Defexpo 2020 – Interview L&T

Defexpo 2020 – Interview L&T

Wed, 02/05/2020 - 18:45
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“We focussed on R&D as definite path to self-reliance – JD Patil, Whole-time Director and Sr. Executive Vice President (Defence), L&T

In an exclusive interview to IDI JD Patil discussed in details L&T’s vision and objectives in the defence sector. Some excerpts

On L&T’s journey in the defence sector

L&T embarked on its journey in Defence and the strategic sector during the 80s, much before the sector was opened up for Private Sector participation, which eventually happened in 2001. Today, L&T is India's largest Private Sector company in the Defence Sector having evolved from concept design, product development through to serial production of equipment &systems and graduating to system-of-systems and platforms, while continuing to build indigenous products and technologies by partnering with DRDO as well as through in-house R&D for over 35 years. L&T is currently engaged in design-to-delivery of solutions across its chosen Defence segments.

Last year, L&T created history by delivering the 51stDefence vessel - ICGS Varaha commissioned few months back by the Honourable Raksha Mantri. ICGS Varaha is the fourth vessel in the series of seven OPVs being built by L&T under a MoD contract of 2015. The first three vessels, ICGS Vikram, ICGS Vijaya, ICGS Veera as well as the 4th vessel ICGS Varaha were also delivered ahead of contractual schedule. We are about to launch the sixth OPV and readying the fifth OPV for delivery and commissioning.Having committed to ‘Make in India’ & “Design in India” in letter and in spirit, L&T has designed and engineered, in-house, all the 50 platforms delivered till date to the Indian Coast Guard, and to the Indian Navy. We attained the distinction of delivering all the Shipbuilding programs awarded by MoD ahead of schedule including that for the first of class FDN as well as CG-OPVs.

K9 Vajra-T has the distinction of being the largest defence contract placed on a Private sector Defence company for delivery of 100 howitzers over three-and-a-half years. In order to meet this stringent delivery schedule, we had to create a dedicated Armoured Systems Complex including a set of world class Test Tracks at L&T’s Hazira (Near Surat) Complex. This ultra-modern ‘Industry 4.0 ready’ factory is our sixth dedicated defence production unit, and the ninth catering to Defence segment.

We have already delivered 50 howitzers to the Army before Oct 19, and ahead of contractual commitment. Raksha Mantriji flagged off the 51st K9 Howitzer on 16thJan 2020. K9-Vajra has now crossed 80 per cent indigenous content by work packages. Maintaining the track record of ahead-of-time deliveries of all 51 Guns is a testimony to the technical capability, planning prowess, complex system integration skills,  execution efficiency and sheer hard work, dedication and commitment of L&T Defence Team.

On L&T success in defence

Currently, L&T has twelve (12) recognized R&D centres across India which are accredited by the Department of Scientific and Industrial Research (DSIR). Our presence in every Industrial sector today leverages our ability to design and build philosophy, an effect of L&T being the silent and very major business incubator with innovation at their core. That does not, however, limit us being ready to collaborate with partners for long-term relationships. We have stayed strongly committed to design and build ever since we entered this strategic sector three and a half decades back, and subsequently enshrined the ‘Make’ philosophy. We focussed on R&D as definite path to self-reliance. Over the years we have developed over 250+ products / systems / sub-systems so far of which about 50 are under series / limited series production.

On L&T’s five year strategic plan

This Strategic plan aims at identifying emerging trends specific to defence, global scenarios, technology aspects, critically reviewing the business portfolio for any gaps in terms of products and capability profile. This helps us in realigning and repositioning L&T as a more focused and vibrant organisation, ready for addressing segment dynamics& nuances. L&T has identified next-gen technologies including AI and autonomous (unmanned) systems as part of its next five year strategic plan. L&T defence with its rich experience in development of technologies and products to systems to platform and solutions to the Armed Forces is now focusing its R&D efforts on developing unmanned systems in underwater, sea-surface, land, and air domains. Few of these have been displayed by us in the earlier editions of Defexpo.

On L&T-Nxt

Emerging digital technologies such as Artificial Intelligence (AI), Machine Learning (ML), Industrial Internet of Things (IIoT), Augmented Reality (AR) and Cyber Security are being increasingly recognized by Defence forces across the world as technologies that will play a dominant role in modern national security and next generation warfare. Integration of IIoT in defence has created emergent disciplines such as Internet of Battlefield Things (IoBT).

L&T-NxT is the digital technology arm of the L&T Group. It leverages leading edge digital technologies such as Industrial Internet of Things (IIoT), Artificial Intelligence (AI), Machine Learning (ML), Augmented / Virtual / Mixed Reality (AR/VR/MR), Edge Cyber Security, GeoSpatial Engineering, Robotics Process Automation (RPA) and Blockchain to deliver innovative digital solutions for global customers.

L&T-NxT’s digital solutions for the defence industry spans across Industry 4.0 solutions for enhanced Overall Equipment Effectiveness (OEE) of defence manufacturing units; tracking movement of men, equipment and materials; availability, condition monitoring and predictive maintenance of critical equipment; Augmented and Virtual Reality based training and assisted operations & maintenance solutions.

On indigenisation in K-9 programme

Vajra tracked SP Guns Program was tendered under Buy Global category, however L&T and Hanwha teams decided to bid with L&T as lead bidder. This mandated us to achieve over 50 per cent indigenous content in the program. Rather than looking at softer options, we decided to maximise indigenous content as a matter of our ethos to well exceed the policy stipulation. It is noteworthy that 18 subsystems of the Gun system were indigenously developed for the trial prototype itself (during NCNC phase), which included Fire Controls, desertisation related units and autoloader. 

Upon conclusion of contract negotiations, and in keeping with the Govt’s push for Make-in-India, we established a new green-field manufacturing – integration – testing complex at Hazira in the state of Gujarat, named Armoured Systems Complex (ASC).

This state-of-the-art facility is geared up to realise, manufacture and integrate advanced armoured platforms such as Self-Propelled Artillery Howitzers, Future Infantry Combat Vehicles (FICV), Future Ready Combat Vehicles (FRCV) or Future Main Battle Tanks. Spread over 40 acres within L&T’s sprawling 755-acre Hazira Manufacturing Complex, the ASC comprises high-end machinery Industry 4.0 processes, feeder shops, and full-fledged mobility Test Tracks for acceptance and qualification of tracked Howitzers and armoured vehicles.

L&T’s strong partnership with Hanwha of South Korea continued with training of a team of L&T engineers and integration specialists at Hanwha facilities. Subsequently, this team cascaded training to our supply chain partners as well as to our own extended teams. The K9 production workshop is fed by an ecosystem / supply chain of five (05) L&T Defence units as Hubs, ~500 Tier 1’s (100 of them MSMEs), and 1400 Tier 2 partners as spokes. Such a model aided us to overcome the humongous challenges and the eco-system enabled L&T to progressively indigenise 80% of work packages by 51st Gun involving local production of over 13,000 components per gun.

On Pinaka Mk-II and Akash programme

Pinaka is our first major indigenously designed and developed Multi Barrel Artillery Rocket Weapon system inducted by the Indian Army nearly one and a half decade backs. Given the indigenous design and development, with DRDO the programme has more 90 per cent indigenous content by value. L&T has been a development and production partner for Pinaka programme. Having completed deliveries of orders at hand, we await award of contract for further Pinaka regiments currently in the ordering pipeline.

So is the case with Akash programme where we deliver Launchers, Radar Masts for the 3-D Surveillance Radars and Integrated Propulsion Airframes for the missiles; these systems too are with greater than 90 per cent indigenous content by value. In serial production of integrated propulsion airframes, we set new global benchmarks in deliveries and production scale up.

On L&T’s capabilities for P75I

P75 (I) program envisages construction of 06 Conventional Submarines indigenously. The Program remained in the ordering pipeline for over nearly one and a half decades, and has finally reached the tendering stage under Strategic Partnership Model. L&T has proven track record in the domain having been part of the underwater programs for nearly three decades. It is in public domain that the Indian strategic

Submarine program has attained indigenization level of about 85%, which is unprecedented in any complex hi-tech defence platform produced in India. L&T in association with the Program has established track record of formidable indigenous capabilities in construction of Submarine hulls, equipment and weapon systems, PGD and control systems, platform integration, and composite manufacturing with entire range of key in-house capabilities in submarine building. We established a dedicated centre for detailed design & engineering in digital domain, Virtual Reality studio, hull construction & integration using digitally enabled automation. Our dedicated work centres have been ab-initio developed indigenously and matured to do 3D assisted outfitting, system integration, to system level tests & trials and proven over decades of our association.

L&T holds some of the unique capabilities that have thus far been imported, and continue to be imported for other submarine construction projects of our country. Few examples of such capabilities are Dished-End / PT bulk head fabrication,  Torpedo Weapon Complex, Innovative solution for handling of over 3000 ton blocks while building a Naval Platform, Ship Lift to handle docking / undocking any vessel upto 21500 ton in few hours, Manufacturing of platform specific equipment, etc. It is also pertinent to mention here that L&T has achieved unmatched efficiency improvement and benchmarks on repeat platform basis through exploiting technology innovation and learning curve advantages.

On LPD programme

GoI to take call on this programme.

On L&T contributing to Make in India

L&T ethos of Make in India started with the company’s foundation by two Danes who could not import anything or go back (to Europe) as World War 2 began after 15 months of their getting into business. Only way to survive and grow was through Make in India in spite of war-time profits being taxed @ over 85 per cent. We have stayed strongly committed to Design and build in India ever since we entered the strategic & Defence sector three and a half decades back and subsequently enshrined in the ‘Make’ philosophy.

We focussed on R&D as definite path to self-reliance. In the past five years since the announcement by the Honourable Prime minister, L&T has had numerous “Make in India” success stories in Defence. A few shining examples which are  currently underway are Artillery Systems viz. K9  Vajra-T, Pinaka, Air Defence Systems viz. Akash and MRSAM, array of Bridging Systems, Engineering systems for Naval Platforms, and complete platforms like Offshore Patrol Vessels, Interceptor Boats for the  Coast Guard and Floating Dock for Indian Navy to name  a few.

On new measures in DPP

In order to give a push to the programmes cleared for acquisition, energise the defence economy, and make up for the slow pace of procurement in the past, a sustained increase in the defence capital budget allocation is an imperative.

It is well known that the Taxation regime changes over past three years (taxing of imports to grant level playing field to domestic players and introduction of GST) and inclusion of these in Vendor pay outs within the budget has meant that Defence budgets – for actual acquisition - have shrunk in real terms even without providing for inflation.

Besides increasing the capital budget allocation and improving the Capital to Revenue ratio, the Government may also judiciously look at extending Line of Credit to friendly nations to boost export of Indian designed and developed Defence systems.

Multiplier effect to the economy and thus tax buoyancy from Defence Production, hitherto import dominated, makes a case in itself for enhancing Defence Capex. Multiplicity of approvals slow down the acquisition. There is certainly a case for involving all stake holders but cutting down repeated referrals to some of the agencies is likely to accelerate acquisition process.

Formal announcement of Defence Production Policy defining clear time bound targets of growth and what imports to be stopped will create single pointed focus and evolve imperatives to Create a dynamic, robust and competitive defence and aerospace industry towards realisation of ‘Make in India’ vision.

Strategic Partnership model was conceived with the vision to achieve platform building capability in Private Sector Industries in addition to that in the Public Sector, with focus on enhancing value addition within India. These programs have potential to galvanise the Industry into action through tierisation as was proven by L&T’s K-9 Vajra Program.

Govt. needs to accelerate the Programs already progressed under SP model viz. Conventional AIP Submarines, and Naval Utility Helicopters, as well as initiate the FRCV and Fighter Aircrafts.

There have been a large number of AONs granted by MoD for programs that will be placed on the Indian Industry. These total up above INR 4 Lakh Crore over last 5 years, however not many RFPs have been issued. With the typical procurement cycle from RFPs to Contract Signing in Defence taking anywhere between 3 to 7 years, there is need to speed up the acquisition cycle to see these Make-in-India programs gathers momentum.

Also, Govt. should move away from L1 evaluation and look at implementing L1-T1 evaluation as enshrined in DPP 2016 and evolve it further for all the large acquisition programs which can yield differentiated Force multipliers to the Armed Forces.

In the long run Make in India would not turn in to Made in India unless Make-1 Programs are actively pursued and awarded. Platforms developed under such programs will last fourdecades and serve to indigenise not only initial production but the entire life cycle from womb to tomb.

On Current trend of Defence Budget

While Defence Indigenisation has remained a focussed agenda by the Govt, as clearly visible from the reversal of acquisition category hierarchy in favour of Indigenous acquisition and according AONs totalling more than INR 409000 Cr worth of programs for Indian Industries to participate. Also there has been gradual increase in nominal Defence Modernisation budget, however, inclusion of the GST (since July 2017) and Customs Duties (since April2016) as additional outflows from funds allocated to MoD had in effect cut the capital allocations to Defence in real terms.

Further, factoring in inflation, the current year’s allocation just matches the budget for FY16-17, to the one three years ago. The consequent decrease in funds available for Defence Modernisation are visible from the dropping volume of orders placed on Indian Companies in preference to the Imports.

Based on the Parliament Answers and Standing Committee reports, it can have been observed the defence modernisation budget allocation was not sufficient even to cover the committed liabilities over the last two (02) years, leading to acquisition programmes getting deferred, cancelled or unprecedented cut in supply quantities after issuance of RFP. Given Letters of Credit payment terms the Foreign Companies get paid on due date while Indian Industry continues to suffer with Payment deferrals. The lack of funds for new acquisition resulted in very low Order placement of about Rs ~77,000 Cr on Indian Industry over past three years against sales revenues exceeding Rs ~1,72,000 Cr even if only DPSUs and OFB revenues are to be accounted for leaving Private enterprise uncovered.

Notwithstanding there have been some shining examples of Make in India in the Indian Industry over this period of past 3-4 years. These include deliveries of Akash Missile Program, Pinaka MRLS program, K-9 Vajra Tracked Self Propelled Gun Program, BrahMos Program, Army Bridging Systems, Offshore Patrol Vessels for Coast Guard as well as Navy, Floating Docks for Navy, Interceptor Boats Coast Guards, P75 submarines, P28 ASW corvettes, P15A destroyers, Dhanush Howitzers, LCA Operationalisation, to name a few significant ones. 

Increasing the allocation for Defence Capital Acquisition commensurate with the AONs worth 409000 Cr granted since 2014 will bring about immediate positive impact on Indian Defence Industry, with this eco systems of Large players as well as MSMEs leveraging their respective strengths. Besides, gainful utilisation of the investments and resources committed to Defence, with positive increase in employment across Tierised supply chain due to the cascading effect. The multiplier factor will provide the desired momentum & much needed impetus.

On public-private partnership in defence

The Public Sector Production in Defence has been growing at a CAGR of ~8.5% over the last 4 years in-spite of very large order book. Extrapolating the historic growth rate, the Defence Production by Public Sector would hover around USD 15-16 Billion. As the Govt has resolved not to nominate future contracts and award them on competitive basis by enabling level playing field, Private Sector would have to fill-in to reach National target of USD 26 Billion and in the process grow much faster, given the smaller size that would enable faster growth. This combined with ease of doing business and licensing, more Private Sector Companies would participate in Defence Manufacturing, make new investments and create employment.

The Indian Private Sector revenues currently hover at about USD 2.5-3 billion while DPSU and OFB total up to USD 10 Billion. Given the track record of production in India, DPSUs have products to offer for exports while Private sector has the requisite agility and speed to clinch export orders. There is thus a case for Public-Private-Partnership on a win-win basis. Such teaming could leverage DPSUs to enhance output by teaming with Private Enterprise leveraging their unused capacities and in the process enhance capital efficiency to reverse the current economic slowdown. Working in partnership mode in Trust based relationships with Indian industry would not just meet but exceed export targets, especially with Govt ready to chip in with active assistance. 


On level playing field vis-a-vis DPSUs

Even in cases where Indian industry has demonstrated capabilities, and announcement of stopping nomination of acquisition programs, Nomination of DPSUs can be seen to have continued in line with old AONs or on the pretext of security concerns. And wherever Private Industry has to compete with Govt owned entities (OFB, DPSUs) anomalies such as use of Govt funded plant and machinery as well as assets like earlier ToTs, cost of skill development at nil cost make it a non-level playing field. This acts a disincentive to the Indian private industry resulting in gross Underutilisation of Private Sector capacity.

Large Nominated contracts provide for years of capacity booking of the DPSU / OFB. With long term capacity booking at preferential payment terms, DPSUs attain flexibility to cross underwrite. Further the assets funded by the GoI without the DPSU having to carry commensurate asset servicing costs grants them competitive advantage and subjects Private Sector to non-level playing field. Analysis of past platform contracts [especially Naval Programs - given that Navy began competitive bidding more than a decade back] tendered on competitive basis bear this. There are also multiple examples of Private Players that attempted underbidding DPSUs, having attained bankruptcy.

It is imperative for healthy competition that MoD acquisition is done on competitive basis in the interest of true price discovery inclusive of hidden costs carried by the Govt of India. Consequently acquisition cases for which AONs were granted on nomination basis but where their validity expired, be opened up for participation of Private Sector Companies on competitive basis on level playing basis.