Defence & Security Sector in India Challenges & Opportunities ...

Defence & Security Sector in India Challenges & Opportunities & Procurement Policy by Maj. Gen. (Retd.) Dr. B. Yadav, Q -Tech Synergy

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Presentation Outline  Defence Procurement Defence Budget and Needs Process and Procedures  Doing Business  Future Opportunities  Guidelines for Doing Business with Indian Defence Sector Tech

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Indian Defence Industry- Some Facts  India is one of the largest military spenders. India emerges as one of the biggest markets in the world for defence and aerospace products and the topmost importers.  Nearly 70% of Indian military hardware is imported. Indian exports are a modest US $75mn annually.  India has 8 Defence Public Sector Undertakings and 40 Ordnance Factories which account for almost total indigenous production of military goods.  The Defence industry has been opened for Private Sector.

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Indian Defence Industry- Some Facts  Defence budget has been increasing at a steady rate of more than 8%. It spends around 2.4% of GDP. Likely to increase as Indian economy is growing at over 7.5 % annually.  The capital head allocation to cater for modernisation and new equipment acquisition plans. The major portion of Indian defence budget (Approx 43-44%) has been earmarked for capital acquisition amounting to more than $10 billion during the current FY.  $ 100 billions to be spent in next 5 years for Indian Defence and Homeland security.

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Indian Defence Budget 40,000

35,500

in Rs million

30,000 21,497

24,090

36,836

26,484

20,000

10,000

0 2006-07

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2007-08

2008-09

2009-10

2010-11

Indian Defence Industry 56.31

60 48.28

50 in $ billion

 Increased focus by Government of India on allocation to defence sector in India over years

40

41.40 35.50

30 20 10 0 2009-10

 It is expected to grow at 7 to 8 percent annually over the next five years

2011-12

2013-14

2015-16

Revenue & Capital Expenditure 40

Revenue Expenditure

35

in$ Billion

30 25

21.75

20 15

14.91 12.39

12.10

8.71

9.39

11.57

13.75

2006-07

2007-08

2008-09

2009-10

10 5 0

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Capital Expenditure

India: Market Spread 

Currently, about 70% of Capital procurements are from foreign suppliers and balance 30% is sourced from Indigenous sources.

Defence Market Growth: 2008-2013 ($ Billion) 200 150

170

2013

100



The cumulative value of the India defence procurement for the next 5 years would be approximately US$ 45 Bn, which makes it one of the most attractive markets in the world Main suppliers of military equipment to India include Russia, Israel, France, Germany, other European Union countries, United States of America, South Africa etc Tech

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45

25

50



2008

150

45 13 15

10

0 US

Chi na

Indi a

UK

Anticipated Defence Expenditure 2013 C4ISR 5%

Air 30%

Other 25% Land 15%

R&D 10%

Naval 15%

Market Growth: Indian Defence Industry

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Modernization of the Indian Armed Forces is considered to be lagging behind by 10 years. The current profile of equipment held by Indian Armed Forces is:  State-of-the-art: 15% vs. required 30%  Mature: 35% vs. desirable 40%  Obsolescent: 50% vs. acceptable 30% It is expected that India will spend about US$ 100 billion during the 11th five-year plan (2007-2012)

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Procurement - Planning Process DM’S Operational Directive 15 Years Long Term Integrated Perspective Plan Headquarters Integrated Defence Staff (IDS) In consultation With the Service Headquarters

5 Years Defence Plans 5 Years Services Capital (New) Acquisition Plan Annual Acquisition Plan

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Capital Acquisitions Categorization

Buy

Buy Global

Buy Indian

Foreign & Indian vendors

Indian vendors with 30% indigenous content

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Buy & Make

Buy & Make Indian

Make

Purchase from foreign vendor followed by licensed/indigeno us production

RFP to be issued only to Indian vendors

High Tech complex indigenous systems

Buy Global   

Outright purchase from OEM Foreign as well as Indian vendor Normally for one time procurement

Buy & Make   

Purchase from a foreign vendor Followed by licensed production/indigenous manufacture in the country Private sector can participate

• • • •

Buy & Make (Indian) Def Production Policy Indian Company 50% indigenous contents

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Short listing of vendors…  RFP only to OEM, authorised vendors and Government sponsored export agencies.  Vendor must possess proven technical competence of the level sought & have credible past track record. In TOT cases, ability to transfer requisite technology for licenced production is essential.  Export policies of vendor’s country with respect to high-tech items need to be ascertained, especially for TOT.  Issuance of RFP is an expression of confidence in the capability of the vendor. Once RFP is issued, no vendor can be eliminated summarily for suspect competence.

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Short listing of vendors…  RFP issued by Technical Managers after vetting by all concerned including production agency (for TOT). AON lapses if RFP not issued within two years.  TOT may be negotiated either with purchase package or as a follow up later-on, but availability of TOT would be a pre-condition. RFP to include trial methodology.  No addition to vendors is permitted once RFP issued. Single vendor RFP only with permission of DAC.  Single stage two-bid system is followed. Technical and commercial proposals are submitted in separate sealed envelopes, to be valid for 18 months. Maximum extension of time for submission up to 8 weeks – 4 by DG Acquisition and further 4 by Defence Minister.  Technical proposals are opened by Technical Managers while commercial proposals are kept sealed. Tech

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Defence Technologies India Needs 

Command and Control Architecture

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Digital technology is being built into aircraft, tanks, artillery and individual soldier systems with the intention of providing commanders with “situational awareness” –an instantaneous and complete picture of battlefield

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Area Missile Defence and Remote Warfare

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Platform with stealth technology carbons composite and fibre

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Technologies to enhance survivability, awareness connectivity and war fighting capability of the soldier

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Electronic warfare, direction finding and deception technologies

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Space technology to exploit applications of real time meteorology, navigation, communication surveillance, weapon guidance, cartography, synchronization.

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High speed data processing

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Nano technology

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Cryptography and crypto analysis

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Artificial Intelligence and Robotics Tech

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Defence Technologies India Needs 

Precision Guided Missions (PGMs)

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Cruise Missiles-guided by GPS

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Tactical Missile System

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Sensor Fuzed weapons and joint stand off weapons carrying sub munitions

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Low thermal and ‘Acrostic Signatures’ than its predecessor.

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Battle Space Awareness:

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Sensors in satellites, manned aircraft or UAVs

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GPS satellite navigation Network and Air Borne Warning and Control System (AWACS)

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UAVs for strategic roles, medium attitude long endurance (MALG) and low altitude UAVs

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Night vision devices

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Defence Technologies India Needs  Thermal Imaging & Image Intensification.  Sensors / Detectors / Radars.  Trajectory Correction System /Missile Guidance.  Advanced Rocket Technology.  Active Tank Protection Systems.  Metallurgy / Forging Techniques for Guns.  Automotive Technologies.  Surveillance, Communications and Navigation Technologies.  Miniaturization / Nano Technology.  Networking Technologies for Seam Less Integration.  System Simulators. Tech

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Programme Management Home Land Security  Ministry of Home Affairs is responsible for India’s internal security  Law and order is a state subject  Number of central police forces under it for special tasks and to supplement states’ resources  The 11/26 attack on Mumbai in November 2008, caused an approximate loss of over USD 800 mn to the financial capital of India  15 terrorist attacks in India in the last two years  Government has a modernisation plan for 6 Central Police Forces with an outlay of $ 900 mn up to 2010 to counter the asymmetric threat

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Market Opportunities  Putting a number of pending procurements onto the fast track option.  A $ 10 bn Homeland Security market by 2016.  Indian Navy and Coast Guard $ 4.5 Billions  Sea Port Security $ 0.5 Billions  A $3.2 bn market for Airport security by 2016.  Special Events $ 1 Billions  Sizable expansion of the Indian Coast Guard and the Indian Navy by 2012 

Weapons and protection systems, both for individuals and vehicle such as –100000 Auto Carbines to replace 303/SLR rifles INRs 5000 crore ( $1.250 bns) –100000 Level III Bullet- Proof Jacket INR Rs 300 crore ($ 75 mns) –100000 Kevlar Helmets INR 100 crore ( $ 25 mns) Tech

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Market Opportunities  Sights and night vision devices, Thermal Imagers & Infrared based equipment  Commns, data transmission systems and mobile command & control centres.  Integrated Security Systems  GPS, GSM based Tracking Systems, Interception /Monitoring Systems  X-ray Systems, Cargo/Container Screening Solutions  RFID systems  Explosives sensors and disposal equipment.  Early warning security and surveillance systems.  Radio interceptors, Jammers & IED neutralisers.  Decontamination systems.  Simulators for training.  CBRN systems Tech

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Offset 

Request for Proposals will contain Offset obligation.

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Vendor has provide a simple undertaking of accepting Offset obligations with his Technical Proposal.

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Technical Offset Offer and Commercial Offset Offer to be submitted in two separate covers to Technical Manager by the date specified in RFP which will not be later than 3 months of submission of main offers.

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Vendor has to accept that failure to meet obligation will disqualify him at any stage from further participation.

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Response to RFPs - Key Points            

Requirements established to ensure competition of at least 2 vendors. Requirements can’t be weighted towards a single supplier. Procurement procedures… are rigid BUT fair. No “YES we are compliant BUT/Subject to/etc.” - either YES or NO. Unsolicited proposals are not acceptable. Lowest bidder after all stages of procurement cycle wins. Common flaws noticed in proposals Adequate attention NOT paid to the specified requirement - Standard brochures are enclosed. In-production items are offered with total disregard to what is being sought. Incomplete technical data. New terms and stipulations are suggested making the proposal a conditional offer. Replies are given in ‘yes’ or ‘no’ without technical amplifications.

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Indian Specific Model-lessons from the past 

Make a long term Commitment & High Integrally

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Plan for steady investments.

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Leverage India as a Resource. Defence Production Base for to begin with regional needs and not just for India.

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Products to provide Customer value at optimum cost.

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Localise high /Technology high value components aggressively.

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Have a clear path to ownership. No Partnership just to hedge the risks.

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Invest in creating a high-caliber local team with enough flexibility.

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Develop Long Term Association  A producer always knows his product better than the buyer, it is a good practice to be frank and candid in all aspects.  Indian offset policy is highly undemanding and pitched Iat a base level. View it as another business opportunity. level. View it as another business opportunity.  Enter ‘Buy Indian’ segment through joint ventures with Indian companies. Equipment must have minimum 30 percent indigenous content. Percent  Collaborate with Indian companies for the development of ‘Low Technology Mature Systems’ with minimum 50 percent indigenous content.

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Major General (Retd) Dr. Bhupinder Yadav 

Major General (Retd) Dr. Bhupinder Yadav is the Managing Director of Q-Tech Synergy. Prior to retirement, Dr. Yadav was with Department of Defence Production, Govt of India. He is a Fellow from Institution of Engineers India, MBA, M.Sc. (Quality Management) from Cranfield University, UK, and holds a PhD in Operations Management

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He has more than 30 years experience with technology management areas such as Planning and Co-ordination, project planning, product development and improvement, export promotion, vendor development, quality planning & assurance in engineering hardware, process etc

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He played an active role in supply chain of defence products with a focus on self reliance through indigenisation, technology absorption, product upgrade with participation of Public /Private Sector and has been associated with important committees on defence production

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He has a number of papers on quality, reliability and process improvement in various international seminars and publications to his credit

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Programme Management- Defence Procurement Ministry of Defence

Department of Defence

Integrated HQ

Organisation

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Defence Finance

Department of Defence R&D

Secretary DDP

Defence Secretary

InterServices

Department of Defence Production

Army

Navy

Air Force

DRDO

Others Programmers

Defence Acquisition Organisation DEFENCE ACQUISITION COUNCIL (DAC)

Defence Production Board

Defence Procurement Board

Defence R & D Board

Acquisition Wing DG (Acquisition) FA (Acquisition)

Land System

Acquisition Manager

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Air System

Finance Manager

Maritime &System

Technical Manager