expertise, the ability to leverage IT competitiveness and a liberal Special Economic Zone laws that provide attractive fiscal benefits for stakeholders. The major strength of India in the aerospace sector has been the large pool of engineers, ITI diploma holders and their cost effectiveness as highly skilled labour input. Airbus and Boeing have set up R&D units in Bangalore to capitalise on the availability of IT engineers in the city.
For growth in the real sense, India’s aerospace industry needs to enhance existing and rapidly procreate latest technological and infrastructural capabilities / capacities to emerge as a preferred destination to support the global A&D supply chain. With the Govt opening up and providing enormous opportunities to the private sector, many global and domestic players are looking to collaborate and having JVs for manufacturing of aero components, MRO facilities for civil and military aviation sectors, besides overhaul and maintenance of aero engines.
India’s MRO segment was estimated to grow at 10% and reach USD 2.6 billion by 2021, which may get delayed due to the Pandemic. However, the A&D market in India is estimated to be around US$ 70 Billion in another decade, i.e. by 2030, and the momentum is expected to further pick up with ‘visibly’ improving infrastructure and ‘vocally’ audible Govt thrust. This presents a unique opportunity for global companies to tap into the Indian aerospace market across the entire value chain for aero structures, components, assemblies and even complete equipment / aircraft and related services.
The Way Forward – ‘Economic Liberalization’ In Aerospace & Defense Sector
Economic liberalization in the telecom and pharmaceutical sectors has seen significant erosion in the role of the public sector. However, a similar success story is yet to be inked in the Defense aerospace sector. HAL continues to be the monolith with many private sector players genuinely feeling sidelined from a level playing field. While strategic systems can remain within the production purview of HAL, the private sector must be allowed entry into the production of helicopters, transport aircraft and the trainers. The private sector cannot be treated as a pariah in the system and must be encouraged to be effective partners with HAL and OEMs. When Lockheed Martin wanted to set up a production base in India for its F-18A Hornet, it was very keen on a partnership with a private sector player such as the TATAs rather than with HAL.
The experience in case of Offsets also reveals that the foreign OEMs are keener to partner with the private sector rather than the Defense PSUs. The private sector is far more fleet-footed, professionally agile and accountable than the public sector in India. To be counted as a global player, India needs a big push towards privatization in the aerospace sector, build credible military industry capability and be a part of the global supply chain, as China has successfully achieved. With its humungous political mandate, the present Indian Govt must aim to provide the Defense aerospace sector with decisive economic liberalization.
More Private-Defense PSU Competition
The Govt will have to begin to trust the profit-driven private sector which cannot afford to waste time or resources nor to violate contract terms or alienate customers by rolling out sub-standard products as Defense PSUs routinely do. The Govt should ensure private sector companies have a major role hereafter and force the Defense PSUs to compete with them. Competition may, in fact, improve Defense PSUs’ product quality and delivery schedules. With small and big firms designing and producing components, systems, subsystems, and ancillaries, employing people in thousands, there would be positive cascading effects on the economy.
This is the business model for the Govt to implement and to get its ‘Atmanirbharta’ Defense policy to take wing. If the Govt were to follow it, it would be remembered for birthing a multi-faceted, world-class Indian Defense industry and for generally seeding a high-value, high-technology sector that will help India pull itself up by its bootstraps.
Cold Turkey Versus Staggered Indigenous Manufacturing
Finally, can the Govt go ‘cold turkey’ on arms imports and simply ban purchases of all armaments thereby throwing the Indian Defense industry thus into deep water. Does this seem the only way to force the Industry to learn to swim.
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