India's Defense Indigenization Effort Takes a Bold Step

Call it an act of desperation, a shrewd move, or a superficial gesture. Regardless, the announcement by India's Ministry of Defense on August 9 that it plans to ban foreign-sourced procurement of 101 military products bears watching.

But in India's case, many key armaments are sourced from abroad, resulting in the country consistently being ranked as one of the world's largest arms-importers.

Roughly 70 percent of all Indian armaments are acquired via global vendors.

For the Indian government, the reliance upon foreign-sourced weaponry remains a critical liability. When factoring in the strategic environment confronting the nation - two well-armed adversaries in China and Pakistan positioned alongside its borders - the need to be able to resupply its armed forces through local sources is acute.  

Yet despite longstanding efforts by the government to spur greater efficiency from domestic industry in order to meet more of the armed forces' needs reliance upon international suppliers persists.

The extensive list of banned items under the first phase starting in December 2020 includes 155m tracked self-propelled guns, 155mm ultra-light howitzers, ship-borne close-in weapon systems, light transport aircraft, military trucks, software-defined radios, light combat aircraft, light combat helicopters, and multiple naval vessel-types including missile destroyers, offshore patrol vessels and fast attack craft.

The second embargo phase begins in December 2021 and includes wheeled armored fighting vehicles, assault rifles, light machine guns, mine antitank systems, multipurpose grenades, 30mm ammunition for infantry weaponry, and conventional submarines.

Finally, the third phase starting in December 2022 will see equipment such as lightweight rocket launchers, electronic warfare systems, beyond-visual-range air-to-air missiles, basic trainer aircraft, and long-range cruise missiles banned from import.

The requirement laid out by the Indian MoD is that local industry manufactures the items on the exclusionary list utilizing their own design and development capabilities or adopting technologies designed and developed by the state-owned Defense Research and Development Organization (DRDO). The items produced by local industry must also meet a minimum level of indigenous content (IC), likely 40-50 percent but not publicly specified by the MoD.

The ultimate aim is quite simple: increase localization while decreasing foreign-sourced content.

This makes perfect sense from a strategic point of view, particularly in light of the pressures the COVID-19 pandemic has placed on global supply chains.

The second-order benefits would - besides strengthening resiliency in India's military supply and preparedness - supposedly then arrive in the form of stronger profits and heightened defense exports for local industry.

Nonetheless, caution remains the watchword where India's grand indigenization schemes are concerned.

The Indian armed forces had experienced a succession of governments preaching a defense self-reliance mantra since the mid-1990s when the collapse of the former Soviet Union prompted policymakers to focus on the indigenization content of the domestic defense sector. 

The goal as far back as 1993 was to provide the Indian armed forces with 70-75 percent of its hardware from local industry by 2005.

Yet the one constant since 1992 - when the self-reliant quotient amounted to 30 percent - has been a continuance in the breakdown between foreign and domestic equipment content at a 70:30 negative ratio.

The DRDO, meanwhile, has a long track record of failing to meet weapons requirements, while its projects often suffer from cost overruns and delays.

Most Indian defense producers merely act as local assemblers of foreign-derived platforms – for instance, Sukhoi Su-30 fighters, which are shipped to Hindustan Aeronautics Ltd (HAL) from Russia in kits. Where they do manufacture hardware destined for the Indian Armed Forces, it often comes with a higher price tag and lower quality than when procured through importation - and in some cases still features key foreign content (one example being the General Electric turbofan engines powering the Tejas Light Combat Aircraft).

Despite India's internal network of nine state-owned defense corporations and 41 ordnance factories operated by the Ordnance Factory Board that mainly produce materiel based on technologies and outlines provided by the DRDO, New Delhi's heavy-handed and protectionist state approach has yielded few scientific breakthroughs.

Thus cutting-edge hardware will still need to be attained via technology transfer from foreign original equipment manufacturers (OEMs).

The Ministry of Defense's hope is that because the threshold for ownership stake by a foreign OEM in a joint venture with local industry has been raised to majority control of up to 74 percent that the technology hurdle will be erased. This is because the joint ventures will be considered Indian companies and, therefore, eligible for production contracts on the items banned from importation. Ostensibly, this would result in more foreign OEMs willing to establish production facilities on Indian soil and transfer crucial technologies. 

Some items on the embargo list - such as 155mm ultra-light howitzers - have already been purchased from a foreign OME (M777s from BAE Systems in this instance) but with 83 percent of all assembly, integration, and testing conducted in India by the vendor's local partner (Mahindra Group). Depending on the level of localized content in the platform the aim, therefore, in a case such as the M777 ultra-light howitzer is that a future follow-on order will be sourced directly to the local partner rather than the foreign OEM.  

The same example would apply in regards to 155mm tracked self-propelled howitzers (SPHs), where India's Larsen & Toubro (L&T) is wrapping up local assembly of the K9 "Vajra-T" SPHs based on South Korea's Hanwha-Techwin K9 Thunder platform.

Meanwhile, other items on the banned list - including light combat aircraft and light combat helicopters - are already produced locally by state-owned Hindustan Aeronautics Limited (HAL). Hence the impact of placing them on the import-exclusion list is minimal and instead reflects the intention to ensure such platforms continue to be supplied domestically.

But if the ultimate aim is to meet its supply needs through the highest-priority category in India's Defense Procurement Procedure (DPP) - referred to as Indigenous Design, Development and Manufacturing (IDDM) - the negative impact on modernization of the Indian Armed Forces could result in bureaucratic delays of which Indian defense procurement is legendary.

Procurement tenders issued by the Defense Ministry under the IDDM category require 40 percent indigenous content on any platform that is indigenously designed. For products not indigenously designed, 60 percent indigenous content is required.

Should an equipment requirement fail to be met through an indigenously-designed platform or one with sufficient indigenous content, then lifting the self-imposed ban on a case-by-case basis may prove to be the only available option. Even if such design or IC thresholds are available on the domestic market, the issues of production/delivery timelines and meeting qualitative requirements also present crucial hurdles to overcome. 

All of this presents a challenge - even before bringing up India's problematic track record at meeting ambitious procurement goals (much fewer ones involving significant domestic design and/or manufacture involvement).

Nonetheless, India's ongoing quest for greater indigenous content in military hardware and a stronger defense industrial base remains relentless. Despite innumerable hiccups since the 1990s, there have been tangible signs of progress (the new INS Arihant nuclear ballistic-missile submarine being one example).

Much more progress will still need to be made - and soon - if India is to finally reduce its dependency on foreign-sourced hardware and meet the myriad capability requirements of its armed forces once the embargo list comes into effect.

Daniel Darling is an international military markets analyst at Forecast International Inc., an aerospace and defense market research company located in Newtown, Connecticut. A graduate of Kansas State University, Dan covers the Europe and Asia-Pacific Rim military markets for Forecast, and formerly was responsible for the Middle East as well. He has been quoted or his work cited in: Arabian Business, Defense News, The Financial Times, Flight International, The National, The New York Times, Bloomberg, National Defense Magazine and Small Wars Journal, among others.