While the reforms of the past five-six years have resulted in greater innovation and indigenisation, I believe industrialisation of these products will mark the next phase of Make in India in defence.
When the government brings in initiatives like the production-linked incentive (PLI) scheme, there's pushback that bureaucrats should not be selecting winners. There’s pushback that the government should not decide which company will be good for what. Is such criticism holding the government back from doing what you suggest?
I don't think the government is deciding which company will do what. It doesn't happen that way. The process starts with a request for information. When the government wants to buy something, it puts it out in the public domain and asks companies that are interested to make that product. Maybe there are 10-12 companies that express an interest in making the product. Then there is a process of technical evaluation and extensive discussions between the industry and the armed services. Half of these companies drop out during this process. They realise it is not their cup of tea or that the investment required is too large. Building just a single artillery gun prototype costs Rs 40-50 crore. How many people will spend that amount and then wait for five years as the prototype is tested across geographies, which also costs money.
There are built-in safeguards in terms of who can do what, and that's how people get shortlisted. At the end of the day, there are always three-four companies that can generate competition in the bidding process, after which the prototypes are built. Then there is the fact that for capital procurements by the MoD, product trials are carried out by the buyer on a no-cost, no-commitment basis. This means that the government neither bears the cost of evaluations nor is committed to buying the product after the trials. The prototypes undergo full testing according to the user’s requirements, which are known upfront. After that, the companies that pass the trials enter the final round and their price bids are opened. Earlier, whichever company was the lowest bidder would get the tender. Now, the lowest bidder (L1) gets 60 per cent of the contract, while the second-lowest bidder (L2) gets 40 per cent if it can match the L1’s price.
What are the positive changes that have taken place in India's defence procurement policy in the past few years and what more needs to be done to carry the momentum forward?
The Narendra Modi government’s first defence procurement policy was announced in 2016. The previous policy had come in 2012 or 2013. But till 2016, the private sector was allowed to play a very limited role in defence manufacturing. It was largely the domain of the State, the defence public sector undertakings (DPSUs), and the ordnance factories — which were a part of the Department of Defence. Then in 2016, a policy paper came out addressing defence procurement. Its fundamental goal was to eliminate the trust deficit that existed between the government and the private sector. That was the big change that happened in 2016.
A number of policy elements were introduced to ensure self-reliance, with the most important one being for products that would be indigenously designed, developed and manufactured (IDDM). These were accorded first priority in terms of procurement. In the following years, a lot of attention was also given to bringing the small and medium enterprises into defence production because ancillary industries were needed to support manufacturing, like in the case of the automobile industry. A different policy was initiated for that in the form of Innovations for Defence Excellence (iDEX) challenges and some other mechanisms that gave priority to the small and medium sector. Support also came in the form of procurement regulations. Any procurement below Rs 200 crore by any government or public-sector agency would have to be procured from an Indian company. Then came the Government-e-Marketplace (GeM) portal, where small and medium enterprises could participate in public procurement through an online system. These small but crucial reforms have gone a long way in realising greater participation of SMEs and MSMEs in the Indian defence sector.
As a result of such accelerated reforms, promulgated in a short period, a lot of red-tape has been eliminated and processes streamlined. Moreover, the Defence Production & Export Promotion Policy (DPEPP) 2020 for the first time articulated targets for domestic production and exports. This is the right thing to do.
If we want to be a developed nation and be counted among the top three or four economies, then we have to be a nation that makes products. We can’t just be a nation that provides services to others. The defence production policy is designed to move the industry towards making products. Along with categorisations like ‘Buy Indian – Indigenously Designed Developed and Manufactured’ (Buy Indian-IDDM) under the Defence Acquisition Procedure 2020, this will create an ecosystem where Indian companies will start designing, developing and manufacturing products, not only for India but also for the world. What has happened in the Indian defence industry in the past seven-eight years is a case study for any other ministry. In that time, we have been able to create a whole ecosystem of industries, both private and public, which have started creating products that are mostly designed in India. While we still have a long way to go, we have certainly made progress.
Some of that reflects in the data as well. For example, India's defence exports touched a record high in FY24, with the private sector accounting for 60 per cent of these exports...
Exports account for 80 per cent of our defence business. We are still waiting for major domestic orders. We have received domestic orders for armoured vehicles and other small products. While we have not received domestic orders for artillery, we have secured a good volume of export orders for our guns. KSSL's revenues last year stood at about Rs 1,200 crore. That figure will see a significant increase this year. KSSL is a subsidiary of Bharat Forge Ltd, set up as a flagship company to drive defence business initiatives.
So, KSSL has received export orders, but not for the Advanced Towed Artillery Gun System (ATAGS)...
Even for the ATAGs.
What will KSSL's next step be?
We have the largest capacity on this planet for making artillery guns. We can make 12 guns per month. The big European manufacturers, which number only four, can make about 20 a year. The ordnance, including the barrel, which is the main part of a gun, uses high-strength steel. The entire manufacturing process is done in-house, including making the steel. The technology involved is also ours. We have installed a capacity to build more than 300 barrels per year.
Our strategy is that artillery, across systems and components, will be the main vertical because India alone requires 4,000 artillery guns to be replaced over the next 15-odd years. We will get our share of that business. Any buyer of an artillery gun will require spare parts for the next 25-30 years, and we have the capacity to supply them worldwide.
Ammunition also has a huge business potential. After the Russia-Ukraine war, every country in Europe, small and big, has started restocking ammunition. They are increasing their war reserves because the earlier concepts of a seven-day or 15-day war are being re-evaluated after the conflict in Ukraine.
Are there any particular geographies you will be focusing on?
We can only focus on those geographies where the government permits us to export. Our immediate focus shall remain on countries in Europe, Southeast Asia, and Africa, but with all of them being non-conflict zones.
Beyond artillery guns, are there any other sectors you will be focusing on?
There is no other gun in the world that has the technology that our gun, the ATAGs, has. It's the world's first completely software-driven gun. When we supplied it to a friendly country in West Asia, they wanted the operations to be in their language. We were able to do that in less than a day. They wanted it connected to their satellite system, which we were able to do in no time. We must also compliment the Defence Research and Development Organisation (DRDO), which has designed the ATAGs.
Beyond artillery, we have the Kalyani M4 in armoured vehicles. When the Indian Army wanted a vehicle in Galwan that could operate at 20,000 feet, the M4 was the only one that could do so.
We also make a vehicle called the TC-20, which we export. It is a 4x4 vehicle on which we mount either a 39 or 45 calibre, 155 mm gun. This is our own design. We are also building a light tank and a Future Infantry Combat Vehicle (FICV). While armoured vehicles will comprise another huge programme for the Indian Army over the next 15 years, we are not only building products that Indians can use, but also building products for world markets.
What are Bharat Forge's future plans beyond defence?
We can't reveal too many details, like numbers, because we have to declare our accounts in a few days. We have engineered this company for growth. We have an industrial products division that is growing very fast. We have a defence division that is also growing extremely fast. We have an electric mobility division, which is still under the product development phase. We have an aerospace division, which is also growing very fast. While it is small right now, it will become a pretty large division of Bharat Forge in the next five-seven years.
Defence aerospace or civil?
Defence and civil both, but largely civil. We supply turbine blades to Rolls-Royce for its engines. We supply the rotating shaft. We supply critical components. We have never been in the commodity space, and the same applies in the aircraft business. For example, we don't supply frames. We supply a titanium blade that goes in the turbine, which runs at 65,000 revolutions per minute (RPM). We supply turbine blades made out of high-temperature alloys like inconel. Metallurgy is our strength. So, we work with metallurgy.
We are making other aircraft engine components, along with landing gears for single-aisle aircraft. We make many other components for a number of companies, all of which are exported.
Coming back to the defence business, what were some of the initial hurdles you had to overcome?
Defence is a natural extension of our business. We developed our first artillery gun, the Bharat 52, in 2012. Everybody wrote it off back then, especially in the MoD, without even looking at it. We could not fire a single shell from it because the government didn't allow the Indian private industry to use any of its ranges back then. In 2017, I got tired of running from pillar to post and we decided to send the gun to the United States (US). I had some friends there, retired military people, who applied to the US Department of Defense. I got an answer in less than 45 days permitting us to test and fire our guns.
They sent us a video and the whole report of the test. It just so happened that there was an Army Conference in Delhi, where I told everybody this entire story and showed the video. Within a month, the then defence minister changed the rule and opened up the firing ranges to the private industry.
I've read this somewhere and wish to confirm. Is it true that when you entered the defence business, you said you would not wait for orders?
Yes, I said so. If you know what you are doing and if you are good at it, risk also generates rewards. Even in our normal automotive and industrial businesses, we have always put capacity ahead of demand.
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