January 13, 2025 ☼ The Intersection ☼ defence policy ☼ geopolitics
Domestic combat aircraft production is in doldrums because of a lack of competition.
This is from The Intersection column that appears every other Monday in Mint.
The Indian Air Force is not only short of an adequate number of aircraft to protect our skies but will see its capabilities weaken over time unless corrective actions are taken immediately. In my estimate a significant fraction of the IAF’s fighter aircraft fleet is down for the shortage of Russian spares, and the rest are sparingly used to ensure that they don’t fly into a shortage of spares. This means that the effective strength of the air force is much smaller than what the publicly available numbers indicate. It also means young pilots get fewer hours of flying training. In an age where wars are fought in the air and space, India ignores the IAF’s problems at great peril.
Speaking at a seminar in New Delhi a few days ago, Air Chief Marshal A P Singh pointed out that 40 years after development started and 8 years after the first planes were inducted, the IAF is yet to receive all 40 of the indigenous Tejas fighters. Although a further 180 have been ordered, the HAL’s track record and critical dependence on foreign suppliers for jet engines means that, on current trends, it will be decades before the IAF will see these aircraft in its bases. By that time they might be a lot less effective in the skies, because the rest of the world — especially China — would be a couple of generations ahead in capability.
In a recent column I argued that India needs to raise its defence expenditure to 4% of GDP to secure itself in the current period of geopolitical turbulence. More resources must be pumped in across the spectrum, from research, development, production, procurement, organisation and training. Yet for the additional defence rupee to work, the current defence eco-system needs a thorough mental and structural rehaul.
Why is India unable to produce competitive fighter aircraft when it has a successful automobile industry? First off, even before liberalisation the Maruti model introduced a technological upgrade to the Indian manufacturing eco-system. Subsequently, Tata Motors and Mahindra took their own routes to success. All had to compete with Hyundai, Toyota, Nissan, Ford and other global competitors. Therein lies the answer: India not only became self-sufficient but also competitive because domestic manufacturers were compelled to compete.
The problem with HAL and other public-sector defence companies is not so much government ownership but lack of competition. The bureaucratic planner’s mindset of “avoiding duplication of efforts” has been counterproductive. Imagine that there are three companies licensed to produce Tejas aircraft, each with an assured order of 20 aircraft, but another 120 going to the one with a faster delivery rate. We will have three production lines competing to fulfil the order. One will win. The others will be forced to innovate to stay in business. It is likely that they will introduce new products that will push the industry capabilities forward. The combination of global competition, unshackled domestic industry and large domestic market can work for defence manufacturing just as it did for automobiles.
This brings us to two controversial questions. One, should politically powerful domestic conglomerates be allowed in the defence industrial sector; and two, should foreign investment be permitted if the role is to increase indigenous self-sufficiency in defence? The answer to both questions is “yes”.
HAL’s inability to scale up production — despite its best efforts — indicates that among the missing ingredients is industrial organisation and management that our public sector environment cannot easily acquire and quickly lose. What India’s better big conglomerates lack in innovation they make up for in their ability to execute projects. They are better at raising and deploying capital at the scales required and managing complex high-performance organisations. Yes, they tend to accumulate political power and influence government policy. Even so, they are part of the solution to India’s defence requirements. Just ensure that there is adequate competition to discipline them.
Allowing 100% FDI in defence is entirely compatible with the goal of self-sufficiency and indigenisation. Indeed, FDI is a better route to climb up the technological ladder than to seek technology transfers and offsets while purchasing foreign equipment. That’s because technology transfer happens through human diffusion not blueprints. That is how China did it. It developed a high levels of technological, managerial and process expertise by attracting foreign investment in various industries for over four decades. Chinese engineers, workers and managers learned how to make advanced industrial products. This human capital enabled Chinese defence industries to first replicate Russian, European and American designs and then innovate and make their own.
Reforms will give us hundreds of aircraft in the future. If we want them now, there is no choice but to buy them off-the-shelf from foreign manufacturers. This has its policy and strategic downsides. But lots of planes with downsides is better than having few planes, which is the biggest downside. The buy vs build dilemma will always exist, but will be a lot easier to manage if there is more money for both.
Tailpiece: We should be concerned that our trade policies are over-protecting our automobile industry from competition in the electric vehicles market.
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