Nuts and Bolts of Indigenisation in Defence

By Amit Cowshish

Pressing on with the unavailing praxis it started more than a year ago, Ministry of Defence (MoD) notified the fourth ‘Positive Indigenisation List’ of 928 ‘strategically important’ items on May 12 to give further impetus to Atmanirbharta, or self-reliance, in defence production.

These items will be indigenized by various Defence Public Sector Undertakings (DPSUs) in phases by December 2027, either through in-house efforts or by enlisting private sector manufacturing units, including the Micro, Small and Medium Enterprises.

The first three lists notified in December 2021, March 2022, and August 2022 contained 2,500 items which had already been indigenized by the DPSUs and another 1,238 items which were yet to be indigenised by them. Of these, 236 items have since been indigenized according to PIB’s Press Release of May 16, 2023.

Like the previous lists, the fourth list includes line replacement units, sub-systems, spares, and components, but it also includes some high-end materials which will be indigenized by the state-owned Mishra Dhatu Nigam Limited (MIDHANI) for use in the manufacturing of air-borne and space platforms.

The ‘import-substitution value’ of the newly notified items is estimated to be ₹ 715 crore. While this saving in foreign exchange outgo is not insubstantial, it is unclear if the cost of procuring the corresponding indigenized items will be less than the cost of imports. In any case, the Indian companies stand to benefit as the indigenized items will be sourced by the DPSUs only from them.

About 95% of the listed items are to be indigenised by Mazagaon Docks Limited, and the rest by Hindustan Aeronautics Limited, Garden Reach Shipbuilders & Engineers, Hindustan Shipyard Limited, Goa Shipyard Limited, Munitions India Limited and Mishra Dhatu Nigam. Clearly, the latest round of indigenisation effort is driven by four public sector shipbuilders.

Barring a few items like various grades of titanium, the latest list, much like the earlier ones, contains a large number of seemingly not-so-high-end items like gaskets, bearings, seals, rings, pins and nipples, nuts and bolts, washers, cords, flanges, couplings, pipes, switchboard lamps, tubes, weights, tyres, thermometers, and stopper plates.

Giving a somewhat mysterious twist to the list are a few items whose nomenclature is mentioned in the MoD notification in the Russian script; in fact, these items are washers, cables, bolts, pins and screws.

While pursuit of self-reliance in defence production through indigenisation is unexceptionable, it is arguable that indigenisation of nuts and bolts by the DPSUs is the expressway to achieving the goal. It is equally difficult to figure out how do these lists promote or hasten the process of indigenisation.

It is not as if the listed items -most of them, at any rate- are critical for self-reliance in defence production and the DPSUs would have continued to import them but for the directives by the MoD setting the timeframe for their indigenization through sporadic notifications. Any such presumption would amount to questioning the competence of SPSUs’ top management. It also indicates the tendency on MoD’s part to micro-manage the DPSUs.

It is obvious that the DPSUs themselves identified the items which were either already being indigenized or which they felt could be indigenized in the coming years and provided the details to the MoD for notification of the list.

Be that as it may, it is surprising that these low-end items had not been indigenised by the DPSUs so far. One plausible explanation is that it was not cost-effective for them to do so either on account of low volume of consumption or the high cost of indigenisation.

For commercial enterprises like the DPSUs, cost of production is an important factor, especially since they have to survive in a competitive environment where the customer, even if it is the MoD itself, is very particular about the quality of the product as well as its price.

Some studies indicate that indigenised items, especially in the initial phases of production, are not necessarily cheaper than the cost of imported items. This can push up the cost of production, which the customer may not be prepared to bear, especially if the cost goes up on account of indigenisation of components of a platform after the contract has been signed.

It is difficult to accept that despite the focus on import substitution in the last two decades, the DPSUs were merrily importing items whose indigenisation was cost-effective and posed no other insurmountable technical challenge. Consequently, whether an item should be indigenised or not is a decision best left to the DPSUs.

In the true sense, self-reliance in defence production depends on design and development of major platforms critical technologies, and special metals and alloys required for manufacturing major platforms and weapon systems, and not on indigenisation of nuts and bolts. Seen in this perspective, it is heartening that the latest list includes five different types of metals used in manufacturing air-borne systems.

The author is Former Financial Advisor (Acquisition), Ministry of Defence.

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