India, Russia. United States - The curious case of Transfer of Technology (ToT)

Transfer of Technology (ToT) plays a key role in Defence manufacturing especially under the make in India Program. Mere signing of agreements is not enough.

With the Unites States designating India as a major defence partner Russia is not lagging behind. Prime Minister Narendra Modi met President Putin on October 15 in Goa this year for the BRICS Summit and signed several deals. As per reports Russia has overshadowed the US in the defence partnership. The annual India Russia summit resulted in assessment of a drift or worse India’s concluded a Logistics Exchange Memorandum of Agreement (LEMOA) with US and Russia’s joint anti terror drills against Pakistan. Some major defence agreements included a joint venture shareholders’ agreement on the Ka-226T helicopter, manufactured indigenously, an Inter-Governmental Agreement (IGA) on acquisition of the air defence systems S-400 and an IGA on building four naval frigates, made in India. India has inked a 39000 crore rupees deal with Russia for the S-400 Triumf surface to air missiles. The biggest question here is again of Transfer of Technology (ToT).

The Indian Establishment says that the value of the aerospace "self-reliance" initiative was not simply the production of an aircraft, but also the building of a local industry capable of creating state-of-the-art products with commercial spin-offs for a global market. The LCA programme was intended in part to further expand and advance India's indigenous aerospace capabilities. Great breakthrough in defence, compared to China or Pakistan as in the case of AWACS.

The Cabinet Committee on Security has time and again sanctioned several projects, but uneven investments have often defeated the very purpose of rapid military transformations, to tackle new asymmetrical threats. If statistics provided by the defence ministry are to be believed, India has signed five deals of more than Rs 2,500 crore since May 2014. Projects for Tactical Communication Systems (TCS), Futuristic Infantry Combat Vehicle (FICV) (worth $ 7.5 billion) for the Indian Army, construction of seven Shivalik class frigates (Project 17 A) for the Navy, by Mazagon Docs Limited and Garden Reach Steel Industry, amounting to Rs 45201 crores are currently under consideration. Hindustan Aeronautics Limited (HAL) is currently in the process of building basic trainer aircraft HTT 40 and Sukhoi MK 1 aircraft in line with the 272 target set for 2018 by the Indian Air Force. There are several such deals being planned. But deadlock over Rafale continues to make headlines. Meanwhile, reacting to the commercial deadlock over Rafale prices with Dassault, other players such as Lockheed Martin (F 16), Saab (Gripen) are now streamlining their business strategy, to meet the requirements of the Indian industry under Make in India. Saab is willing to partner with Indian companies, giving India complete software control to build the Gripen fighter in India. Saab is also keen on setting up an aeronautic training academy in India.

For a strong indigenous defence industry both outside support and internal political commitments are very crucial. Integral to any development program, is the need to provide a conducive socio-economic and political environment where any proposed idea can take roots. The liberalisation of the FDI Policy in Defence, which shifted the fulcrum of indigenisation from ‘state of the art technology’ to ‘modern technology’ was indeed a welcome change. The buzz word, Indigenously Designed, Developed and Manufactured’ (IDDM) now stands at 30:70, (Imports 30%) focus remaining on indigenisation. The FDI policy was revised to fill critical gaps in technology aiding job creation and growth if Indian industry. Despite the very obvious reports on project delays, falling production targets in the case of the Ordnance Factories, and sudden inflow of private players such as Reliance and Mahindra for example in the defence arena, ‘Make in India’ is a progressive move aimed to strengthen India’s defence industry.

However, there is no systematic explanation for India’s dialogues with Russia and the US over defence procurements and projects. The very crucial aspect of Transfer of Technology (ToT) especially nuclear propulsion (for example, in the case of nuclear supercarrier) has often caused unnecessary delays in signing of agreements between Original Equipment Makers (OEM’s) and India. Offset policy (2012) allows Joint ventures through the non-equity route. Defence Minister Manohar Parrikar recently stated that the real impact of Make in India will be seen in 2017. Parrikar stressed on the need to outsource certain products in order to maintain a healthy production chain. So the question remains: Can private players deliver better? Is the budget enough to meet the requirements of Make in India? Will the dynamics of a Russia- US power play (add China for good measure), affect India’s position as a strong defence power in South Asia and subsequently on the global stage? It was in 2001 when private players first entered the defence domain, with a 26% FDI bid. But terms and conditions laid out by the government were so stringent, that deliverables were far from being met. Technical education lagged behind affecting human resource availability.

One very important aspect of defence modernization is the ongoing Research and Development (R&D) in the field of security that has been crafted to meet the requirements of the modern day battlefield. Advancement in information technology and the changing nature of threats, whether man-made or accidental, on land, sea, air and even the virtual space now coerces one to assess the outcomes of procurements, acquisitions and mergers, in defence manufacturing sector.

The pace with which technology is becoming obsolete is a real problem. Defence preparedness calls not just for military modernisation but also reforms, which are capable of accelerating the R& D processes in the field of security. Moreover, it should be kept in mind that no one player or OEM can fully manufacture critical equipment. Several components are now procured from various producers, making the procurement procedure lengthy and complicated. These can cause unnecessary delays too. Another point of view currently attracting a lot of attention is that opening the doors of the security sector to foreign players will jeopardise India’s position as a strong defence power.

That foreign players are still not fully convinced with the idea of ‘Make in India’ especially shifting their production bases to India, a market which has inherent haphazard supply chain structures, is a different question altogether. Lastly, more than flooding the market with success stories, the focus should be on the needs of the defence forces and on the operational efficacy of equipment manufactured under Make in India. Positive market trends have indeed widened the horizons of defence manufacturing in India but India still needs a little more political and financial push to achieve a higher degree of self-reliance in defence technology.