26-Jul-2021: Strengthening the Defence Manufacturing Sector

DRDO has taken the following measures for strengthening the industry to reduce the timelines from development to induction:-

• Accessibility of DRDO Test Facilities to Indian Industry.
• Identification of Development-cum-Production Partner/ Production Agency/ Lead System Integrator (DcPP/ PA/ LSI) for early integration of industry.
• Technology Development Fund (TDF) has been implemented to provide support for design and development of technologies/ prototypes, indigenisation of imported systems/ components and new systems especially by MSMEs/ Start-ups.
• Simpler Transfer of Technology (ToT) Policy to encourage industries
• Free access of DRDO patents to industries
• Identified 108 exclusive systems for development by industry which will not be taken by DRDO
• DRDO is focused to carry out R&D work on critical & advanced technologies that industries cannot do.

Measures proposed to be taken for strengthening the Ordnance Factories and DPSUs to meet countries defence requirements are as follows:-

• To carve out a future growth path, a visioning exercise and study has been commissioned for DPSUs for restructuring and reforming them to become cost competitive and efficient.
• DPSUs have been encouraged to work as aggregators and maximize outsourcing from indigenous sources. Over the last 2 years, the vendor base of DPSUs/OFB has increased substantially from 8000 to 12878 as on 30.06.2021.
• Disinvestment of DPSUs is being pursued.
• Focus on modernization of production facilities through higher CAPEX. Further, following roadmap is being implemented by the OFB/DPSUs for technology modernization:
• Investing in Industry 4.0 technologies in areas of Manufacturing, Supply Chain & other broader digital transformation initiatives.
• Focusing on emerging areas of Artificial Intelligence, Data Fusion, Web Technologies, Data Analytics, 3D Printing, Networking and Cyber Security. These technologies are now being incorporated into Products and Systems at the design stage itself.
• Change in the traditional ToT based manufacturing approach to a more proactive Co-development and Co-Production approach.
• Increased software based testing for reducing the time and efforts that go in testing of products.
• Promoting IP culture in DPSUs through Mission Raksha Gyan Shakti. So far, 32,799 officers and staff of DPSUs/ OFB/DGQA have been trained in IPRs and 2,417 IPs have been filed and 981 IPs have been granted/registered.
• For 2021-22, the allocation for Domestic procurement has been enhanced compared to previous years and is planned to be about 64.09 % i.e. Rs. 71,438.36 Crore of the allocated amount for military modernization.
• Ministry of Defence has notified two ‘Positive Lists’ for Indigenisation comprising of 209 items on 28.08.2020 and 31.05.2021 respectively, for which there would be an embargo on the import beyond the timeline indicated against them.
• An indigenization portal namely SRIJAN has been launched in August 2020 for DPSUs/OFB/Services with an industry interface to provide development support to MSMEs/Startups/Industry for import substitution. So far, more than 10,945 Defence items, which were earlier imported, have been displayed on the portal. Private industry has expressed interest in indigenizing more than 2400 items.
• To enhance functional autonomy, efficiency and unleash new growth potential and innovation in Ordnance Factories, the Cabinet Committee on Security (CCS) in its meeting held on 29.07.2020 had approved to convert Ordnance Factory Board (OFB), a subordinate office of Ministry of Defence, into one or more than one 100% Government owned corporate entities, registered under the Companies Act, 2013. The Cabinet in its meeting held on 16.06.2021, has now, inter-alia, approved to convert the production units of OFB into 07 DPSUs with 41 units.
• The Government 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. The obligatory government approval for existing FDI approval holders / current defence licensees for change in equity /shareholding pattern up to 49% FDI has been replaced with mandatory declaration for the same within 30 days of change of equity / shareholding pattern. These reforms are likely to attract foreign investment in Defence & Aerospace sector. 
• Reforms in Offset policy have been included in DAP 2020, higher multipliers have been assigned for Transfer of Technology (ToT) to DPSUs/OFB.
• 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.
• Department of Defence Production has notified 46 items under the latest Public Procurement Order 2017 notified by Department for Promotion of Industry and Internal Trade (DPIIT), for which there is sufficient local capacity and competition and procurement of these items shall be done from local suppliers only irrespective of the purchase value.

Services are the primary stakeholders in DRDO projects. They are involved right from the conceptualization of the project through peer reviews, design reviews i.e. Annual Joint reviews, Joint reviews & bi-annual reviews and a three tier project monitoring mechanism as per DRDO procedure for all Mission Mode (MM) projects undertaken by DRDO.

Also, a number of Collegiate interaction meetings between DRDO and Users are being held for specific requirements/ issues as and when required.

Moreover, DRDO, OFB, DPSUs and Armed Forces being part of the same Ministry regularly interact with each other for the design development and production of Defence equipment as per the requirements of Defence Forces.

3-Feb-2021: Ease of Doing Business in Defence Manufacturing

Following measures have been taken up by Government to increase the ease of doing business in defence:

• The initial validity of industrial licenses under the I(D&R) Act, 1951 which was earlier 7 years, extendable up to 3 years for existing as well as future licenses, issued vide DPIIT Press Note 5 (2015 Series) dated 27.04.2015 has been revised to 15 years, further extendable up to 18 years for existing as well as future licenses vide Press Note 10 (2015 Series) dated 22.09.2015.  Further, under Arms Act 1959/Arms Rules 2016, license granted shall be valid for the life time of the licensee company provided the licensee shall be required to setup facility and fulfill other conditions within a period of seven years from the date of grant of a license.
• Guidelines have been issued to streamline the processing of applications for grant of extension of validity of Industrial Licence.
• Partial commencement of production is treated as commencement of production of all the items included in the licence.
• The advanced version of National Industrial Classification (NIC-2008) has been adopted, which is a superior/sophisticated industrial classification.
• The ‘Security Manual for Licensed Defence Industry’ has been issued.  With the issue of the Security Manual, the requirement of affidavit from the applicants has been done away with.
• Restriction of annual capacity in the Industrial Licence for Defence Sector has been removed under Industries (Development & Regulation) Act, 1951.
• Licensee has been allowed to sell the defence items to the government entities under the control of Ministry of Home Affairs (MHA), Public Sector Undertakings (PSUs), State Governments and other Defence Licensee companies without approval of Department of Defence Production.
• Mapping of Sector specific FDI policy with NIC-2008 code has been completed and Press Note issued.
• Licensee has been allowed to manufacture enhanced capacity up to fifteen percent of the existing capacity with prior intimation to the licensing authority under Arms Act, 1959.
• A new online portal has been developed for facilitating filing of online applications for Industrial Licence under Industries (Development & Regulation)-IDR                    Act, 1951/Arms Act, 1959.  The link of the portal is https://services.dipp.gov.in.  This online portal is available for Public with effect from 16.10.2018 for filing applications.
• Subsequent to issue of MHA Notification No. S.O. 6203(E) dated 14.12.2018, Defence products list requiring compulsory licence from DPIIT under Industries (Development & Regulation) Act, 1951 and Arms Act, 1959 has been pruned,  and DPIIT Press Note 1(2019 Series) dated 01.01.2019 has been  issued.  This is in supersession of DPIIT Press Note 3(2014 Series) dated 26.06.2014.  With issue of Press Note 1(2019 Series), the licensing in defence sector has been further liberalized.
• To facilitate further ease of doing business in Industrial Licensing Press Note 2(2019 Series) dated 11.09.2019 has been issued clarifying that No Industrial Licence/Arms Licence is required for manufacture of any parts or accessories in Defence Sector, unless they are specifically listed in any of the Annexures of Press Note 1(2019 Series).  This shall not apply to issue of Arms Licence for small arms by MHA.
• Press Note 3(2019 Series) dated 11.09.2019 was issued thereby withdrawing Press Note 17(1984 Series).
• Final notification regarding Amendment in the Registration and Licensing of Industrial Undertaking Rules, 1952 under Industries (Development & Regulation) Act, 1951 was published vide Notification No. G.S.R. 637(E) dated 04.09.2019 and the Registration and Licensing of Industrial Undertaking Rules, 2019 has been laid on the table of the Houses of Parliament in the Winter Session, 2019.

The License applications are processed in consultation with various stakeholders.  Currently, 28 License applications in MoD and 30 in Department for Promotion of Industry and Internal Trade (DPIIT) are under examination and stakeholders’ consultation as per laid down procedure.

As per Registration and Licensing of Industrial Undertaking (Amendment) Rules, 2019 dated 04.09.2019 notified by Ministry of Commerce & Industry, the timeline for processing the application is 5 months from the date of registration.

Meetings of Standing Committee on Private Sector Participation are convened at regular intervals and comments are conveyed to Licensing Authorities.