Interview: Government support for exports could help position India as global arms major

In an interview ahead of DefExpo-2022, Larsen & Toubro whole-time director and senior executive vice president Jayant D. Patil tells our editor N. C. Bipindra that a Foreign Military Sales model, amplification from Indian missions abroad and low-cost working capital could help build domestic miliary industrial base. The company is also pursuing Net-Centric Warfare with technologies such as Swarms, Artificial intelligence, Counter-Drone and Directed Energy systems to meet the future needs of the Indian armed forces.

Q. Kindly provide an overview of the progress of Larsen &Toubro’s supply of the K9 Vajra artillery systems to the Indian Army, and what is now scheduled to be done at L&T’s end in the project?

A. L&T had received an order for 100 numbers of the K9 VAJRA artillery guns in May 2017 and the same were delivered in March 2021. The systems were delivered ahead of the project schedule in spite of two waves of COVID-19 pandemic and associated challenges.

L&T had started the journey of indigenisation, right from the Request for Proposal (RFP) stage of the Tracked Self-Propelled programme issued under ‘Buy Global’ category by the Ministry of Defence, by replacing 14 critical systems in the Korean ‘K9 Thunder’ with indigenously developed and produced systems for the trial gun fielded for user evaluation trials, thus giving birth to the Indian version K9 VAJRA – a bespoke solution – made for Indian operating conditions and requirements. The VAJRA variant developed by L&T with India specific features emerged fully compliant to Indian Army’s needs during the arduous and extended field trials. Accordingly, L&T gained capability of realising variants with enhancements as well as other tracked armoured systems as per the requirements of the end-users.

Jayant D. Patil, L&T’s whole-time director and senior executive vice president.

Concurrent to the serial production of Vajra, we initiated an inhouse developmental project to make Vajra capable of working in high-altitude cold climatic conditions. Funding such a development made sense in view of multiple armoured systems on Indian Army’s future plans. Thus, when decision to move few ‘Vajra’ guns to the High-Altitude terrains, we were ready with a kit to integrate into Vajra for trials and establish performance of this potent weapon system in these terrains.

In anticipation of enhanced focus of the Government of India on ‘Make in India’ and thus further opportunities in artillery and armoured systems domain, we created a world class facility for manufacturing, assembly and testing of the artillery and armoured systems at our Armoured Systems Complex (ASC) in Hazira near Surat.

While we await further acquisitions to take shape, the ASC, in view of its modular workstation concept is being kept engaged with other projects in the interim period.

Q. What value add in terms of capabilities has the Vajra manufacturing at your Gujarat facility done to L&T’s land systems manufacturing division, and where has L&T set its eyes for its Land Systems business growth in the days to come?

A. The Armoured Systems Complex (ASC) at Hazira has played a pivotal role in the execution of the order for K9 Vajra-T 155-mm 52-calibre Tracked Self Propelled Howitzers for the Indian armed forces. ASC is a 50-acre, green-field state-of-the-art manufacturing facility created to manufacture, integrate and test advanced military armoured platforms such as Self-propelled Howitzers, Air Defence Systems, Infantry Combat Vehicles, Light Tanks, Future-Ready Combat Vehicles and other combat systems. The Armoured Systems Complex was dedicated to the nation by the Prime Minister Narendra Modi on Jan. 19, 2019, marking deliveries of Vajra’s built in India with more than 75 percent Indian work packages.

This newly established and ultra-modern complex comprises of 320-metre-long bays of 30-metre and 15-metre shops with in-house Robotic (17 axis robot, and two dozen other robotic stations) Hull and Turret Welding, CNC Machining, System Assembly and Integration, and a Special Purpose Mobility Test Track facility to roll out the entire Armoured platform from the complex. The full-fledged mobility test track, specially designed for rigorous testing, acceptance and qualification of armoured vehicles, ensures that every vehicle delivered meets the most stringent quality standard and is battle worthy across terrains.

File Photo: K-9 VAJRA Tracked Self-Propelled Guns at the L&T’s Armoured Systems Complex in Hazira near Surat.

Q. Please share the futuristic technologies that L&T is currently working on in land systems, warship and submarine building, and other aerospace, defence and maritime sectors. How would these technologies fit into the strategy of the company?

A. After nearly four decades in the defence business, L&T has evolved as a large system of systems integrator and a platform with solutions provider. Our core strengths have been based on the fundamental and building blocks of system design, engineering, analysis, manufacturing and production, integration and testing with overall system engineering meeting requirements.

The technology shifts that is being pursued by L&T has an alignment with the internal competencies that are getting developed as well as the external requirements of the business environment. There has been a gradual decentralisation of focus from conventional systems to non-conventional systems, where wars are going to be fought from remote and at stand-off distances with machines and autonomous solutions are playing a bigger role.

Net centric warfare with technologies such as Swarms, Artificial intelligence, and Directed Energy systems are few of the upcoming technologies that are being pursued. There are systems being designed with increased collaboration of manned-unmanned systems with remote and autonomous operations.

The technologies that are being pursued comprise of solutions for Intelligence, Surveillance and Reconnaissance, aerial targets and counter-drone solutions, payload delivery, C4ISR, and futuristic radar systems. On the unmanned domain, Autonomous Underwater Vehicles (2 classes), ROVs (2 classes), Autonomous Surface Vessels and Naval UAVs as also our own inhouse designed SOV 400 Midget Submarines are actively being pursued.

Another segment that future will exploit much more for enabling the armed forces is Space-based surveillance. L&T has played a significant role in establishing Satcom ground stations for Indian Space Research Organisation (ISRO) and this capability would be yet another military need in coming times.

Our warships and submarine construction work centres are digitally enabled with unmatched Industry 4.0 capabilities at work across the value chain. That has enabled us gain unique track record of delivering all design and build warship contracts ahead of schedule. As of date we have delivered 74 ships to Indian and friendly nation forces, besides building at least 25 more vessels primarily for inhouse use in mega infrastructure building programs won by L&T construction.

L&T, in consortium with Hindustan Aeronautics Limited, has recently won a programme to fully build and integrate five PSLVs over coming four years as a way ahead by Government of India to completely industrialise the Space Launch Systems and enable industry to provide end-to-end launch capability, with PSLV being the first such launch system being a proven, stable and reliable launch vehicle. With opening of the Space Sector by the government and awaiting issuance of the Space Policy and Space Activities Bill by Parliament, Defence Space would open up as a significant segment in the sector.

File Photo: L&T-HAL officials exchanging the Rs. 860-crore contract documents with NewsSpace India Limited during the inauguration of the 7th Bengaluru Space Expo-2022 at Bangalore International Exhibition Centre on Sep. 5.

Q. What shall be L&T’s outlook towards the ‘Make in India’ and ‘Aatmanirbar Bharat‘ (Self-Reliant India) push of the Indian government, with the company’s vast experience working in the aerospace, defence and shipbuilding sectors for decades now?

A. The latest budget reflects the government’s commitment to strengthen the ‘Aatmanirbhar Bharat’ Mission. The defence capital allocation has been increased by about 13 percent, although a shade lower than the long-term commitment of 15 percent year-on-year as enshrined in the Draft Defence Production and Export Promotion Policy (Draft DPEPP). It is satisfying to note a significant increase in the allocation for indigenous acquisition from 58 percent to 68 percent of capital budget, which augurs well for the growing private sector in defence. This delivers a right message to Indian defence industry that the government is walking the talk on increasing the share of defence acquisition from Indian industries, in line with ‘Aatmanirbhar’ Mission.

The opening up of Defence Research and Development (R&D) for private companies, Startups and academia and reserving 25 percent R&D allocation towards them is a watershed reform and much awaited measure. After the withdrawal of weighted tax incentives for R&D by the industry, the Defence Sector has been seeking R&D funding support from the government to fuel R&D by the industry.

Also, SPV model of developing new products with Defence Research and Development Organisation as well as Ministry of Defence (MoD) will facilitate development of large ticket programmes. Both these will help create intellectual property within the country that will not only cut cost of indigenously developed and manufactured goods and solutions (saving of Transfer of Technology and License Fees to Foreign Original Equipment Manufacturers for ‘Make in India’ with Foreign Intellectual Property) but also facilitate exports that can unconditionally be done with own IP. With these reforms in Defence R&D, we keenly look forward to more and more Make-1 programmes taking off over the coming year onwards.

The other policy directives currently in vogue for promoting R&D efforts in the private defence industry are limited to only two operational initiatives, namely the iDEX and Technology Development Fund. iDEX and iDEX Prime strive to encourage innovation and R&D by Startups with a maximum grant in aid as seed money with a cap at Rs.1.5 crore per initiative and entire funding provision of around Rs. 500 crore. TDF, on the other hand, seeks to provide funding for pursuing mid-size initiatives in product development or technology innovation capped at Rs.10 crore.

While both these schemes are positioned for Startups and MSMEs, we believe that these initiatives will create a competent tierised industry base for system integrators like L&T for development of larger programmes involving major equipment, systems, system of systems and platform development without which we can hardly cut import dependence.

While MoD is preferentially putting more and more programmes in to Make-II (fully industry funded developmental programmes), it is overlooked that Make-II was created to develop major equipment and subsystems and building blocks for major system of systems and platforms to be developed under Make-I.

The Make-I, for joint funding by MoD and Industry with MoD bearing the lion’s share, was enabled and introduced in DPP-2006 and evolved subsequently in DAP-2020, continues to remain ignored. There have been announcements and assurances made on the Make-1 programmes, however, their execution and implementation are still awaiting traction on ground.

To summarise, the impetus towards Atmanirbhar Bharat through policy push, procedure overhaul and import embargo are expected to open up larger opportunities in Defence Sector in medium-to-long term and our outlook on this sector is positive.

Q. What are the defence industrial policies that either enable or hinder L&T’s defence exports business prospects?

A. The global defence market is expanding at a rapid pace especially given the geopolitical scenario that we are currently going through. The government has formulated numerous policy enablers that aid in enhancing the business prospects of exports, some of them are:

  • Formation of an export promotion body and constituting a defence exports steering committee
  • Government push through export financing (Line of Credit, financing through EXIM Bank) and other incentives (strategy to finance weaker countries)
  • Revision of export regulations – issue of NOC, online and time-bound clearances
  • While the exports were initially driven through Public Sector Units (PSUs) and Ordnance Factory Board entities, the private sector has boosted the defence production and exports from Rs. 686 crore in 2013-14 to about Rs. 13,000 crore in 2021-22
  • Draft DPEPP policy formulated by the government to target Rs. 35,000 crore exports by 2025 (with export promotion as one of the focus pillars)

Few of the areas where support is required from the government are as follows:

  • Formation of a Foreign Military Sales (FMS) like process where the government acts as an extended arm of the industry player, realising the system and facilitates the export.
  • Facilitation through Indian missions abroad, to obtain, consolidate and share list of nations and products that can be pursued
  • Promotion of India-made defence products and Indian capabilities on a global podium during defence delegations, inter-governmental cooperation meetings
  • Defence PSUs get leads for exports through preference by MoD. In addition, many opportunities involving Line of Credit are not always shared with private industry. Even under cases where the private industry has won a contract and delivered goods to MoD, the opportunities to export same goods are opened to DPSUs rather than letting the industry close the export contracts quickly with an indexation mechanism based on cost of sale to MoD and inflation and Foreign Exchange Rate Variation. A logic driven mechanism for selection of the industry and creation of a level playing field is the need of the hour.
  • It is often observed that export customers by and large expect the equipment to be “in-service” in India, however, exceptions do exist. Accordingly, induction of all trial-cleared equipment would pave the way for better product positioning at a global level. This is getting in place today with certification of “Good for Military Use” of trial equipment that has cleared trials but lost out in L1 bidding process.
  • Need for low cost working capital credit for defence exporters is often felt when facing direct competition with certain countries that sizably provide incentives to exporting industries to make them competitive. The government would need to look at facilitating the same by leveraging a small part of direct foreign exchange reserve against US Dollars receivables for foreign defence contracts.

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