COMMITTEE OF EXPERTS FOR AMENDMENT TO DPP-2013 INCLUDING FORMULATION OF POLICY FRAMEWORK JULY 2015 (i) (ii) The Committee Chairman Shri Dhirendra Singh Former Secretary to the Govt of India Members Shri Satish B Agnihotri, IAS (Retd.) Air Marshal S Sukumar, (Retd.) Lt Gen AV Subramanian (Retd.) Rear Admiral Pritam Lal (Retd.) Dr. Prahlada, DS & CC & RD (Retd.) Col K V Kuber (Retd.) Shri Sujith Haridas, DDG, CII Shri Sanjay Garg, JS (DIP), MoD Shri Subir Mallick, JS & AM(LS), MoD (iii) (iv) Committee of Experts for Amendment To DPP-2013 Including Formulation of Policy Framework presents its Report to the Government of India Shri Dhirendra Singh Chairman Shri Satish B Agnihotri Air Marshal S Sukumar Lt Gen AV Subramanian IAS (Retd.) (Retd.) (Retd.) Rear Admiral Pritam Lal Dr. Prahlada Col K V Kuber (Retd.) DS & CC & RD (Retd.) (Retd.) Shri Sujith Haridas Shri Sanjay Garg Shri Subir Mallick DDG, CII JS (DIP), MoD JS & AM(LS), MoD 23 July 2015 (v) (vi) Contents Chapter No Subject Page No 1. Defence Materiel 1 2. Defence Industry 13 3. Make In India 37 4. Defence Procurement Procedure 67 5. Trust and Oversight 153 6. Beyond DPP 159 7. Enabling Framework and Summary of Observations & Recommendations 213 8. Appendices 243 9. Acknowledgements 263 (vii) (viii) DEFENCE MATERIEL “Now the main foundation of all States, whether new, old or mixed, are good laws and good arms. But since you cannot have the former without the latter, and where you have the latter, are likely to have the former, I shall here omit all discussion on the subject of laws and speak only of arms........” Machiavelli in ‘The Prince’ 1 DEFENCE MATERIEL 2 DEFENCE MATERIEL CHAPTER 1 DEFENCE MATERIEL 1.1. Introduction 1.1.01 Defence Systems acquisition, defence production and formulation of doctrines of offensive and defensive warfare are all intertwined. These are also conducted within an overarching strategic defence and foreign policy environment. This is a continuous exercise, but there are certain defining moments, whose impact is profound and it may be worthwhile to take note of some of them especially those which have a bearing on the Committee’s mandate. 1.2 Historical Perspective 1.2.01 Modern defence industry in India was set up to serve the interests of the colonial power. Whereas hardware could be brought over from the mother country, perishables like gunpowder could not, especially in large quantities and this prompted them to set up small mills within the fortifications at Bombay (now Mumbai), Madras (now Chennai) and Calcutta (now Kolkata) to make gunpowder. In addition to gunpowder mills, smithy and carpentry yards were established to make gun carriage. The Fort William complex was augmented by a brass gun foundry and thereafter a full fledged production factory at nearby Cossipore (Kashipur). This Factory which commenced production in March 1802, initially as a gun carriage manufactory with the gun foundry amalgamated with it later, is generally recognised as India’s first Ordnance Factory. It has been working continuously since then. Its present name was given in 1872 to mark the completion of the new rifle shell factory in its extended premises. Although this major step was taken, the policy of procuring most of critical hardware from England and supplementing it by locally produced of what can be termed as quartermaster stores continued. In his minute on the Ordnance Department, Sir Hugh Rose, Commander in Chief in India spelt out the guiding parameters for procurement on 20th March 1865. 1.2.02 “Guns shots and shells fortunately do not deteriorate from climate. As a general principle, therefore, I would advocate that guns, shots and shells and small arms of all kinds should be obtained from England and that the manufactures from India should be limited to the supply of what may be called perishable articles, such as gunpowder, laboratory stores, gun carriages and wagons, harness and saddlery etc.” 1.2.03 Frequent technological advances and economies of scale reinforced this policy. Demands for local production were met by the argument that Cossipore was at least fifty percent more expensive than Woolwich. Moreover, it was said that locally made defence products were lacking in ‘requisite handiwork’ and there was no machinery or scientific skills available. Unfortunately the industrial policy of 1956 unwittingly strengthened this position. The remnants of this policy to a very large extent still haunt us, as state-of-the-art equipment continues to be imported with only repair and maintenance facilities being established in the country. 3 DEFENCE MATERIEL 1.2.04 Although a war had been fought with Pakistan soon after independence, India’s strategic policy in the initial years, nevertheless was to maintain peace by striving for good relations with neighbours and not by proactively arming itself to deter any aggressor. Perhaps the dominant economic development models which gave prominence to the public sector, contributed to keeping away the private sector from Ordnance manufactures, which were reserved for the public sector. Considering that a substantial portion of defence equipment was being imported (and except for those from the former USSR) much of it manufactured by private industry, the ideological bias against Indian private industry is in hindsight quite inexplicable. Perhaps it could be explained by stating that the policy was mainly directed to the civil sector and defence industry was a mere adjunct. However a series of events commencing from a souring of relations with China in the late 1950’s and actual clash of arms in 1962, Ayub Khan’s military coup in 1958 and inflow of sophisticated US arms into Pakistan forced a rethink. Prof P.M.S Blacketts’ recommendation to follow a two phased production strategy, short term to meet local adversaries, and long term for more sophisticated arms to counter a stronger adversary was considered attractive. His recommendations, however still aimed at building up limited manufacturing capability, urging India to rely more on diplomatic efforts. His advice had led to the establishment of the Defence Research and Development Organisation (DRDO). A review by the US management firm of Arthur D. Little of the production infrastructure highlighted several deficiencies and a coordinated effort was mounted with the setting up of the Department of Defence Production. However the ‘Supply’ part of the Department was mainly to assist the Public Sector and the Services to source low value, unsophisticated stores or perhaps outsource some components or processes to the private (mainly small scale) industries, which were still not permitted to produce complete platforms or weapon systems. India’s decision to remain non- aligned predicated an equidistant position between the superpowers, but its economic policies and geographical proximity saw it turning more and more towards the USSR for its defence requirements. An Indo-Soviet Treaty of Peace, Friendship and Cooperation was entered into with the Soviet Union in 1971. It reinforced the reliable nature of the relationship and provided enormous political dividends. The system followed was to enter into Government to Government agreements and to conduct negotiations with one state Agency. India’s requirement of indigenous production was met by licensed production contracts and setting up of dedicated infrastructure to suit the production processes of the source country. Obviously this further strengthened the Indian public sector production base. Technology transfer was limited in scope and did not extend to building and developing design capabilities. There was enormous dependence on a host of spares and maintenance and overhaul of major sub-systems. The advantage in the one vendor system however was that once the decision had been taken more time was available to discuss issues relating to infrastructure, manpower and related skills, production technology absorption and other operational requirements. This contrasts with multivendor negotiations where considerable time is taken even before a vendor choice is finally made. 1.2.05 The advantages to both parties were of such great magnitude that political upheavals of the late 1980’s did not impact the defence relations with Russia. Both sides have however reconfigured their negotiation mechanism and adjusted strategies to cope with commercial realities. Issues that were unthinkable earlier, were brought to the negotiating table and short comings in technology such as in avionics or night vision were discussed. Whilst 4 DEFENCE MATERIEL India was not prepared to give up the robust platforms which remain comparatively less expensive, it has been insisting on customizing them with western and India sourced items. The SU 30MKI multi-role fighter has French, Israeli and Indian systems integrated into the Russian made platform. This phase of defence acquisition has remained the bedrock on which we have continued to build. The resultant inventory comprising of a vast array of equipment for all three Services (and the Coast Guard) has been tried and tested and remains our mainstay. 1.2.06 The period up to the early 90’s can hence be broadly classified as that fostering a partnership with one major supplier, which resulted in limited technology transfer, and use of production techniques modelled on Soviet practices. Repair and overhaul facilities, contractual provisions, import of kit of parts, negotiating formats all followed a particular template. It also resulted in a huge inventory which needed to be used and maintained over a long period of time. Similarly strategic and tactical doctrines of all three Services could not ignore the use of this inventory to its optimum capability. India became an arms import dependent country. 1.2.07 The early 1990s saw the end of the cold war and the establishment of what is termed as a multi-polar world order. Within our domestic sector there was a resurgence of the economy and changes in the economic order.