I'll speak on behalf of Indian Private sector firms only and only on the topic of why larger orders are necessary and beneficial for private players, and for the army.
Any private firm sizes its production capacity according to expected demand and intensity of demand for its goods. This is particularly true for industries with high capex and high human resources demands. By ordering in small batches, the IA creates uncertainty regarding scale of total orders. The firms react by developing limited capacity with limited rate of production to limit exposure in case expected orders are not forthcoming. This drives up cost for IA, as cost of CAPEX must be amortized over fewer production numbers, and also limits the rate of supply.
Instead if the IA had put forward a firm commitment for a larger batch, the firms can put down the capex for the fixed assets (5-6 axes machining and forging tools, Trained personnel etc) for a larger and faster production plan and deliver end product at lower costs as now fixed costs are amortized over larger batch. Both sides gain, army with cheaper guns at faster rates, firms with predictability of demand.
It might appear academic, but the difference in costs could be as much as 30-50%. This is one of the reasons why Indian products are more expensive than foreign produced goods.
Fact is, because of the uncertainty/unpredictability regarding IA's orders, a large number of Indian firms with technical knowhow to develop and produce military goods simply refuse to enter into the bidding process. Even Tonbo Imaging initially only supplied outside India (to US SOCOM), MKU delivered products only outside India, because domestic orders were too uncertain to create a sustainable business model.
Because of IA and MoDs fickleness and whimsical procurement procedure, Indian firms save for the very largest firms avoid entering defence market, and if they do, their main target consumer is abroad (at least initially).
Sir,
Why are you mentioning IA every time and everywhere.
Orders are placed as per procedures laid down by CAG / MoD Finance. Sanctions are the largest part of procedures. In 99 per cent cases MoD is the Sanctioning authority and the CFA. Orders are placed by the CFA. In case of MoD it is DAC.
Proposals are placed as per "sanctioned" budgets.as approved by MoD and Min of Finance. If money available in a year is for ten guns, Army can not propose to buy 100 guns.
Economy of scale is the best in Indian orders. Please tell me which country / Army is the world places orders for about 2000 guns ? Which Army plans to acquire 124 fourth generation aircrafts? Which Army places orders for 78000 Rifles ? 4000 missile launchers and 70000 missiles. BEA system has an order of more than 100 ULH. Has that made the guns cheaper ? They still will supply those over next five years as per their production capacity. F-16 is closing down but will survive if India places orders for about 100 or more F-16. Will that make F-16 at quarter of the current price. Economy of scale is not so divine. It is not Colgate. We are talking about 155/52mm howitzers.
OFB had been making / upgunning 300 M-46 to 155mm caliber. They have been maintaining and servicing more than 400 Bofors 155mm guns. More than half of know-how and infrastructure is in place. Still they can not compete> They are not L1. Why should they get orders ?
You mentioned Tonbo. How much orders they get at one trench from a single source. What about Tonbo's efforts to create and sustain demands for their products? They remain ahead in technology loop in quality of products and in marketing?
Private firms remain ahead of the demand cycles, create demand for their product, service demand well and remain in feedback loop. We do not expect that from DRDO / OFB.
US Armed Forces also do not place orders for 350 F-35. They also buy it in 24, 30, 16 trenches. In technology products one can not and should not place large orders. It is as per suppliers capability and capacity, technology and ability to move up the technology ladder.
For any supplier including DRDO / OFB to be supplier for Indian Armed Forces is a dream come true. Such large orders one does not get anywhere in the world.
Finally, I reiterate Indian Army or Services only place their requirements, lay down parameters, carry out the trail and accept the product. They are no where is allotment of money, sanctioning the money and placing orders. That is done by MoD.
Placing order means availability of money, legal commitments, binding terms and conditions, paying advances, placing guarantees and getting stuck. India does not have a budget to place an order of 500 guns on OFB in one go nor is the Indian Army stupid enough to say they will procure only towed guns, nothing of trcked guns, nothing of mountain guns to keep OFB happy.
It is plain, stupid and simple.
