CONSPIRACY TO DESTROY COUNTRY’S DEFENCE PRODUCTION CAPABILITIES

 Tapan Sen

The BJP government at the centre has adopted a defence procurement policy which is loudly touted as a bold measure to achieve ‘self reliance’ in meeting the requirements of all the three segments of our armed forces through its ‘Make in India’ programme. But a look at the details makes it clear that the facts are otherwise. This defence procurement programme in fact is going to destroy the vast defence-sector manufacturing capability our country has acquired during the last over six decades through the ordinance factories, Defence Research and Development Organisation (DRDO) and the network of defence public sector units. Hypocrisy can go no further.

Soon after coming to power the BJP led government decided to allow 100% FDI in the defence production sector. The trade union movement has strongly opposed this move. Arun Jaitley, the present minister in charge of defence sought to mislead the Parliament when the issue was raised for the first time in the Rajya Sabha. ‘The country has been purchasing substantial defence equipments from abroad; if these items are produced in our country with foreign participation, the country will be saving lot of foreign exchange; so what is wrong in that’ he argued. 

Destroying the Ordnance Factories, DRDO and the Service Network

What are the facts? The government has targeted defence items that are at present being produced indigenously by our ordinance factories network and the defence PSUs, for privatisation and outsourcing. Many of the private players to whom this job is outsourced will have collaboration with foreign companies. So it is not what we have been buying from foreign countries being produced in our own country; what were being produced in our own country by our own public sector units will now be produced by the private players with collaboration with foreign companies. This will destroy our domestic defence manufacturing base in the public/ government sector. In addition to allowing foreign companies to set up 100% owned production units in Indian soil, the government’s immediate aim appears to be the destruction of our domestic manufacturing capabilities in the defence sector, acquired through dedication and hard labour of our scientists, engineers and employees in the defence PSUs, ordinance factories and DRDOs. This is being promoted despite the fact that 75% of capital acquisition for our defence forces is being successfully delivered by the Indian defence production network – the ordinance establishment and the DPSUs. This was acknowledged by none other than the former Defence Minister Manohar Parrikar. In the booklet ‘Department of Defence Production in Pursuit of Self Reliance’, published by the Defence Ministry, he commented ‘It gives me immense satisfaction to note that ordinance factories and DPSUs… have not only enhance their production but have also delivered many strategic state of the art platforms to the armed forces’, and ‘During the last three years, over 75% of the total expenditure by the Indian Army on a capital acquisition has been for orders placed on Indian firms’.

What is the rationale behind such aggressive measure to destroy our indigenous production by outsourcing/ privatising more than 50% items so long successfully produced by our ordinance factories network? Is it to provide the private sector a big opportunity in the defence sector with guaranteed purchase commitment?

It is not that the procurement of some of the defence requirement items from the private sector was not given a trial earlier. The UPA government has decided to procure around 23 such items from the private sector during the early years of the current decade itself, despite vehement opposition from the defence employees’ organisations. But the experiment failed due to the failure of the private sector vendors to supply the items on time and meet the stringent quality requirements. They had to be brought back to the ordinance factories to meet the urgent requirements of our armed forces. It is pertinent to note the observation of the CAG in its report no. 36 of 2016 which says ‘In respect of the remaining 16 cases, procurement of spares were sanctioned by the Commandment, CAFVD and supply orders were placed on private vendors. All these supply orders were cancelled during September 2011 to February 2012 mainly due to the failure of the firms to supply the spares. Subsequently indents for supply of all the 23 items were placed on ordinance factories in March 2012’

Despite such scathing observation by the CAG, that too in 2016, the present BJP government, which claims to be the sole custodian of national interests, has no qualms in outsourcing, in a much larger scale, the essential defence requirement items to satisfy the private corporate vendors.

In the event of such a failure by the private sector recurring again, does the government intend to import all these items, by destroying the domestic manufacturing base of the country? Is this the BJP government’s way of ensuring market for and full capacity utilisation of the foreign armament companies? Is such disastrous experiment warranted with the country’s defence sector requirements and defence preparedness? Is it ‘Make in India’ or ‘Destroy India’? Is it making India ‘self reliant’ or ‘dependent’? Is it in the interests of the nation or in the interest of foreign armament/ defence industries with Indian corporates as junior partners? Is this BJP brand of patriotism? The country demands answers.

On 27^th April 2017 the Ministry of Defence issues an order outsourcing 143 items of the total 273, which were so long being produced by 41 ordnance factories. These items that were termed ‘noncore’ include critical military equipments like military vehicles, some items of critical ammunition, ammunition boxes, guns, rifles, tanks, troop comfort items etc. As per reports, already 222 licenses have been issued to private sector companies for this. As a result of this decision, at least 25 of the 41 ordinance factories and around 20000 of their employees would become redundant.

As is clear, all these items are essential and indispensable necessities for our armed forces. Can anyone imagine ammunitions being carried by our soldiers in the front without the ammunition boxes or the grenades and bombs without their cases? Is it possible to even think of sending our jawans to guard the country’s borders in the Himalayas without proper uniforms and boots, without night vision binoculars or the likes? Yet, the BJP government has termed these absolutely indispensable items as being ‘noncore’, just to facilitate handing over their production to the private sector.

The matter does not end here either. In addition to outsourcing of the 143 items, on 30^th May 2017 the NITI Ayog directed the secretary, Department of Defence Production in the presence of the Chairman, Ordnance Factory Board to process a proposal of privatising four small arms factories, viz. RFI, OFT, SAF and OFPKORWA  under the ordinance establishments through the private public partnership (PPP) route. What will happen if this PPP is materialised? The infrastructure created by the ordnance factories in these four small-arms factories with investment by the public exchequer will be accessed by the private sector practically without making any capital investment; at best they may share the cost of working capital (materials etc) partially – though even this possibility is remote – in lieu of assured returns for them.

However, this is not only an issue related to finances. Privatising arms production has serious security implications. This not confined to security threats from outside. In view of the terrorist activities along with the divisive forces of various hues gaining ground in the country from multiple fronts, many with direct patronage of those in governance, privatising arms production has serious implications on the threats to our security from inside the country as well.

A publication by All India Defence Employees Federation, informs – ‘Recently a London based Research Unit by name Conflict Armament Research Limited (CAR) published a document titled ‘Tracing the Supply of Components used in Islamic State IEDs’. This firm has conducted an investigation about the supply and souces of weapons to the Islamic State (IS) terrorist forces. In this document, names of many Indian private industries to whom licenses have been given to manufacture defence equipments are reflected. The CAR has stated that these companies produced, sold or received critical material, such as chemical percursors, detonating cord, detonators, cables, wires and other electronic components and are involved in the supply chain of components used by IS forces’. The CAR named at least seven Indian companies involved in this supply chain with terrorist forces, some with foreign collaboration.   

It is not unnatural or uncommon for these private companies having licences for producing defence equipments to establish links with terrorist forces threatening both internal and external security of the country. Profit is the motive for the private sector; it does not matter from where it comes. Making private sector a partner in servicing our defence sector is nothing but suicidal and disastrous and is totally to the detriment of our national interests. The private players are venturing into our defence sector, with the indulgence of the government, definitely not for philanthropy but to earn profits with an assured purchase of their products by the defence forces. And the lust for profit has got no limit.  Only a government by the corporates and for the corporates can take such disastrous anti national measures even while chanting nationalistic slogans to befool the people.

Outsourcing/ privatisation of defence production through ordnance establishments will affect all the auxiliary and quality assurance machineries attached to defence production and services network as well. It would adversely impact the Military Engineering Services (MES) responsible for construction and maintenance of buildings, bridges, docks, runways, helipads etc, allowing a free profit regime for the private players. The Directorate of General Quality Assurance (DGQA) and Directorate General Appellate of Quality Assurance (DGAQA) responsible for quality assurance of military equipments will inevitably be rendered redundant and ineffective based on the policy of ‘ease of doing business’ and ensuring a ‘level playing field’ for the private operators.

Starving the Defence Shipyards Towards Strategic Sale

The Booklet published by Defence Ministry has mentioned that ‘All naval ships and submarines on order are being constructed in Indian Shipyards’. Yes, this was the situation till 2010-11. Our own shipyards were processing that work. But thereafter no new work orders are being placed yet with Defence sector shipyards.

The country is having four shipyards with shipbuilding facilities under defence ministry viz., Goa Shipyards Ltd, Garden Reach Shipbuilders & Engineers Ltd, Hindustan Shipyards Ltd, Visakhapatnam, Mazagaon Dock Shipbuilders Ltd. In addition, a big shipyard and shipbuilding unit under Ministry of shipping is located at Kochi. It is these shipyards which delivered the country’s naval forces state of the art naval ships and submarines. They have also successfully serviced the repair maintenance work for the naval forces. None in the successive governments in the centre could ever raise any complaints of non-compliance and deficiency against these shipyards under public sector.

What should have been the priority for the government if it is really serious about strengthening self reliance? It is to strengthen these shipyards consistently updating their facilities with required capital expenditure being generated by them internally all through. If required, technology needs to be purchased from abroad. Transfer of technology is not taking place these days anywhere in the world through joint ventures. Purchasing technology will be far less costly than perpetual dependence for technology on foreign sources, particularly in the matter of defence requirements.

But when priority shifts from national security and self reliance to ensuring ‘ease of doing business’ for the chosen private players entering in this field, who happen to be close to the heart of those in governance, then the route becomes altogether different. That is why, the NITI Aayog had the audacity to recommend strategic sale of Goa Shipyard Ltd and at least 25% disinvestment to begin with, in Garden Reach Shipbuilders & Engineering Ltd and Mazagaon Dock Shipbuilders Ltd and Kochi Shipyard Ltd. The Hindustan Shipyards Ltd is going to be bandaged as strategic partner of Hyundai Heavy Industries of South Korea.

In fact, during the last several years, particularly under the present BJP led regime at the centre, most of our shipyards are made to starve for orders from defence forces/ministry. For example, the Hindustan Shipyards Ltd received orders worth only Rs 120 crore since 2010 till date which is only a miniscule part of the total procurement by the naval forces. As a matter of conscious policy drive, the government has been promoting private players like Reliance (RDEL), Larsen & Toubro etc who are much less exposed to production of naval force’s requirement compared to the PSU shipyards. The latest of such design to sideline PSU shipyards stood thoroughly exposed when the Russian government is made to select Reliance Company’s Pipavav shipyard at Gujarat in a joint venture arrangement to manufacture three to four upgraded naval frigates classified as project 11356 vessels.

As per reports, the government is going to procure naval facilities worth Rs 3 lakh crore in the coming ten years for our naval force which include 198 warships and submarines. But the clear and proven inclination of the government is towards the foreign and private players—all for ensuring their ‘ease of doing business’, while facilitating gradual destruction of established indigenous capabilities.    

Policy Against the Defence Public Sector Network

The Defence Procurement Policy announced by the government envisaged short listing of Indian companies as strategic partners for manufacturing submarines in collaboration with foreign companies. Given the attitude of the present BJP led government towards its own shipyards, and its obscene touting on ensuring ‘level playing fields’ for the private companies, these strategic partner companies will obviously be from private corporate sector. There is every possibility that government owned shipyards may not be allowed even to participate in the bidding process. The manner the RDEL or L&T etc are being promoted by the government itself in the respective fields through policy restructuring in favour of private sector, the possibility of completely sidelining the public sector shipyards is becoming an actual reality.  

This is already visible in the government’s move in the manufacturing of fighter aircrafts and helicopters with foreign collaboration. The Defence Procurement Policy identified four segments of defence production to be serviced by strategic partners in Indian soil with the collaboration of foreign manufacturers in the respective fields. These are – fighter aircrafts, helicopters, submarines and armoured vehicles. For each segment six strategic partners from India will be selected on the basis of applications. These will be required to tie up with foreign manufacturers termed as ‘Original Equipment Manufacturers (OEM)’. Already the defence public sector units in the aviation field like Hindustan Aeronautics Limited (HAL) has been debarred from bidding for manufacturing fighter aircrafts and helicopters. The Defence Vehicles Factory at Jabalpur has already been made redundant by declaring defence vehicles to be noncore items to be awarded to the private sector. For submarine production also, sidelining public sector in favour of Reliance, L&T and others is going to be an imminent reality, unless a strong movement resisting the move is build up by the people in the days to come.

Already TATA entered into a tie-up arrangement with Lockheed Martin of USA for manufacturing F-16 aircrafts in India. F-16, although claimed by the Lockheed Martin to be the newest and most technologically advanced combat aircraft, is in the process of being gradually replaced by US Air-force itself in favour of a more advanced F-25 variety. Thus while India will be bound to F – 16 aircrafts, the joint venture on Indian soil will ensure capacity utilisation for Lockheed Martin of the USA. This tie up agreement between TATA and Lockheed, just ahead of the Prime Minister’s visit to the USA to meet the US President Donald Trump, does not fully ensure technology transfer to the Indian factory that is going to be installed through this joint venture.

Almost similar pattern is being followed in Reliance Defence Ltd tying up with Rafael Advanced System of Israel to set up a joint venture in the specialised area of Air to Air Missiles, Air Defence Systems and Large Aerostats. Both TATA and Reliance do not compare with the in-house aviation and missile-making expertise of the public sector HAL (Hindustan Aeronautics Ltd) and BDL (Bharat Dynamics Ltd) respectively or related Radar technology capability of BEL (Bharat Electronics Ltd). But yet these public sector undertakings have been debarred from participating or initiating similar Ventures at the insistence of the private corporates on the plea of giving the private sector a ‘level playing field’.

And in the background of similar debarment of the DPSUs in the respective fields, another joint venture agreement has been arrived at between the Reliance Aerostructure Ltd and Dassault Aviation of France for manufacturing Rafale fighter jets.  India and France signed a purchase agreement of Rafale fighter jets at a value of about Rs 60,000 crore (7.87 billion Euro), which reportedly laid down their focus on ‘promoting Research and Development Projects of indigenously designed, developed manufacturing under IDDM programme’ but not a word on actual technology transfer.

The same Reliance group is now actively processing a tie up with the Russian Chopper manufacturers to service the mega contract of supplying 200 twin engine helicopters (KAMOV 226T) to Indian Army. The purchase order from India has been finalised before the joint venture was born. This also exposes the government’s project to eliminate DPSUs from the field to facilitate deal with chosen private players. In the On the pretext of giving private sector a level playing field, the government has eliminated the PSUs, in the instant case HAL, from the field itself. The same process is expected to be followed in case of submarines and vehicles also with the PSU shipyards and vehicle factories being eliminated from the bidding process itself, paving way for their redundancy and destruction. Deception has indeed crossed all limits.

In fact to promote private sector at the cost of PSUs, already the age-old policy of giving the PSUs a preference for procurement of military equipments has already been removed. Now, in the name of ensuring level playing field for the private companies, PSUs, built up with peoples’ money and operating successfully all along are being eliminated from the procurement process itself in the field of aircrafts, helicopters, submarines, vehicles etc.  This is the real patently anti national face of Modi brand nationalism!

Moreover, without any binding clause for technology transfer in such tie-up agreements with the foreign manufacturers (OEMs), Indian soil will become a centre for assembly and fabrication and not manufacturing, that too of backdated aircrafts, not the latest one. This is nothing but trampling underfoot our long standing policy on defence procurement of latest cutting edge technology. National interest stands severely compromised.

Disinvestment and Strategic Sale of DPSUs

Supplementary to these measures, an aggressive drive is on to put the entire defence PSU network on strategic sale in phases. This means handing over gradually the management and control to private corporate, both domestic and foreign. Prior to that most of the defence PSUs are being stripped of a substantial portion of their reserve and surpluses generated internally through efficient productive operation to be transferred to government kitty either through extra-dividend or through buy-back method etc. All defence PSUs including shipyards have been ordered for go in for disinvestment of shares to the tune of minimum of 25%. Disinvestment is the first step towards privatisation. The intention and the picture become clear when we look into the move for strategic sale of Bharat Earth Movers Ltd (BEML). Substantial share of BEML had been disinvested during earlier regime. Now just by sale 26% shares to a single entity, the management and control of BEML will be handed over to chosen private player. If this is not criminality, then what else is? 

Sale of BEML, how and at what cost? Already 45.97% shares of BEML has already been disinvested to private/non govt institutions/agencies and individuals. Sale of 26% shares to a chosen single buyer in private sector, as decided by the Govt, will bring down Govt share in BEML to 28.03%. This will facilitate transfer of management to the chosen single buyer.

At what cost?  Replying to an unstarred question no. 1064 in Lok Sabha by M B Rajesh, MP, on 21^st July 2017 defence minister stated that the net carrying value of all assets of BEML including 4191.56 acres of land, buildings, plants and equipments etc is only Rs 518.44 crore. Is the estimate believable at all? Can it be relied upon? The defence minister has mentioned most unscrupulously about the ‘Net carrying value’ of the assets of BEML, evading the main question and its context, in order to avoid putting the real value of the huge assets of the company on record in public domain. Mentioning the net carrying value of 4191.56 acres of land assets of which 2696.63 acre is free-hold, as only Rs 92.20 crore reveals the intention of the government to facilitate transfer of the management of the company to a private company for a song.

But even if we estimate the asset cost of BEML most conservatively, following the government guidelines, the total value will be much above Rs 50000 crore. The Bangalore Complex of BEML holds 240 acres free-hold land, the market value of which is more than Rs 18500 crore; the corporate office is in 4 acres of free-hold land, whose market value is more than Rs 400 crore; Mysore Complex possesses 560 acres free-hold land, the estimated value of which is above Rs 4000 crore; Kolar Complex is having 1863 acre free hold land, the market value of which is above Rs 4100 crore; the regional offices in Mumbai, Chennai etc are on 25 crore free-hold land estimated at a value of above Rs 1000 crore and so on. Only free hold land accounts for a value of more than Rs 30,000 crore, the lease hold land assets have an estimated value of more than Rs 3000 crore. Thus the total land value of BEML is much above Rs 33,000 crore as per a most conservative estimate. The value of other assets viz., buildings, infrastructure and machineries / equipments etc will be above Rs 10,000 crores. Other movable assets like vehicles, inventories, R&D set up etc  in the BEML’s plants and offices spread over Bangalore, Mysore and Kolar in Karnataka, Palakkad in Kerala, with regional offices in several states, if properly valued will take the total  BEML assets to much above Rs 50000 crore. 

Thus, the real intention of the government is to hand over the management and control of BEML including its huge assets of over Rs 50000 crore to its chosen single buyer only by selling 26% of its share, practically for a pittance. At the present rate of share price of BEML, Rs 1732 per share, 26% of BEML’s share (1,08,27,570 shares out of total 4,16,44,500 shares) will fetch the government a price of only 1875.32 crore.

This is the real face of their ‘ease of doing business’ policy which is nothing but ‘ease of looting the nation’ policy’. Whose money and assets, is the government trying to plunder? It is all peoples’ property; huge productive infrastructure built up over decades with the taxpayers’ money. This cannot be allowed to be plundered by the government, simply because they are in the government today. 

Expose the Conspiracy of Destruction of Indigenous Manufacturing Capability

Whether these defence procurement deals and private corporate led joint ventures will be able to meet the requirements of our armed forces and national security has to be watched. But what is certain and clear is that our defence preparedness will be made dependent on foreign armament industries by this policy while destroying our defence production capability. Such destructive measures are being perpetrated under the fraudulent garb of the slogan ‘Make in India’.

Unite and Fight to Resist

The trade unions of Defence Public Sector Units and the ordnance establishments are already in the midst of agitation against such disastrous, destructive exercise of defence sector privatisation by the present BJP government. BEML workers have staged militant strike; similar strike also took place in Cochi Shipyard.  Workers’ unions of almost all affiliations in BDL, BEL, HAL, Hindustan Shipyards, Garden Reach Shipyards etc are agitating against disinvestment. The All India Defence Employees Federation representing workers of ordnance and related establishments started with one hour stay-out action followed by 44 days dharna before Parliament and are now preparing for a bigger struggle.

But the grave anti-national onslaught on country’s defence sector cannot only be fought by the defence sector employees alone. Entire trade union movement must take up the issue of defending the national interest while defending our public sector defence production network. The grave conspiracy must be exposed and resisted.

The trade union movement must expose this conspiracy to destroy our country’s indigenous defence equipment manufacturing capability, developed over the last seven decades, before the entire working class and the people in general. The utterly deceptive and fraudulent cover of ‘Make in India’ and ‘Self-reliance in Defence Production’ must be exposed and countered with facts. The BJP government’s design to convert the country into an assembly centre of foreign products, to make it more dependent on foreign armament and defence equipment companies, mostly owned by the imperialist forces, have to be explained to the people. This is a fight to save the country and save the people.

The ugly deceptive design of defence sector privatisation cum foreignisation will not pass.

August 2017

Published by Centre of Indian Trade Unions