On 24 July 2015, Minister of State for Defence, Rao Inderjit Singh, in a written reply to a question in the Lok Sabha, elaborated on steps initiated by the government towards achieving self reliance and building a strong defence industrial base.
The Defence Production Policy promulgated in 2011, aims at achieving substantive self-reliance in the design, development and production of equipment, weapon systems, platforms required for defence in as early a time frame as possible, creating conditions conducive for the private industry to take an active role in this endeavour, enhancing potential of SMEs in indigenisation and broadening India’s defence R&D.
Aspiring to achieve substantial selfreliance in defence production, the government has taken several initiatives to promote participation of domestic defence industries in Defence Production and Procurement. These includepreference to ‘Buy (Indian)’ and ‘Buy & Make (Indian)’ categories of acquisition over ‘Buy (Global)’, liberalisation of FDI and industrial licensing policy, level playing field in respect of customs/ excise duties between private sector and the public sector, etc.The policy of achieving selfreliance in defence production is pursued through various policy initiatives as mentioned and no specificfund allocation for the purpose has been made.However, the government, in the Union Budget 2014-15 has announced setting up ofa Technology Development Fund with an initial sum of Rs 100crore for providing financial support to Indian industry, including SMEs as well as academic, scientific and research &development (R&D) institutions for development of defence equipment/ systems that enhance cutting edge technology in the country.
On capital procurement of defence equipment/ weapons for the Indian Army, Mr. Singh stated that it is guided by provisions of Defence Procurement Procedure-2013, wherein preference is accorded to ‘Buy (Indian)’, ‘Buy and Make (Indian)’ and ‘Make’ categorisation over ‘Buy (Global)’ and ‘Buy and Make (Global)’ categorisation, thereby giving priority to indigenous weapons/ equipment. The government has taken following major steps to promote indigenous manufacturing capabilities of defence equipment in the country:
• FDI policy in defence sector has been reviewed and as per the revised policy, composite foreign investment upto 49 percent is allowed through government route (FIPB) and beyond 49 percent, with the approval of Cabinet Committee on Security (CCS) on caseto- case basis, wherever it is likely to result in access to modern and state-ofthe- art technology in the country. Besides, the restrictions such as single largest Indian shareholder to hold at least 51 percent equity and complete restriction on Foreign Institutional Investor (FII) existing in the earlier policy have also been removed to facilitate investments in the sector.
• To promote the participation of private sector, particularly SMEs for defence manufacturing, outsourcing and vendor development guidelines for DPSUs and Ordnance Factory Board (OFB) have been formulated. The guidelines mandate that each DPSU and OFB to have a short-term and longterm outsourcing and vendor development plan to ‘gradually, increase the outsourcing from private sector including SMEs. The guidelines also include vendor development for import substitution.
• To establish a level-playing field between Indian private sector and the public sector, the anomalies in excise duty/ custom duty have been removed. As per the revised policy, uniform custom and excise duties shall be levied on all companies in the public and private sector.
• The Defence Products List for the purpose of issuing industrial licences (ILs) under IDR Act has been revised and most of the components, parts, sub-systems, testing equipment, production equipment have been removed from the list, so as to reduce the entry barriers for the industry, particularly small and medium segment.
• The initial validity of the industrial licence granted under the IDR Act has been increased from three years to seven years with a provision to further extend it by three years on a case-tocase basis.
• Partial commencement of production is treated as commencement of production of all the items included in the license. • The ‘Security Manual for Licensed Defence Industry’ has been issued. With the issue of the manual, the requirement of affidavit from the applicants has been done away with.
• Restriction of annual capacity in the industrial license for defence sector has been removed.
• Licensee has been allowed to sell the defence items to the Government entities under the control of MHA, PSUs, state governments and other defence licensee companies without approval of Department of Defence Production. • Application forms for industrial license andindustrial entrepreneur memorandum have been simplified.
• The advanced version of NIC Code (NIC 2008) has been adopted, which is a highly contemporary industrial classification.
• The Standard Operating Procedure (SOP) for the issue of No Objection Certificate (NOC) for export of military stores has been revised and put on the website. Under the revised SOP, the requirement of End User Certificate (EUC) to be countersigned/ stamped by the government authorities has been done away with for the export of parts, components, sub-systems etc.
• The list of military stores has been finalised and has been put in the public domain to make the process transparent and unambiguous. The process of receiving applications for NOC for export of military stores and for issuing NOC has been made online to reduce the delay and to remove human interface in the process.
• Recognising the need for promotion of defence exports to make the Indian defence industry economically sustainable, Defence Exports Strategy outlining the various steps to be taken, has been formulated and is put up in public domain.
• Preference to ‘Buy (Indian)’, ‘Buy & Make (Indian)’ &‘Make’ categories of acquisition over ‘Buy (Global)’ category, thereby giving preference to Indian industry in procurement. The feedback from the three services since the takeover by the present government is generally positive. Files lying in proverbially the ‘LBW’ (let the blighter wait) tray have begun moving. And the Defence Minister is far more approachable. Here’s hoping for the best.