Acquiring Critical Key Technologies: Issues And Indigenization Challenges
India is one of the largest arms importer in the world and our defence imports are expected to grow further. We generate business globally without any solid aim of self-reliance in design, development and production of defence systems. It is imperative to strengthen the domestic industrial base supporting defence through a combination of technology transfer, adequate investment in Research & Development to support indigenization and in house production facilities. There is an alarming yawning gap between licensed manufacture and development of indigenous capability. Design and Development (D&D) forms the critical foundation of indigenization and self-reliance. Indigenization challenges of today stem right from the first Industrial policy resolution of 1948. India’s march toward indigenization and self-reliance is disjointed and best described as a “left hand does not know what the right hand is up to” effort. Numerous hindrances and obstacles have been identified.
India is one of the largest arms importer in the world and our defence imports are expected to grow further. We as a nation generate business globally without any solid aim of self-reliance in design, development and production of defence systems. It is imperative to strengthen the domestic industrial base supporting defence through a combination of technology transfer, adequate investment in R & D and in production facilities. There is a yawning gap between licensed manufacture and development of indigenous capability. There has to be a national consensus to achieve self-reliance and indigenous capability in the defence sector using advanced & critical key technology. All stake holders (government and private industry) involved in the development and production of defence systems need to synergize and accord highest priority to acquire indigenous capability in the defence sector involving advanced and critical technology.
Importance of critical key technologies
Technology has many interpretations and it means different things for different people. It may be defined in one context as a combination of “Science" and “Engineering”. Science aims to help understand “why" and Engineering-facilitates “design and development". Technology is all encompassing and involves design, drawings, engineering process, raw materials, manufacturing quality, testing and also human resource. Engineering know how, manufacturing expertise and various technical skills all are equally important part of technology.
Critical key technology is developed and absorbed in manufacturing after exhaustive research and development over years. Such technologies are generally as a practice, held back and are not imparted/given due to their proprietary “tag" which the developer does not want to relinquish, thus necessitating continuous dependency on the OEM. Acquiring critical key technologies has the following advantages:
- Facilitate design, development and manufacture of systems in-house for various different platforms.
- It is possible to carry out product upgrades and provide life cycle support indigenously.
- Results in accruing of resource saving.
- Promote development of secondary and tertiary set of technologies, which will enhance technology base in the country.
Methods and issues in accessing critical key technologies
Critical key technologies are either denied or controlled through various control mechanism and regimes. They are never offered and are difficult to be obtained through RFP route even when we are ready to pay. OEMs/vendors resort to or cite governmental restriction for transferring the key technologies.
Our domestic industrial base for defense manufacturing is emerging and evolving at a tremendous pace. We need to know what key technologies and specialized facilities not existing in the country are required. Thereafter obtaining technology should be the focus. The various methods to access key technology are listed below:
Co-Development and Co-Production. This is a very effective mechanism for the inflow and absorption of key technology. In joint development programs, access to technology is realized at a substantially less cost and time.
Establishment of Joint Ventures (JVs). Critical technology can be accessed through establishment of JVs. The investment level by the OEM is the critical factor for bringing in the top end technology. If the investment level is restricted then the OEMs may hesitate to bring in cutting edge technology. Such restricted foreign equity participation could lead to a technology obsolescence.
Transfer of Technology (ToT). ToT to Indian Production Agencies (IPA) capable of absorbing technologies would help the local industry to further develop the technology. This would eventually help to bridge the existing technology lag. Fall out of the above arrangement is that it would provide an opportunity to the seller/OEM to excessively increase the cost of the ToT and also the verification of the technology cost would be difficult due to non-availability of details. To ascertain the depth of ToT being provided, becomes difficult which often results in gaps between the requirements/expectations of the buyer and the offer from the seller. The proprietary items are not included in the ToT contract which results in dependence on the OEM throughout the life cycle of the equipment.
Contract Manufacturing. An effective mechanism partially to bring in key technology in shorter time frames is to sub contract or to allow contract manufacturing. The scope of transfer however would be strictly restricted to fabrication, assembly and related services which are not complicated. Sub-contracting or contract manufacturing could be either through “Manufacturing through Print” or “Manufacturing to Specification”. In the former case, the OEM provides the complete data pack, which would include manufacturing drawing, quality requirements test methods, mortality rate etc. and the Indian Production Agency executes the task based on the user-supplied data. In the latter case, the OEM provides the detailed technical specifications, quality requirements etc. to IPA who undertakes design, development manufacturing and supply of product. This method is good in building technology base within the country, since this method would entail various phase of development of prototypes, user trials and evaluations as applicable to the product or equipment.
Establishment of Depot Level Maintenance Facilities. Establishment of Depot level facilities on partnership with the OEM could serve as an option to achieve transfer of technologies. Through this arrangement, the local defense industry acquires the technology and offers maintenance support to the user agency on a long term basis. Training of local industrial partners and user agencies in maintenance of the systems would ensure effective and committed maintenance support. Towards this, establishment of training facilities and user training centers by the OEMs in partnership with local defense industry will meet this requirement.
Challenges associated with transfer of key technologies
There are many issues and challenges in achieving a successful transfer of Critical technology. Some of the issues related to transfer are:
Depth of ToT. Depth of ToT being offered for local manufacture for the system/products is crucial for the development of local industry. The vendor/OEM may offer ToT, not directly related to the product/system being procured. Therefore, a careful and in depth scrutiny of offers have to be done. The trend of holding back critical technology by tagging them “proprietary” would necessitate dependence on OEM for local manufacture. The same needs to be addressed during the contract negotiations, since the past Indian experience indicates inadequate depth of transfer of technology which is mostly to DPSUs and Ordinance Factories.
Data Packs with Source Codes. The product/system designs are very software intensive. The software has become a component in most of the sub systems. The transfer of technology should essentially address and include source code details of all processes and procedures for implementation in the data packs.
Currency of ToT Offer. The technology on offer should be assessed for its currency and relevance from the point of view of obsolescence. The capability of the technology to remain current for the period of its intended application by the user agency has to be assessed. This should help avoid the pitfalls of accepting substandard or obsolete offers under technology transfer.
License Issues. Most of the critical key technology concerned is subject to approval of the foreign government and hence obtaining latest technology becomes difficult. The OEMs cite Patents, Intellectual Property Rights (IPR) etc. for not parting with their cutting edge technologies. They tag enormous prices for the same. Even when the OEM/supplier is willing to sell the technology for a price, the governments do not permit the same under their Export Control Regimes. This leads to a very long and lengthy time consuming licensing procedures in order for the product/technology to be exported.
Returns on Investment. The most important aspect for which the technology is imported in the first place is Returns on Investment. The technology which is for meeting the defense needs must bring in industrial returns either from domestic market or from international market. There should be no embargo of exports of products which are licensed manufactured within the country.
Recommendations on methods to contract key technology
In order to acquire critical key technology, we need to know what technologies and specialized facilities are not available within the country. A representative set of critical technologies and specialized facilities should be drawn for areas such as Aeronautics, Material Design, Naval System and Life Sciences etc. Technology should get into Indian private industry and only in case where private industry is not in a position to invest/ absorb then only in such cases the technologies should get into government organizations. Private industries can also negotiate with OEMs to get maximum access to technologies. Conventional general purpose equipment and machineries that can be sourced from open markets should not be allowed as part of Offsets, however special test facilities and equipment that cannot be easily sourced/ procured may be allowed as a part of offsets.
Complementary programs that encourage participation of IIT(s)/NIT(s) and start-up ventures /industries in defense business should be administered and special emphasis to promote time bound R&D and skill transfer from overseas should be mandated. Emphasis should be on acquisition of technology and not the product. There should be special drive by the government, similar on lines of “Make in India” to maximize indigenous production and diversifying defense supply. As brought out earlier, the transfer of critical key technology should not be confined to DPSU and Ordinance Factories only. Strategic Partner (SP) model as put forth by the GoI can be utilized to develop in house critical key technologies. Multiple SPs could also be tasked concurrently to develop technologies. Dependence on OEMs for upgrades (such as Mirage 2000 upgrade) has only increased and not decreased. ToT model for meeting the national aim of self-reliance in design, development, production and life cycle support of indigenous defense systems should be formulated.
It is also essential that offset provision as promulgated in Defence Procurement Procedures (DPP) be exploited to leverage the potential to get denied technologies and specialized facilities into the country. Offsets clause offers a unique opportunity to find foreign investments as well as the relevant technology from the OEM, provided we handle it correctly. The first issue is that offsets must not be seen as a source of FDI. They must be viewed as the route to enhance the technological competency and capacity of the country. The focus of the offset policy should be on acquiring high-end technology manufacturing and exporting parts and components. Offset agreements can be used to leverage transfer of critical aircraft production related expertize and technology. It is important to identify key technologies and also potential industries who can absorb the technology offsets successfully.
Indigenization challenges and road ahead
“No country is really independent unless it is independent in matters of its armament.” Jawaharlal Nehru
Indigenization challenges of today stem right from the first Industrial policy resolution of 1948, which mandated that the core industries concerning the aircraft, ship building, iron and steel industries, heavy machine tools, atomic energy and others be placed under strict and exclusive centralized government control. This led to strict central supervision and these were to be known as closed sectors. This form of socialist governance adopted since the independence to control critical industries including defence is widely debated now in view of the fact that it led to twin problems of lack of investments and access to newer technologies. This became acute as the defence industries expanded and many of them were performing below threshold due to the extant policies and the desire to attain self-reliance did not match the expectations thus leading to further constraints. Further, this led to our inability to achieve self-reliance in these closed sectors keeping in view the handicaps that our history placed on us in the past, when the other developed industrial countries enjoyed the benefits of unlimited access to resources.
India’s march toward indigenization and self-reliance is disjointed and best described as a “left hand does not know what the right hand is up to” effort. Numerous hindrances and obstacles have been identified which make the adoption of indigenization challenging. Factors could be excessive restrictions on small and medium scale industry participation, lack of government guidelines and procedures, lengthy delays in according sanction because of political debate, social and legal risks, confusion over government objectives and evaluation criteria, high participation costs leading to unfavorable economic and commercial conditions, high transaction costs and lengthy lead time as well as problems associated with the contracting partners, namely, the public and private sector providers.
Design and Development (D&D) forms the critical foundation of indigenization and self-reliance. D&D is deeply linked to the R&D expenditure and national R&D investment. Indian expenditure on R&D is pathetically low for a country that is already at the point of being a major power. Over the past two decades, the total R&D as a percentage of national Gross Domestic Product (GDP) has not exceeded 0.8 percent; and out of this, nearly 0.7 percent is spent in the government agencies like DRDO and Department of Science of Technology laboratories. India is one of the very low spenders on R&D as compared to China which has been spending an average of 15 percent of the global expenditure on R&D and the results are clear in terms of the technological advances it has attained supporting its economic growth. One has to reemphasize that design and development is the critical foundation towards self-reliance and must be given the greatest prominence.
Also, the offsets provision of the DPP should be directed to enable design and development in R&D establishments, preferably in the private sector, with collaboration with the OEM and should employ sizeable numbers of Indian scientists and designers to work on the system engineering and upgrades. This process should create the requisite design and development capabilities in India besides supporting the larger national techno-economic base. There is urgent need to enhance further upon the investment in national R&D efforts, especially in the private sector, facilitated by the government but not directed by it. Effort should be to exploit the elusive key to indigenization and achieving self-reliance in the field of manufacture of complex defence systems through 'Make in India' initiative. Proactive support to the domestic industry could be offered through a process of 'hand holding' and where necessary revisit and diversify the ASQRs / GSQRs / NSQRs spectrum so as to facilitate indigenous manufacture of important systems. MoD should drive and provide the necessary impetus such that the industry is able to grab such emerging opportunities at indigenization.
Conclusion
Technology transfer assessments during the selection process of technology on offer are complex and difficult and at times may appear to be subjective. Impact of latest technology is realized in terms of ease of production and maintenance. Overall system design will be influenced by available technologies.
In order to achieve self-reliance in indigenous design and manufacture of defence products, we must exploit the opportunities arising out of the mandatory offset provisions. Significant enhancement in technology capability can be leveraged through offsets, which is an established method to get denied technologies and specialized facilities into the country in relatively shorter time frames.
