Boost for Indigenous Production of Defence Equipment: Overview

Boost for Indigenous Production of Defence Equipment: Overview

Question: Indigenous manufacturing capabilities of defence equipment in the nation have recently experienced a boost. Discuss.

- Capital procurement of defence weapons and equipment for the Indian Army is guided by Defence Procurement Procedure 2013 where preference is accorded to Buy Indian, Buy and Make Indian and the Make categorisation is given priority over Buy as well as Buy and Make Global

- This gives priority to indigenous weapons and equipment

- FDI policy in the defence sector has also been reviewed and as per the revised policy, composite foreign investment equalling 49% is approved through the Government route/FIPB and over 49% with the Cabinet Committee on Security’s approval on a case to case basis

- This will result on access to modern and state of the art indigenous technology in the nation

- Single largest shareholder will hold a minimum of 51% equity and complete restriction on FII existing in the earlier policy has been removed to ensure progress in this sector

- Promotion of the participation of private sector, especially SMEs for defence manufacturing, outsourcing and vendor development guidelines for defence PSUs and Ordinance Factory Board have also been formulated

- Guidelines hold that each defence PSU and OFB will have short and long term outsourcing and vendor development to increase outsourcing from private sector including SMEs

- Guidelines also include vendor development for the substitution of import

- To ensure a level playing field between Indian private and public sector, issues in excise duty/custom duty have been eliminated

- As per the revised policy, uniform custom and excise duties will be levied on public as well as private sector

- Defence Products List for the means of issuing ILs/Industrial Licenses as per the IDR Act has been revised and many components, sub-systems, testing equipment, parts, production equipment and more eliminated from the list to reduce entry barriers for the industry especially SMBs

- Initial validity of the Industrial License granted as per the IDR Act has risen from 3 to 7 years with a provision for extension by a duration of 3 years on a case to case basis

Facts and Stats

- Defence opportunities to the tune of INR 250 billion are available within the next 7 to 8 years

- Offset policy introduced the capital purchase agreements with global players

- It stipulates the mandatory offset requirement of at least 30% for procurement of defence equipment of more than INR 3 billion

- Under the Make in India campaign, provision of INR 2290 billion has been allocated for defence services

- Capital outlay for defence rose by INR 50 billion; this also comprises INR 10 billion for developing rail lines in border areas

- INR 1 billion has been established for the Technology Development Fund for defence

- INR 22.5 billion has been provided for modernising and strengthening the border infrastructure