Redefining IPR for Energetic Participation of Private Sector
By AVM P K Srivastava (retd), VSM
India, though one of the largest economies, has a dubious distinction of being one of the largest importers of the weapon systems of the world. India, also, has been trying to boost its own arms industry through Offset obligations imposed on its foreign suppliers. There have been several panels, task forces and think tank sessions that fine-tuned Defence Procurement Procedures (DPP) to leverage our advantageous position as a buyer to seed technologies within the country. These initiatives have generally failed to achieve the desired objective of self-reliance. Self-reliance still eludes us. Case in point is that of HAL-a Public Sector Undertaking had been manufacturing aircraft for past five decades is still deficient of manufacturing technologies/processes required for modern aircraft. This is so when HAL enjoyed absolute support and funding from Government. It was expected that HAL would become the centre of excellence for manufacturing technologies in the aviation sector. This would create a seed around which other tier-is private sector industries would crystallise and grow their strengths. This, in effect, didn’t happen. The lack of in-house strength of product technologies and related R&D has been one of the adversely impacting factors that delayed the LCA programme by more than a decade.
LCA experience has enriched us as a nation. We need to take our own lessons and move forward. India is blessed with one of the largest pool of engineers and managerial talents. It is also one of the largest economies of the world. Yet, we are still finding our pathways to create an eco-system of industries that would address the urgent national necessity of being self-reliant in threshold technology weapon systems. All front runners of economies have strong intrinsic capacities in threshold weapon systems. We will need to address this issue to remain a sustainable front-runner of an economy for the continued progress of our citizens.
The defence industry is solely dependent on Government for Orders. Presently, this industry is also considered a monopsony from the private sector perspective. This places a great onus on Government to grow this industry for effective self-reliance. Also, the defence industry will have to have long-term forward and backward linkages with identified tiered partners for a meaningful place in the global arena. All these merit long-term large commitments of funds/investments. Growth and sustenance of defence industry are feasible, only if, ‘order inflow’ can be sustained. Therefore, the key issue is sustenance of order inflow. In instant case Order Inflow is entirely in the domain of Government. Therefore, unlike in other cases, wherein, the industry could grow on the strength of liberal policies, herein, the role of Government as purchaser and facilitator becomes most critical.
Case in point is that Government is the only creator of the market as well as the only purchaser of defence equipment. Therefore, Government Companies viz. DPSUs and OFB factories have intrinsic decisive leverages in their hands. An Order on DPSU or OFB saves Government from any future embarrassment on the count of procedure/transparency even without motives. This enhances the tendency to nominate. The private sector in the absence of orders from own Government/DPSUs/OFB has not matured to seek Orders from foreign Armed Forces. Much later when own defence industry has matured; orders from foreign Armed Forces may keep the industry alive. We need to commence the cycle to reach that critical threshold of self-sustenance.
Some Soul Searching Is Necessary
As we know and understand that Government funds for all R & D initiatives are placed at the disposal of DRDO who then invite and engage private and public sector companies to assist them in their technology and product development activities. And we are fully aware that R & D efforts for major systems go on for a couple of decades before any commercial gains may accrue to either public or private sector as happened in cases of Akash Missile System, LCA etc. Some projects/programmes also get short closed post decades of efforts due to their non-viability like Trishul etc. Moot point here is that private and public sector both are acutely aware of this business uncertainty. However, if public sector participates and project/programme succeeds, they get crowned by not only first order but also all subsequent orders. This gives great commercial comfort to the public sector for participating and growing along with DRDO. DRDO also gets unhindered cooperation since their success fits in the commercial goals of participating public sector. However, the same is not true for the private sector. Existing procedures do not permit the private sector to get continued order support from nominated DPSU/OF despite their support of projects/programmes during their R&D and manufacturing incubation. This aspect is energy sapping. The enthusiastic participation of private sector with their intellectual, physical and financial resources is key to the success of innovative/newer/bigger projects/programmes. It is essential that they consider themselves as equal partners to a success story. Let us examine as to what may remedy this situation.
Impact of IPR Regime
A look at one of the successful programmes may throw some light on attendant issues of passive participation of private sector. Development of AKASH weapon system into an operationally deployable weapon system took nearly a decade and a half. Several Public and Private sector companies participated in the development programme. Technology designs emanated from DRDO labs for all BTP items. However, production/manufacturing designs and processes were developed and designed by manufacturing work centres. AKASH weapon system programme succeeded. All public sector Companies were accredited with the assurance of current and future Orders due to their prolonged association during the development phase. However, private sector Companies are not considered the same potential for creating dysfunctional uncertainties. These dysfunctional uncertainties may be removed through a policy initiative by redefining IPR.
A Closure Look at IPR Issue – IPR Redefined
We, probably, need to have a closure look at the IPR regime. There are two distinct outcomes of R&D efforts undertaken by DRDO in partnership with public and private sector viz. technology and product. Engineering the product for manufacture has its own manufacturing processes centric R&D that goes on within the domain of a manufacturer who is engaged during the R&D phase with DRDO. Technology and manufacturing processes together can only create a robust product/system that may meet the rigours of combat deployment. Therefore, it makes good sense to award those who with their time, efforts and money have made country proud. It is in this context that we need to have a closure look at IPR issue.
A definition that distinguishes between Technology IPR and Product IPR may bring in clarity. DRDO continue to hold technology IPR in recognition to their efforts in R&D while public and private sector would get their recognition in form of product IPR with assured unconditional availability and unfettered rights to GoI/ MoD. This mechanism would have the potency to encourage investments in product IPR by the private sector giving a large number of partners to DRDO at the ab-initio stage. This may reduce the development cycle, promote upfront investments to produce prototypes matching mature product and enhance the chances of success of various programmes. The argument for the private sector to be conferred with product IPR is in line with Ronald Coase’s Nobel Prize-winning ideas on property rights that explain that “when rights are not well- defined we do not get an effective use of resources". The synergy of public and private sectors would definitely mean an effective use of resources.
Creating a Win-Win Paradigm
This distinction of IPR offers public sector like status to private sector in their investments in terms of efforts and money. Essential issue of assured orders in wake of the success of a programme may be a great motivator since this will create a financial incentive for such efforts and money.
As per the current state of financial regulations, it is not feasible for DPSUs/OFB to place continued orders on private sector companies unless they are granted some special status. These companies have toiled to make weapon systems a reality alongside DRDO. They merit to be treated well and awarded a special status by granting them Product IPR. This will permit DPSUs/OFB to place not only first but all future orders. This change in system has a great potential to motivate not only the present but all future generation of entrepreneurs to spend their time and money in defence domain more diligently thereby helping in establishing defence industrial base within the country. A paradigm that’s begging to be established for making the country self-reliant in defence weapon systems.