Can Start Ups create India’s Defence Industrial Base?
The Ministry of Defence in a press release announced on February 10 that 127 companies have been awarded under the Innovations for Defence Excellence (iDEX) scheme.
The iDEX framework launched by the Government is aimed to foster innovation and technology development in Defence and Aerospace Sector by engaging industries including MSMEs, start-ups, individual innovators, R&D institutes and academia and to promote self-reliance in 2018 as per the release has caught up. Under the same 127 iDEX Winners were funded up to 31st January 2023.
Indeed, the defence start up eco system in India is rapidly evolving and there are a number of technology oriented companies that are undertaking some admirable work in the defence domain. The strength of the IT sector and companies operating in the Artificial Intelligence (AI) as well as the drone field has led to many in these domains contributing extensively.
On the plus side, iDEX is user driven initiative, the work is undertaken after the problem statements for the product/technology development are identified/approved by the Armed Forces, DPSUs, and other agencies. Thus, close integration with services has been achieved since launch of Start-up India initiative on 16th January 2016.
The genesis of the initiative was ghe Action Plan for Startup India that laid the foundation of Government support, schemes and incentives envisaged to create a vibrant startup ecosystem in the country.
The Action Plan comprises of 19 action items spanning across areas such as “Simpliﬁcation and handholding”, “Funding support and incentives” and “Industry- academia partnership and incubation”.
To encourage Indian defence Industry in design & development of Defence equipment, provisions have been made at Chapter –III of ‘Defence Acquisition Procedure’ (DAP-2020) under ‘Make Procedure’. Chapter –III of DAP-2020 also provisions to foster innovation from ‘iDEX’ and ‘Technology Development Fund’ (TDF).
iDEX was aimed at creation of an ecosystem to foster innovation and technology development in Defence and Aerospace by engaging Industries including Micro, Small & Medium Enterprises (MSMEs), Start-ups, Individual Innovators, Research & Development (R&D) institutes and Academia and provide them grants/funding and other support to carry out R&D which has potential for future adoption for Indian defence and aerospace needs.
In the Defence Budget 2023-24 to further foster innovation, encourage technology development and strengthen the Defence Industrial ecosystem in the country, iDEX and DTIS have been allocated Rs 116 crore and Rs 45 crore respectively representing an enhancement of 93% for iDEX and 95% for DTIS over 2022-23.
The National Data Governance Policy for innovation and research by start-ups and academia is also expected to benefit iDEX. This will enable access to anonymized data which will further boost the Defence Start-ups and iDEX scheme.
Defence Production and Supply Chain
The Defence production and supply chain comprises of Original Equipment Manufacturers (OEMs) and three levels of suppliers; Tier 1, Tier 2 and Tier 3. OEMs are clearly the major defence production companies in the public and private sector such as Hindustan Aeronautics Ltd and Tata Advanced Systems. These are supported by Tier 1, 2 and 3 suppliers.
Simply speaking Tier 1 are manufacturers of major components or systems who receive parts or subassemblies from the Tier 2 supply chain. The Tier 1 manufacturer provides assembled components or systems from components provided by Tier 2 who manufacture parts or subsystem assemblies used by Tier 1 companies. Tier 3 in turn are mostly component manufacturers to Tier 2. Tier 3 do play a significant role in the supply chain.
Providers of metals and materials are categorized as Tier 4 and at times combined with Tier 3.
Where Do iDEX companies fit in?
On examination of the iDEX companies awarded it is evident that these are mostly Tier 3 companies with very few falling in Tier 2 where these are manufacturing systems for personal and small team use. iDEX is part of the overall Atal Innovation mission that has been launched at the national level by the Government to generate innovation across the board and to that extent development of Tier 2 and 3 companies through the scheme is the right direction but unless there are structural reforms undertaken in the defence acquisition and production processes benefits will remain sub par. Emergency procurement through iDEX by services is another challenge as it may lead to patchwork arrangement without sustainability with reference to maintenance and repairs.
Building a Defence Production Base
Defence Production is much more than a fillip to iDEX lacking is a defence production policy that is of consequence and a defence procurement procedure that is designed to restrain rather than facilitate capability and capacity building.
Alternates such as emergency procurement and iDEX cannot be substitutes for a reworked procurement and production policy that can make up for the huge gaps in the armed forces to fight modern wars – combat fighters, submarines and even assault rifles and carbines.