Defense Industry - Part 3 - Historical Perspective

Given the broad challenges as can be seen above, the question becomes where and on what basis do you “compromise”? What marks do you rate for each such parameter and consequently that will determine who the suppliers can be? What is the risk in each decision and each supplier? The questions and answers in reality are far more complicated.

Now in the case of a country like India the whole situation becomes more complicated Politically and Economically.  We are not an 800-pound Gorilla with cash to spare, we are democratic, we are free in every sense of the word that even basic discipline is sometimes considered fascism that any citizen can oppose and gain traction in the media and even put the Govt of the day on the back foot. So what to speak of a multi million dollar defense deal!!!!

Political:

When you look back to 1947, the poverty, the challenges facing the country and with an idealistic leader like Nehru the country at one level took some brilliant decisions in promoting defence related public sector as can be seen below.

Unit	Founded
Mazagon Docks Ltd MDL	1934
Hindusthan Aeronautics Ltd HAL	1940
Hindustan Shipyard Ltd HSL	1941
Indian Telephone Industries ITI	1948
Hindustan Machine Tools HMT	1953
Bharat Electronics Ltd BEL	1954
Defence Research & Development Organisation DRDO	1958
Bharat Earthmovers Ltd BEML	1964
Indian Space Research Organisation ISRO	1969
Bharat Dynamics BDL	1970
Mishra Dhatu Nigam MDNL	1973

However, at another level be it idealism or distrust of its own people thanks to the decision to chase socialism, the country lost a brilliant opportunity to become a global manufacturing leader in the defence sector. With a dedicated talent pool, this was an opportunity for the government and private enterprise to come together and create like in USA a brilliant engineering eco-system and organisations like HAL, BEL, ISRO could have become global corporations. Notwithstanding the criticisms by many, the achievements of organisations like ISRO have been stupendous and proves that India has the talent and can literally go to the moon.

Somewhere along the way, the socialistic attitudes converted into a patronage system and once that happened the slide downwards has been swift and unrelenting. Except for probably ISRO, every other organisation has been allowed to become moribund, lethargic, inefficient and very often the successes are despite the politics.

The political class has never ever looked at defence as an important sub sect of the economy. Their vision is limited to knowing that we have an army that will fight heroic battles even if given obsolete weapons and an activist class that thinks the soldiers in the armed forces fight risking their lives because they can’t get any other jobs, are paid to risk their lives and if a country does not spend on defence the prosperity will increase and there will be no risks. The rest are jingoistic, and their knowledge limited to what they saw in Hollywood movies of Bruce Willis, Arnold Schwarzenegger and such others. They seem to think buying a fighter plane or tank is like going to a toy shop and picking up one. The more idealistically minded demand that all documents be made public and open to demonstrate honesty. With such a combination there is no wonder that Indian defence industry, defence preparedness and defence purchases are mired in delays and controversy often – putting it mildly.

Economical:

In any economy the government has no business to be in that area of business where economies of scale and purchase demand exist, and an efficient private sector can do the same job far better.  They must focus on areas like defence and such where these commercial expectations are not possible to be met. The government must enlist and work with the private sector wherever possible and over time when the commercial viability is achieved the private sector can continue while the government becomes a purchaser on commercial terms. When the PSU’s started this idealism and efficiency existed.

Even as late as in the 80’s the cream of the IIM’s looked to get jobs in an HMT which created the most iconic of watches which were aspirational that literally created relationships. Their tractors could have been taken global. Yet the organisation was pushed to an early death.  An ITI did create a network across the country even if demand far outstripped supply but it was just a matter of time before this was also pushed to a sad demise.

Socialism by its very nature tries to straddle two contradictions. The basic human need to progress, possess material wealth, earn money and obtain recognition against a state policy where profit is a bad word and materialistic ambitions looked down upon. Consequently, what you get is unbridled corruption because human needs always prevail, and they find ways and means to circumvent the system. 

Every business where the private sector could enter, the government led by its business minded politicians joined hands with the private sector to hasten the death of these PSU’s like HMT, ITI etc. The tragedy in India is that thanks to the socialistic history and the politicisation of the PSU, a political class in the government will rather kill a PSU but not create a global giant or monetise it by selling it off to the private sector in an honourable manner. The trade unions are complicit in this push to the death and instead of allowing such PSU’s to become globally competitive and earning billions as revenue to government and growth for its employees they stifle them to death and then demand compensation to laid off employees.

So today for any politician to defend the public sector is laughable because this support is only in those cases where the politicians do not have an interest in the private sector doing the same job. Allow a company like Space X into the Indian space industry and you can write the death certificate of ISRO leaving the date blank.

Once again thanks to the socialistic baggage public private partnerships have been far and in between. Even where these happen, owing to changes in treatment when governments change, the perceived risks are so high that every investor wants to recover his money within the first few months. After that the project may or may not progress, and more often fail.

The fundamental reason for this sad state of affairs is that Indian systems start with the assumptions – there is corruption involved, don’t trust anyone, guilty until proven innocent. Unless the latter two are deleted and the first combated by systems that react in a timely manner nothing can change in India.

Thanks to a misplaced emphasis on socialism we think providing everybody a chance is more important than procuring what we need. As mentioned in a stretched example earlier, when we want an Apple we will invite the sour, sweet, crispy varieties to have equality and multiple bidders when what we want is the sour variety. If this is not done those who have the crispy/sweet variety will ask – why not buy this? A few years later, long after the apples have been eaten and digested the auditors start to look at what fruits could the army have eaten. They find someone who caught a cold after eating the sour apple and then they ask why the army didn’t buy mangoes instead because mangoes are grown locally. The result – yet another scam.

In between we then have this romantic notion that small is beautiful for everything. So every government talks of promoting SME's in the defense sector - seriously?? A sector as we have seen that carries high risk, low demand, high technology & R&D, high investment, long gestation periods and every Govt to look good in parliament talks of SME's. Talk of delusion and stupidity as the left and right side of our brains. 

and thus we continue our saga

https://rvasisht.blogspot.com/2020/02/defense-industry-part-4-bofors-blast.html