19-Dec-2022: Self Reliance in Defence Sector

The Government has taken several policy initiatives in the past few years and brought in reforms to encourage indigenous design, development and manufacture of defence equipment, thereby promoting self-reliance in defence manufacturing & technology in the country. These initiatives, inter-alia, include according priority to procurement of capital items of Buy Indian (IDDM) category from domestic sources under Defence Acquisition Procedure (DAP)-2020; Notification of  four ‘Positive Indigenisation Lists’ of total 411 items of Services and  three ‘Positive Indigenisation Lists’ of total 3,738 items  of Defence Public Sector Undertakings (DPSUs), for which there would be an embargo on the import beyond the timelines indicated against them; Simplification of Industrial licensing process with longer validity period; Liberalization of Foreign Direct Investment (FDI) policy allowing 74% FDI under automatic route; Simplification of Make Procedure; Launch of Mission DefSpace; Launch of Innovations for Defence Excellence (iDEX) scheme by involving Start-ups & Micro, Small and Medium Enterprises (MSMEs); Implementation of  Public Procurement (Preference to Make in India) Order 2017; Launch of an indigenization portal namely SRIJAN to facilitate indigenisation by Indian Industry including MSMEs; Reforms in Offset policy with thrust on attracting investment and Transfer of Technology for Defence manufacturing by assigning higher multipliers; and Establishment of two Defence Industrial Corridors, one each in Uttar Pradesh and Tamil Nadu; Earmarking of 25% of R&D Budget for Industry led R&D; Progressive increase in allocation of Defence Budget of military modernization for procurement from domestic sources, etc.

Our defence industry is now capable of manufacturing wide variety of high-end requirements e.g. Tanks, Armoured vehicles, Fighter aircrafts, Helicopters, warships, Submarines, Missiles, Electronic equipment, Special alloys, special purpose steels, and variety of ammunition. Rapid progress has been made towards achieving complete Aatmanirbharta in the manufacturing of defence equipment required by our Armed Forces within the country. As a result of these initiatives, many State-of-the-art products including 155 mm Artillery Gun system ‘Dhanush’, Light Combat Aircraft ‘Tejas’, Surface to Air Missile system ‘Akash’, Main Battle Tank ‘Arjun’, T-90 Tank, T-72 Tank, Armoured Personnel Carrier ‘BMP-II/IIK’, Su-30 MK1, Cheetah Helicopter, Advanced Light Helicopter, Dornier Do-228, High Mobility Trucks, INS Kalvari, INS Khanderi, INS Chennai, Anti-Submarine Warfare Corvette (ASWC), Arjun Armoured Repair and Recovery Vehicle, Bridge Laying Tank, Bi-Modular Charge System (BMCS) for 155 mm Ammunition, Medium Bullet Proof Vehicle (MBPV), Weapon Locating Radar (WLR), Integrated Air Command and Control System (IACCS), Software Defined Radios (SDR), Lakshya Parachute for Pilotless Target Aircraft, Opto Electronic Sights for Battle Tanks, Water Jet Fast Attack Craft, Inshore Patrol Vessel, Offshore Patrol Vessel, Fast Interceptor Boat, Landing Craft Utility, 25 T Tugs, etc. have been produced in the country during the last few years.

Further, for the first time, a made-in-India Advanced Towed Artillery Gun (ATAG) howitzer gun developed by our industry was part of the 21-gun salute during the Independence Day celebration at Red Fort in Delhi.

An innovation ecosystem for Defence titled Innovations for Defence Excellence (iDEX) was launched in April 2018 to foster innovation and technology development in Defence and Aerospace by engaging Industries including MSMEs, Start-ups, Individual Innovators, R&D institutes and Academia. iDEX provides them grants/funding and other support to carry out innovations/R&D which has potential for future adoption for Indian defence and aerospace needs. Under iDEX, 233 problems have been opened, 310 Start-ups have been engaged, 140 contracts have been signed. ‘iDEX Prime’ framework under iDEX has been launched in 2022 to support Start-ups with Grant-in-Aid up to Rs 10 crore to enable the development of high-end solutions.

Till October 2022, a total of 595 Industrial Licences have been issued to 366 companies operating in Defence Sector.

Government has also established two Defence Industrial Corridors, one each in Uttar Pradesh and Tamil Nadu to attract investments in Aerospace & Defence sector and established a comprehensive defence manufacturing ecosystem in the country. Moreover, the respective State Governments have also published their Aerospace & Defence Policies to attract private players as well as foreign companies including Original Equipment Manufacturers (OEMs) in these two corridors. The two State Governments have already signed MoUs/Agreements with various industries for investment worth total value of about Rs 24,000 crore. Investments worth Rs 2,242 crore and Rs 3,847 crore have been made in Uttar Pradesh Defence Industrial Corridor (UPDIC) and Tamil Nadu Defence Industrial Corridor (TNDIC) respectively.

The Government, in the last three years i.e. from 2019-20 to 2021‑22 and current year (2022-23 up to September, 2022), has accorded Acceptance of Necessity (AoN) to 163 proposals worth Rs 2,46,989.38 crores approximately, under various categories of Capital procurement which promote domestic manufacturing as per DAP-2020.

The share of domestic procurement in the total procurement has been on an uptrend. In 2018-19, the domestic procurement stood at 54% of the total procurement, this figure jumped to 59% in 2019-20 and to 64% in 2020-21. This year it has been increased to 68% for domestic procurement, of this 25% budget has been earmarked for procurement from private industry.

With focus of Government on indigenisation and procurement of defence products from the domestic resources, the expenditure on defence procurement from foreign sources has reduced from 46% to 36% in the last four years i.e. from 2018-19 to 2021-22.

4-Feb-2022: Self-reliance in defence manufacturing

The Government has taken several policy initiatives and brought reforms to promote self-reliance in defence manufacturing. These policy initiatives are aimed at encouraging indigenous design & development, innovation and manufacture of defence equipment in the country, thereby reducing dependency on imports in long run. Important policy initiatives and reforms are as under:

1. DPP-2016 has been revised as Defence Acquisition Procedure (DAP) 2020, which is driven by the tenets of Defence Reforms announced as part of ‘Aatmanirbhar Bharat Abhiyan’.
2. In order to promote indigenous design and development of defence equipment ‘Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)}’ category has been accorded top most priority for procurement of capital equipment.
3. Ministry of Defence has notified ‘First Positive Indigenisation list’ of 101 items on 21st August 2020 and ‘2nd Positive Indigenisation list’ of 108 items on 31st May 2021 for which there would be an embargo on the import beyond the timelines indicated against them. This is a big step to promote indigenization in defence sector. This offers a great opportunity to the Indian defence industry to manufacture these items using their own design and development capabilities to meet the requirements of the Indian Armed Forces. These lists include some high technology weapon systems like artillery guns, assault rifles, corvettes, sonar systems, transport aircrafts, light combat helicopters (LCHs), radars, wheeled armoured platform, rockets, bombs, armoured command post vehicle, armoured dozor and many other items to fulfill the needs of our Defence Services.
4. Further, the Government has notified a Positive Indigenization list of sub-systems/ assemblies/ sub-assemblies/ components of DPSUs on 27th December 2021. The list contains 2,500 items, which are already indigenised and 351 items for which there would be an embargo on import beyond the timelines indicated against them.
5. The ‘Make’ Procedure of capital procurement which is aimed at encouraging design, development and manufacture of defence products by Indian private industry, primarily for import substitution, has been simplified. There is a provision for funding upto 70% of development cost by the Government to Indian industry under Make-I category. In addition, there are specific reservations for MSMEs under the ‘Make’ procedure.
6. Procedure for ‘Make-II’ category (Industry funded), introduced in DPP 2016 to encourage indigenous development and manufacture of defence equipment has number of industry friendly provisions such as relaxation of eligibility criterion, minimal documentation, provision for considering proposals suggested by industry/individual etc. So far, 62 projects relating to Army, Navy & Air Force have been accorded ‘Approval in Principle’.
7. The Government of India has enhanced FDI in Defence Sector up to 74% through the Automatic Route for companies seeking new defence industrial license and up to 100% by Government Route wherever it is likely to result in access to modern technology.
8. An innovation ecosystem for Defence titled Innovations for Defence Excellence (iDEX) has been launched in April 2018. iDEX is aimed at creation of an ecosystem to foster innovation and technology development in Defence and Aerospace by engaging Industries including MSMEs, Start-ups, Individual Innovators, R&D institutes and Academia and provide them grants/funding and other support to carry out R&D which has potential for future adoption for Indian defence and aerospace needs.
9. Government has set up the Technology Development Fund (TDF) to encourage participation of public/ private industries especially MSMEs, through provision of grants, so as to create an eco-system for enhancing cutting-edge technology capability for defence applications.
10. An indigenisation portal namely SRIJAN has been launched in August 2020 for DPSUs/Services with an industry interface to provide development support to MSMEs/Startups/Industry for import substitution. So far, 18023 Defence items, which were earlier imported, have been displayed on the portal.  The Indian industry have shown their interest in 3826 items. Out of them, 3190 have already been indigenised.
11. ‘Offset portal’ has been launched in May 2019 to ensure Greater transparency, efficiency and accountability in the process. Reforms in Offset policy have been included in DAP 2020, with thrust on attracting investment and Transfer of Technology for Defence manufacturing, by assigning higher multipliers to them.
12. Government has notified the ‘Strategic Partnership (SP)’ Model in May 2017, which envisages establishment of long-term strategic partnerships with Indian entities through a transparent and competitive process, wherein they may tie up with global Original Equipment Manufacturers (OEMs) to seek technology transfers to set up domestic manufacturing infrastructure and supply chains.
13. Government has notified a ‘Policy for indigenisation of components and spares used in Defence Platforms’ in March 2019 with the objective to create an industry ecosystem which is able to indigenize the imported components (including alloys & special materials) and sub-assemblies for defence equipment and platform manufactured in India.
14. Government has established two Defence Industrial Corridors, one each in Uttar Pradesh and Tamil Nadu to attract investments of Rs 10,000 Cr in each corridor by year 2024-25. So far, investment of approx. Rs 3,750 crore in both the corridors by public and private sector companies have been made. Moreover, the respective State Governments have also published their Aerospace & Defence Policies to attract industries including foreign companies in these two corridors.
15. An Inter-Governmental Agreement (IGA) on “Mutual Cooperation in Joint Manufacturing of Spares, Components, Aggregates and other material related to Russian/Soviet Origin Arms and Defence Equipment” was signed in Sep 2019. The objective of the IGA is to enhance the After Sales Support and operational availability of Russian origin equipment currently in service in Indian Armed Forces by organising production of spares and components in the territory of India by Indian Industry by way of creation of Joint Ventures/Partnership with Russian Original Equipment Manufacturers (OEMs) under the framework of the ‘Make in India’ initiative.
16. Defence Products list requiring Industrial Licences has been rationalised and manufacture of most of parts or components does not require Industrial License. The initial validity period of the Industrial Licence granted under the IDR Act has been increased from 03 years to 15 years with a provision to further extend it by 03 years on case-to-case basis.
17. Defence Investor Cell (DIC) has been created in Feb-2018 by the Ministry to provide all necessary information including addressing queries related to investment opportunities, procedures and regulatory requirements for investment in the sector. Till date, 1325 queries had been received and addressed by Defence Investor Cell.