L&T’s business model is uniquely differentiated with a focus on in-house maturity in technology and product development, with innovation at the core of their offerings. This is augmented by mature and equitable partnerships with global majors, to maintain a leading position in the market under an environment where the Government is aggressively pursuing an indigenisation agenda. Jayant Patil, Whole-Time Director (Defence, L&T-NxT) & Member of the Board, L&T talks to SP’s Land Forces about their commitment to defence manufacturing in India.
SP’s Land Forces (SP’s): Can you take us through the journey of L&T towards becoming one of the leading names in the deference manufacturing?
Jayant Patil (Patil): It has been little over three decades since L&T started its journey in the defence and above five decades in the strategic sector. The inception as far as defence sector is concerned, was activated in the corporate R&D of L&T which dates back to early 1970s. This R&D assumed the role of an ‘incubator’ for several in-house start-ups including defence, which over the years transformed into business verticals of L&T as we see today and paving way to knowledge driven businesses with little dependence of external sources of knowledge/technologies.
Since the mid-1980s, L&T associated with the Defence Research & Development Organisation (DRDO) and naval indigenisation programme more than one and a half decade ahead of opening up of the defence production for private industry participation. With even number of years in industrial R&D, we focussed on partnering with DRDO Laboratories in the system level design and prototype development of complex weapon systems. Concurrently we targeted design, development, qualification and delivery of special purpose engineering equipment and systems for indigenously designed naval platforms being built by Ministry of Defence (MoD) shipyards as well as for the DRDO programme.
Over the years, our capabilities evolved from design and development of equipment and systems from concept design (B2D) to initiate ab-initio design & development with just specifications (B2S) to system of systems from basic requirements (B2R). We began developing our own technologies, products, systems and system of systems for defence sector with inhouse R&D efforts. Opening and licensing of the defence sector for private industry in 2001-02 enabled us leverage our inhouse competence, capabilities and track record to serve armed forces by bidding for MoD RFPs since 2004 for delivering products developed with DRDO as more and more of these attained maturity and got inducted by the armed forces. Concurrently we also could bid for and win MoD acquisition programmes under global competition in-spite of the poor level playing field environment of those days.
In a nutshell, the evolutionary journey of L&T Defence was driven by capability building through in-house R&D and core technology development, creation of world class infrastructure i.e. dedicated manufacturing centres for precision manufacturing in metallic materials, electronics as well as advanced composites, assembly, integration and testing complex, internationally benchmarked mega shipyard and global supply chain, leading to rapidly increasing contribution in the value chain. Today L&T has an enviable portfolio in its chosen segments across the defence sector with unique competencies to evolve in to a major private sector player with capability to build system of systems and platforms (submarines, warships, armoured systems, military communication) from scratch through in-house efforts substantiated through select partnerships, in place.
SP’s: As per L&T, what all it takes to achieve the current status? Particularly in the countries like India?
Patil: The defence sector opened up for private industry in 2001 as part of post Kargil strategic analysis with directional outlooks to build India’s military industrial complex in the private sector in addition to nurturing existing government owned units. Although the early involvement of L&T in the defence segment, much before the sector opening up gave us a head start, it was an uphill task. The immediate past regime took unprecedented steps on the policy front to empower the private sector and grant level playing field to a major extent and reversing the focus of future defence acquisition towards indigenous sourcing.
L&T’s business model is uniquely differentiated with a focus on in-house maturity in technology and product development, with innovation at the core of our offerings. This is augmented by our mature and equitable partnerships with global majors, to maintain our leading position in the market under an environment where the Government is aggressively pursuing an indigenisation agenda while most indigenous players, with exceptions, are solely dependent on ToT/licensed manufacturing model to pursue defence production. We also have built critical mass towards self-sufficiency through a healthy mix of young and matured team of passionate engineers with domain knowledge and leadership with a mindset of continuous improvement in processes and manufacturing, and a commitment to enhance Indian value addition.
The minimum time taken for procurement of a major defence system is typically 6-7 years. While the government has brought in an industry friendly procurement process (DPP-16) and further implemented several additional measures in a continuous process to simplify the policy and procedures through 4 waves of Business Process Restructuring, the result of which will be visible only in new acquisition cases.
SP’s: What all are the core focus areas currently for L&T defence business, as of today?
Patil: L&T’s Defence business is structured into two business groups, viz. defence and aerospace (D&A) and defence shipbuilding. The D&A group focusses on guns, armoured systems missiles and aerospace vertical, submarines and underwater platforms vertical, and naval and land weapon launch and engineering systems, fire control systems, radar systems and sensors, military communication systems and avionics vertical. The Defence Shipbuilding has been largely engaged in construction of warships, as well as refits/repairs for Indian Navy and Indian Coast Guard. Since first contract in 2010, Defence Shipbuilding has designed, constructed and delivered 50 defence Vessels which include a floating dock (Navy), interceptor boats and offshore patrol vessels (Coast Guard) in record time. Given little movement on new acquisition cases for naval platforms over past three and a half years we had to get in to export markets and have seen few early successes, leveraging our impeccable delivery record and integrated design, manufacturing and modular construction track record for building naval platforms.
SP’s: Can you elaborate on your level of R&D investments and the relevant activities to acquire as much as possible selfreliance?
Patil: We have always believed that the indigenising Defence Sector calls for ‘Design in India’. Accordingly we established three R&D Centers for targeted Product, Systems, Technologies, Solutions and Platforms Development as well as dedicated Design and Engineering Centers for Warship, Submarines and Weapon & Engineering Equipment. L&T’s Technology and Product Development centres have indigenously developed more than 250 defence products and systems so far, and over 50 of them have been industrialised and delivered in serial production mode. With our corporate ethos to “Build a strong India” and “India comes First”, and the pedigree, we continue commit resource, talent and significant investments in R&D, comparable to matured players in developed world in revenue percentage terms, to develop new age technologies, products and solutions to maintain our edge over the building competition and retain our market leader position among the private players.
“With our corporate ethos to ‘Build a Strong India’ and ‘India Comes First’, and the pedigree, we continue to commit resources, talent and significant investments in R&D”
With shrinking/sunset of fiscal incentives being currently provided for investments in R&D by FY 20-21, corporates would be discouraged from continuing investment in R&D. This will serve to be counterproductive for defence sector targeting Make-2 programmes as way forward for indigenising major systems and subsystems of military platforms. The industry is looking forward to MoD to initiate directed incentivisation of R&D on a long-term basis, and enhance weighted tax deduction for targeted segments like defence, to encourage and bring them on par with government funded R&D programmes, and to give the necessary fillip to indigenising defence.
SP’s: Can you indicate which all key futuristic programmes’ developments, L&T could be engaged at this point in time?
Patil: FICV – Futuristic Infantry Combat Vehicle programme, was announced as the 1st Make programme under DPP 2008. FICV is a uniquely defined platform involving critical technologies. L&T has made significant R&D investments on a sustained basis to evolve indigenous architecture, concept design, technologies and hardware for the FICV programme. The overall solution including FICV turret & fighting compartment prototypes have been displayed during Defexpo 2018. Concurrently, a dedicated Armoured Systems Manufacturing & Testing Complex (the only facility outside OFB) has been created at our Hazira Campus where we are producing a 50 tonne class armoured platforms with 155mm 52 cal artillery howitzer turret for the K9 Vajra-T tracked self propelled howitzer programme. We are thus confident of developing and serially producing the FICV indigenously.
Same would be our state of readiness for indigenous production and integration of Future Ready Combat Vehicle (FRCV) programme under the Strategic Partnership model. The FRCV programme being pursued by the MoD under the Strategic Partnership Programme envisages MoD shortlisting foreign OEMs as also probable Indian Strategic Partners who would team up for ToT and produce the FRC Vs in India. With the ready infrastructure in the form of Armoured Systems Complex (Manufacturing, Integration, & Testing), Resources and Skills, Supply Chain management, in place and on/ahead of schedule delivery performance on the K9 Vajra-T programme, we uniquely position for the FRCV programme.
L&T has been development partner to DRDO for a wide range of indigenous missile programmes, consequently we are engaged in major artillery programmes like Pinaka and air defence programmes viz. Akash, MRSAM and CIWS. With some of these on the anvil for serialisation we would be playing a significant role in production and integration of launch systems and other support systems for these programmes.
We also eagerly await conclusion of developmental contracts for Make-1 programmes (TCS, BMS and FICV) currently in cold store/cancellation/reinvention mode. We need to recognise that while Strategic Partnership programmes will make the ‘Make in India’ happen, we would truly create indigenous capabilities and gain the ability to be self-reliance only when we pursue platform design and development programmes on our own.
SP’s: You must be proud of your engagement with some of the key milestones from INS Arihant to K-9 Vajra. What will be your message to the armed forces as an Indian entity in terms of your capabilities, your commitments, and your futuristic plans?
Patil: Over three decades of L&T’s active involvement in the defence and strategic sector, L&T is proud to have contributed to all the major milestones achieved by the Indian defence segment through Indigenous development and production of defence wares. A few shining examples are K9 Vajra-T, Pinaka and BM 21 Upgrade for the Army Artillery, Akash for Army and Air Force, BrahMos, Range of Bridging Systems for Army Engineers, Platform specific Engineering systems for Naval Platform, Floating Dock for the Navy (FDN-2) and offshore patrol vessels and interceptor boats for the Coast Guard to name significant ones in public domain.
K9 Vajra-T has the distinction of being the largest defence contract placed on a private sector company for delivery of 100 howitzers in a span of three and a half years. In order to meet this stringent delivery schedule, we created a dedicated armoured systems facility including a world class Test Track at L&T’s Hazira Complex. This modern ‘Industry 4.0 ready’ factory is our 6th dedicated and 9th defence production unit and has already started rolling out the K9 Howitzers with 12 systems already delivered to the Army, ahead of schedule. K9-Vajra being delivered currently have reached 75 per cent+ indigenous content by work packages. Pinaka system is the first major indigenously designed and developed multi barrel artillery rocket weapon system to be inducted by the Indian Army. Given the indigenous design and development, the programme has >90 per cent value content produced in India. So is the case with Akash programme where we deliver launchers, radar masts for 3-D surveillance radars and integrated propulsion airframes for the missiles with above 90 per cent indigenous content and value addition. In production of integrated propulsion airframes we attained global benchmarks in deliveries and production scale up. We are partner to BrahMos for the past nearly two decades and produce launchers and fire control systems and integration on naval platforms as also produce missile subsystems and related hardware with >90 per cent indigenous content. We play a dominant role in equipping the Army with range of bridging equipment and Systems from 5m to 75m spans. These are produced with >95 per cent indigenous content.
With the revenue growth in public sector defence enterprises stagnating at a CAGR of 8-8.5 per cent, the only way to realise the long term goal of indigenisation is by encouraging private sector participation. Over the years L&T has established state-of-the-art dedicated work centres. These work centers are complimented by three R&D centers for targeted Product, Systems, Technologies, and Platforms Development as well as Design and Engineering Centers for Warship Design, Submarine Design and Weapon & Engineering Equipment Design & Engineering. L&T is not a solitary example in the Industry and there are multiple majors in the Private Sector with varying degree of proficiencies and track record. I believe the Indian Defence Industry already possess the necessary capabilities in most of the segments.
With varying degree of such capabilities and capacities already available within the Industry in majority of these targeted segments, the Defence Production targets stated in the policy can be attained in a focused manner with Policy and budgetary support.
Despite proven track record of private sector players like L&T and few others, there is a continued ordering on government owned/controlled PSUs in keeping with old decisions. There is a concerted need for decision makers to treat Private Investments on par with investments in Public sector as National assets and trust Private Industry as Nation-Builders and provide them level playing field. On the other hand government urgently needs to grant complete level playing field to private sector through long term relationships so as to cut imports and enable them serve as additional resources to PSUs.
Our policy makers and user need to factor in that foreign OEM offering his wares in India were hand held and supported by their Govt and the Armed Forces. Having done that they offer it to us well beyond maturity stage on the verge of needing up-gradation at our costs. On the other hand Indian OEMs build “Prototype Systems” to compete with those matured systems and face gross discouragement to see invocation of “Level Playing Field” to be denied minor additional tune-up times or testing intervals. These, in most cases result in rejection of Indian products for smallest and minor non-conformations that can be readily addressed within days given access to the products to do so. This blind persuasion of Level Playing Field benefitting FOEMs must change in favour of Indian Players if we are serious about building capabilities in Indian Industry and looking for strategic independence for the Nation through Indigenisation and freeing ourselves from Import dependence. To some degree the hand-holding of OFB/DPSUs by Armed Forces and MoD is visible in development of programmes like the Dhanush howitzers and few others. Is it even possible for replication of such model with private sector?
“L&T is proud to have contributed to all major milestones achieved by the Indian defence segment through indigenous development and production of defence equipment”
We also ought to address the non-level playing field that Indian equipment is subject to series of inspection checks all through the manufacturing stages with cost and schedule implications while we import FOEM equipment on “Compliance” reports. Industry’s capability and track record to design and build Indian equipment and systems need to be factored in to allow them up-gradation and enable them obsolescence management on their own based on self-certification of compliance to overall system level performance parameters rather than denial/delays through approval by AHSP – a process drawn from Licensed Production and ToT regimes.
In order to give a push to the programmes cleared for acquisition, energise the defence economy, and to make up for the slow pace of procurement in the past, a sustained increase in the defence capital budget allocation is an imperative. Besides increasing the capital budget allocation and improving the capital to revenue ratio to what it was just a few years back, the Government may also judiciously look at extending Line of Credit to friendly nations to boost export of Indian designed and developed defence systems.
SP’s: How do you perceive India as a market in terms of opportunities, challenges?
Patil: Opportunities: The defence production policy awaiting final clearance by the government has set clear targets for quantum of defence production, both domestic and exports by 2025. So is the policy explicit about the 13 segments for which indigenous capability will be built and imports will be disallowed. This roadmap augurs well with the Industry to pursue development of capabilities and capacities over a mid- to long-term basis.
The government focus during past five years has been to initiate policy reforms and pursue indigenisation under ‘Make in India’ programme. Having transformed the categorisation of acquisition programmes with a bias towards indigenisation nearly 70-80 per cent of the AONs granted mandate indigenous sourcing either under IDDM, Buy Indian, or ‘Buy & Make Indian’ categories. These programme in acquisition pipeline can be expected to be contracted over the coming years to provide unprecedented push towards indigenisation.
The cumulative anticipated Capex spend over next 10 years for defence is of the order 13-15 lakh crore. With the Government’s programme boosting indigenisation in defence from the current 35-40 per cent to 70-75 per cent levels, and raising indigenous volume from 25,000 crore to 1.7 lakh crore a year over coming 8-10 years, an estimated opportunity larger than 8-10 Lakh crore will open up for the Indian Industry. With multiplier effect to the economy, this could create a staggering addition of 65 to 75 lakh crore to the Indian economy (>2 per cent of GDP) and generating more than 5,00,000 new highly skilled jobs.
Challenges: While the policies are moving in the right direction to promote indigenisation, the challenge resides in implementation, coherent and concurrent actions in timely manner and avoid moving two steps forward and one step backwards. It was heartening to see industry’s demand to adopt Public Procurement Policy in defence has been approved by the MoD recently and await inclusion in DPP. Other concrete steps would be accelerated placement of long awaited contracts pending either due to funding gaps or decision delays due to model code of conduct ahead of parliamentary elections, implementation of the Strategic Partnership Model in letter and spirit to build major platforms, enabling “Faster Acquisition Cycles” by empowering the Acquisition setup and rationalising approval cycles, Self-Certification status for QA/QC to credible Vendors and efficient obsolescence management mechanism to boost indigenisation in defence production in the short term.
Indian defence sector can significantly benefit in medium term by building transparency in categorisation decision making and AoN approval process. In order to achieve long-term sustainable defence production ecosystem, ‘Make-1’ programmes need to get on track, kicking off a series of grounds up design and development efforts for platform opportunities by the industry well complemented by Make-2 programmes for complete independence in building indigenous major subsystems. Setting up of additional testing infrastructure in the Defence Industrial Corridors will facilitate building efficient and self-sustaining ecosystem.
Transformative measures having been taken on policy and processes/procedures through a series of waves of Business Process restructuring (BPR) to enable ‘Make in India’ and ease of doing busines. What is required is the concerted Implementation and follow through by periodic facilitation by MoD to build a strong defence industrial base and Tierisd ecosystem in India and in the process empower strategic independence, enhance GDP and create new jobs to put India’s demographic dividend to gainful use.