Why "Make in India" Driving Up Cost of Certain Weapons Systems by 30-40%

India's "Make in India" initiative, a flagship program of the current government, is designed to boost the nation's domestic defense manufacturing capabilities.

However, recent analyses suggest that the initiative may be inadvertently driving up the cost of certain weapons systems by 30-40% compared to direct procurement from foreign vendors.

The Cost of Technology Transfer​

A core component of the Make in India initiative is the collaboration with foreign Original Equipment Manufacturers (OEMs) to facilitate technology transfer.

This process, while critical for building indigenous capabilities, comes with substantial costs. Indian companies, often inexperienced in complex defense manufacturing, require extensive technical assistance and training from foreign OEMs.

These services translate into licensing fees, technology transfer costs, and profit margins for the foreign companies, ultimately inflating the final price of the weapon systems.

Economies of Scale and Negotiation Challenges​

Established foreign vendors often benefit from economies of scale, producing large quantities of weapon systems that reduce the per-unit cost.

In contrast, Make in India projects may involve smaller production runs, particularly for niche weapons, leading to higher per-unit costs due to the distribution of fixed costs over fewer units.

Furthermore, the involvement of both domestic and foreign partners in Make in India projects can complicate negotiations and potentially weaken India's bargaining power, further impacting the final price.

A Nuanced Approach​

Experts suggest that a nuanced approach is needed to optimize India's defence procurement strategy. This approach would involve a careful consideration of both strategic and economic factors when deciding between domestic production and direct procurement.

For instance, weapons systems with high demand or those critical for national security might be better suited for domestic production, even with the associated costs. Conversely, niche weapons with limited procurement needs might be more cost-effectively acquired through direct procurement.

The Way Forward​

The Make in India initiative represents a significant step towards self-reliance in defence production. However, striking the right balance between strategic goals and economic realities is crucial for its long-term success.

Continued analysis and adaptation will be necessary to ensure that the initiative serves India's defence needs in a sustainable and cost-effective manner.

The government has acknowledged these concerns and is reportedly exploring measures to address them, such as incentivizing greater participation from the private sector and promoting competition among domestic manufacturers.

The debate over the Make in India initiative underscores the complex challenges involved in balancing strategic goals with economic realities. As India continues to modernize its defence sector, finding the right path will be crucial for ensuring national security and economic sustainability.

 

[Boomeranger]

Fine Example would be SU30MKI and Rafales on make in India. Rafale F4.2 with all of ISE's and all latest missiles, bombs etc., will costs 280 millions usd per unit of jet on outright purchase from Dassault-France factories. Make in India by DRAL_Dassault, will add 20% extra costs and so, per unit of Rafale F4.2 jet made in India will costs IAF 226 millions usd per jet!!!

If we calculate 67,000 crores for 97 nos. of Tejas MK1B jets with Uttam GaN AESA radar then, per unit cost of jet comes to [at 91 rupees per dollar purchase rates] $76 millions usd per jet. It would be GREAT if HAL can manufacture 36 nos. of Tejas jets per year within next 4 years. Then, IAF can order a grand total of 600+ nos. of MK1A-MK1B fighter jets!!

 

[Sommyarup Roy]

Author has no clue that any foreign weapon purchased depletes the forex reserves even if its cheap . Even if its expensive to buy domestic built weapons the value is dispersed in economy via local sourcing.

 

[Mithu Roy]

It's worth paying since your manufacturing prowess moves up.Private companies over a period will find export opportunities unlike government ones,and in the process will keep their lines up and running

 

[abhinav srivastava]

For real atmabirbhata import and screwdriver should be replaced with indigenous development. Incentivize desi R&D.

 

[Anant]

Fine Example would be SU30MKI and Rafales on make in India. Rafale F4.2 with all of ISE's and all latest missiles, bombs etc., will costs 280 millions usd per unit of jet on outright purchase from Dassault-France factories. Make in India by DRAL_Dassault, will add 20% extra costs and so, per unit of Rafale F4.2 jet made in India will costs IAF 226 millions usd per jet!!!

If we calculate 67,000 crores for 97 nos. of Tejas MK1B jets with Uttam GaN AESA radar then, per unit cost of jet comes to [at 91 rupees per dollar purchase rates] $76 millions usd per jet. It would be GREAT if HAL can manufacture 36 nos. of Tejas jets per year within next 4 years. Then, IAF can order a grand total of 600+ nos. of MK1A-MK1B fighter jets!!

Why on Earth would you want 600 Tejas Mk 1A jets, especially when the type is already old-ish in certain aspects? I mean, if you really wanted to do something, you could order more Tejas Mk 2 or AMCA instead. Moreover, please don't give HAL any ideas on developing a Tejas Mk 1B when it doesn't exist. Those folks will waste another 6-8 years. Oh, and if you order 600 jets, would you be comfortable getting the last of those jets sometimes in the 2050s?

 

[Anant]

Fine Example would be SU30MKI and Rafales on make in India. Rafale F4.2 with all of ISE's and all latest missiles, bombs etc., will costs 280 millions usd per unit of jet on outright purchase from Dassault-France factories. Make in India by DRAL_Dassault, will add 20% extra costs and so, per unit of Rafale F4.2 jet made in India will costs IAF 226 millions usd per jet!!!

The ISE expenditure on the first order had a fixed cost component which won't repeat here. That said, the initial smaller order included a large amount of spares and weapons. A larger order (if we were to go with Rafales) would not include as many spares (on a per aircraft basis), and we would be able to push for indigenous weapon integration, which would push costs down.

In such a scenario, even with a local production premium added on, the price of each Rafale would sit at around 260-275 million USD, which gives a grand total bill of around 31 billion USD for MRFA.

 

[J S Roy Choudhury]

The apparent cost benefit by direct import of high value technologically sensitive equipment may appear to be tempting. However, one has to view this issue from a broader perspective.

In case of imports, the entire funds have to be remitted abroad - the entire funds are utilised by the industrial sub systems in the vendor's country. Besides, this also represents a big drain on our precious forex reserves. To add to this, bulk of funding in servicing, upgradation and other periodic expenses during the life span of the equipment also goes abroad.

In case of domestic manufacturing, the lion's share of this entire fund is pumped back into the ecosystem and infrastructure of our own country, making it better, stronger and more sustainable. The skill set, the innovativeness and overall competitiveness keeps on increasing, even if it may appear to be sluggish in the initial stages.

This prepares the country and its sovereignty in the long run, by reducing dependencies on nations who may change their stance at their whims and fancies. That is why, the more complex the equipment, the more it needs to be built within our country, by our people, with our own skills and technology.

The more we make it at home, the more we sell it to others, increasing our revenue and improving the scale of operations. In such case, obsolescence will hurt us less.

Even in the past, each sanction / denial of technology has made us stronger, while easy availability has made us dependant. One must admit, however, that it is not easy. It not only requires additional funding, but also additional training and investment in core technologies infrastructure. Eventually, it makes us more strong, more resilient and enhances our sovereignty.

This is the beauty of "Atmanirbharta" or "Make in India". For long we had taken the easy path to decline, but fortunately now we have corrected the course.

 

[beencensured]

For real atmabirbhata import and screwdriver should be replaced with indigenous development. Incentivize desi R&D.

The cost of foreign oem product locally produced would be twice to three time the cost to develop locally by R&D and with twice-trice the production. This why GOI paying for Tata's factory for c295 is so obscene as it is crony capitalism in purest form. It is totally shameless that without foreign oem (commission) the wheels in government do not get greezed. So why they make such shameless deals and keep MTA, RTA and so
forth pending. They are obviously shameless.

 

[Boomeranger]

Why on Earth would you want 600 Tejas Mk 1A jets, especially when the type is already old-ish in certain aspects? I mean, if you really wanted to do something, you could order more Tejas Mk 2 or AMCA instead. Moreover, please don't give HAL any ideas on developing a Tejas Mk 1B when it doesn't exist. Those folks will waste another 6-8 years. Oh, and if you order 600 jets, would you be comfortable getting the last of those jets sometimes in the 2050s?

WHY on Earth did IAF field 1,200 nos. of MIG jets versions at all.. MIG21-23-25-27-29 and SU7 also....To fight J10CE's, IAF need at least 3 nos. Tejas. For one J20 jet destructions at least 10 Tejas would be required by IAF..

 

[Boomeranger]

The ISE expenditure on the first order had a fixed cost component which won't repeat here. That said, the initial smaller order included a large amount of spares and weapons. A larger order (if we were to go with Rafales) would not include as many spares (on a per aircraft basis), and we would be able to push for indigenous weapon integration, which would push costs down.

In such a scenario, even with a local production premium added on, the price of each Rafale would sit at around 260-275 million USD, which gives a grand total bill of around 31 billion USD for MRFA.

ISE MUST be performed for each and every Rafale jet sold to IAF dude... It is not a one time order and that 36 nos. Rafale jets order is all but forgotten now. MRFA will be brand new cycle for Rafale F4.2. If IAF purchases F3's then old pricing could be bargained for a lower value then. But, as of now IAF sets eyes on Rafale F4.2 ver. means a BRAND NEW deal for Dassault...

 

[beencensured]

It's worth paying since your manufacturing prowess moves up.Private companies over a period will find export opportunities unlike government ones,and in the process will keep their lines up and running

Manufacturing a twenty year old product is not a benefit but going ten steps backward,. Mental do not understand and rather hold someone's hand as they are absolutely shamelessly wasting money and resource for their shameless Inferiority complexed slavery. Only, if India had shot all the Jai Chands such low degrade shameless dirty regressive, nonsense people would not exist.

 

[beencensured]

WHY on Earth did IAF field 1,200 nos. of MIG jets versions at all.. MIG21-23-25-27-29 and SU7 also....To fight J10CE's, IAF need at least 3 nos. Tejas. For one J20 jet destructions at least 10 Tejas would be required by IAF..

Tejas mk1a with AESA radar and Astra 2 will be more than match for J10. J10 has lower availability time then Tejas mk1a which makes one tejas equal two j10.

 

[Anant]

Boss, the ISE costs come under a fixed component that involved premium and infrastructure setting for the ISE components, and a variable component for the parts themselves. The variable component will still be there, but the premium that was paid earlier will not be present this time.

 

[Anant]

WHY on Earth did IAF field 1,200 nos. of MIG jets versions at all.. MIG21-23-25-27-29 and SU7 also....To fight J10CE's, IAF need at least 3 nos. Tejas. For one J20 jet destructions at least 10 Tejas would be required by IAF..

We almost never had 1,200 jets at once. Those 1,200 MiGs have served across a period of over 60 years. Most of the earlier MiG-21s, for instance, were gone around the time the MiG-29s entered service, and so on.

As for your figures about the attrition ratio of the Tejas to the J-10 or J-20, either provide evidence, or just don't make baseless claims.