Make in India -- The Defence Sector
[A Special Feature from
the Indian Ministry of
Defence. Republic Day 2015.]
By Manohar Parrikar
Achieving self-reliance and reducing dependence on foreign
countries in defence is a necessity today rather than a
choice, both for strategic and economic reasons. The
Government in the past has created production capabilities in
defence in form of ordnance factories and public sector
undertakings to cater to the requirements of our armed
forces. However, there is a need to enlarge the role of
Indian private sector as well to develop capabilities and
capacities for production of various defence equipments.
Our Prime Minister has taken a very important initiative in
form of 'Make in India' to promote and encourage domestic
manufacturing of various items. The requirement for domestic
production of defence equipment is more than for any other
sector because it will not only save precious foreign
exchange but will also address the national security concerns.
The Government being the only consumer, 'Make in
India' in defence sector will be driven by our
procurement policy. The Government policy of
promoting domestic defence industry is adequately
reflected in the Defence Procurement Policy,
wherein preferential treatment is given to 'Buy
(Indian)' and 'Buy and Make (Indian)' categories of
acquisition over 'Buy (Global)'. In the days to
come, import is going to be the rarest of the rare
option and first opportunity would be given to the
Indian Industry to develop and manufacture the
required systems. As Indian companies presently
may not have adequate capabilities in terms of
technology, they are encouraged to partner with
foreign companies for joint ventures, technology
transfer arrangements and tie-ups.
If we look at the profile of Acceptance of Necessity (AONs)
granted by Defence Acquisition Council (DAC) in the last
couple of months after the new Government has come to power,
proposals worth more than Rs.65,000 crores have been
categorized under 'Buy (Indian)' and 'Buy and Make (Indian)'.
The process of further orienting the Defence Procurement
Procedure towards procurement from domestic industry will
continue in future as well. The procurement process would be
made more efficient, time bound and predictable so that the
industry can plan its investment and R&D well in advance to
meet the requirement of our armed forces.
Till now, there were many entry barriers for the domestic
industry to enter into defence sector in terms of licensing,
FDI policy restrictions etc. In the last six months, the
Government has taken several policy initiatives to ease the
process of entry into defence manufacturing. The most
important is the liberalization of the FDI policy regime for
Defence sector to encourage foreign investment in the sector.
FDI up to 49% is allowed through Government route (with FIPB
approval). FDI above 49% is also allowed on a case-to-case
basis with the approval of Cabinet Committee on Security
wherever the proposal is likely to result in access to modern
and state-of-the-art technology in the country. Restrictions
in earlier policy related to Foreign Institutional Investment
(FII) and majority shareholding to be held by single Indian
shareholder have been removed.
Even though private sector industry was allowed to enter in
defence manufacturing since 2001, after obtaining industrial
licence under IDR Act, the process of obtaining industrial
licence was very cumbersome and used to act as a major road
block for the industry, particularly small and medium
industry, who were in the business of making part,
components, sub systems and sub-assemblies.
The Government liberalized the licensing policy and
now most of the components, parts, raw materials,
testing equipments, production machinery, castings,
forgings etc. have been taken out from the purview
of licensing. The companies desirous of
manufacturing such items no longer require
industrial licence and will also not be subjected
to FDI ceiling of 49%. A comprehensive Security
Manual indicating the security architecture to be
followed by various class of industries has been
put in public domain, so that companies could
easily access the same and follow it accordingly.
The initial validity of industrial licence has been
increased from two to three years.
For the first time, a Defence Export Strategy has been
formulated and has been put in public domain. The strategy
outlines specific initiatives to be taken by the Government
for encouraging the export of defence items. It is aimed at
making the domestic industry more sustainable in the long run
as the industry cannot sustain purely on domestic demand.
A Standard Operating Procedure (SOP) for issue of NOC for
export of military stores has been finalised and has also
been put in the public domain. Requirement of End User
Certificate (EUC) to be signed and stamped by Government
authorities has been dispensed with for most of the defence
items, particularly parts, components, sub-systems and
sub-assemblies. This will largely ease out the export by the
domestic industry. A web-based online system to receive
applications for NOC for export of military stores has been
developed and has been put in place.
There is a big opportunity in the defence sector
for both domestic and foreign investors. We have
the third largest armed force in the world with an
annual budget of about US$ 38 billion and 40% of
this is used for capital acquisition. In the next
7-8 years, we would be investing more than US$ 130
billion in modernization of our armed forces and
with the present policy of MAKE IN INDIA, the onus
is now on the industry to make best use of this
opportunity for the benefit of both the business as
well as the nation. Besides, under offset more
than Rs.25000 crore obligations are to be
discharged in next 7-8 years.
While on the one hand, Government is making necessary policy
changes with regard to procurement, investment including FDI,
licensing, export etc., the industry also needs to come up
and accept the challenge of up-gradation in terms of
technology and required investments. Defence is the sector
which requires huge investments and technology and is driven
by innovation. The industry, therefore, has also to change
its mindset and think for long term rather than temporary
gains. We need to focus more on Research and Development and
state of the art manufacturing capabilities. The Government
is fully committed to create an eco-system for the domestic
industry to rise and to provide a level-playing field to all
sectors of industry, both public and private.
* Manohar Parrikar is the Union Minister for Defence (Raksha
Mantri) Government of India. manoharparri...@yahoo.co.in
* Source: PIB Features.
