Wednesday 27 May 2020, 05:19 AM
An Analysis of ‘Make in India Initiative’ in Defence
By Dr. Laxman Kumar Behera | Bharat Defence Kavach | Publish Date: 3/2/2020 2:26:38 PM
An Analysis of ‘Make in India Initiative’ in Defence

Since the launch of ‘Make in India’ programme by the Prime Minister Narendra Modiin September 2014, a host of measures have been taken to promote indigenous design, development and manufacture of defence equipment. In the following are mentioned some key measures taken to make the country self-reliant in defence production and, at the same time,reduce dependence on arms import.

Liberalisation of Industrial LicencingRegime

Soon after the announcement of the Make in India initiative, the government started liberalising the industrial licensing regime for Indian manufacturers in Defence sector. The liberalisation has reduced entry barriers for new entrants into Defence production, particularly the Micro, Small and Medium Enterprises (MSMEs). The success of the liberalization can be seen from the number of industrial license issued to the industry. The total number of Defence licenses issued has more than doubled from 215 as on March 31, 2014 to 452 till October 2019. These licenses have been issued to around 275 Companies, of which over 70 companies have reported commencement of production.

Increase in FDI Cap

Along with the liberalisation of industrial licensing regime, the government has also liberalised the FDI regime in defence sector. Compared to 26 per cent FDI limit under the earlier regime, the revised policy allows foreign equity investment up to 49 per cent through automatic route and above 49 per cent under Government route. Post liberalisation, significant FDI inflows in Defence and Aerospace sectors have been witnessed. Till now, defence and aerospace sector has received inflows of over Rs 3134 crores. Of this, inflows of Rs 1,812 crore havereceived after 2014.

Defence Exports

Defence exports, which was a neglected subject earlier, has finally received the much needed attention under the Make in India regime. To facilitate exports, the MoD has not only articulated a set of standard operating procedures (SOP) for granting of No Objection Certificate (NOC), but has further simplified it to make in Industry-friendly. The Simplification of procedures has resulted in export of Rs 10,745 crore in 2018-19, a seven-fold increase in comparison to 2016-17. The export target for 2019-20 is Rs 15,000 crore and by mid-January 2020, Rs 6,270 worth of export clearance has been given to the industry (see Table) To further promote defence exports, the Defence Public Sector Undertakings (DPSUs), the main pillars of India’s defence production, have been encouraged to increase their export portfolio to 25 per cent of their turnover.

Table 1.Defence Exports

DPP-2016

DPP-2016 is the first DPP articulated after the Make in India initiative was launched by the Prime Minister Narendra Modi. To align the procurement procedures with the larger objectives of the Make in India, the DPP has bring out a host of measures, including a brand new procurement category, Buy (Indian-IDDM), and a revised and industry-friendly Make procedures (see article on Defence Procurement Procedures)

Apart from the procedural improvements, the DPP has also enhanced the indigenous content (IC) bar for the local industry and defined the Indian defence industry in clear terms.In line with the Make in India’s larger initiative to enhance India’s manufacturing base, the minimum IC content, which was earlier stipulated at 30 per cent in tenders meant for local industry, has been enhanced to 40 per cent. This will deepen indigenous arms production and reduce dependence on external sources for parts, components, raw materials and sub-system. The definition of Indian industry is meant to provide clarity as who is eligible for participate in arm contracts.

Innovation for Defence Excellence (iDEX)

In April 2018, the PM launched the iDEX, a scheme for creating an ecosystem to foster innovation and technology development in Defence and Aerospace. The scheme allows participation of industries including MSMEs, Start-ups, Individual Innovators, R&D institutes and Academia and provides them grants/ funding and other support to carry out R&D.Till now, more than 600 applicants, comprising of Start-ups& MSMEs, have participated in response to ‘Defence India Start-up Challenge’ and 44 winners have been selected for developing various products and technologies for the Indian armed forces.

Promotion of MSMEs in Defence Production

A number of schemes have been formulated to facilitate greater participation of MSMEs in defence production. In Make-I category,projects with development costnot exceeding Rs 10 crore are reserved for MSMEs; whereas under Make-II, projects not exceeding development cost of Rs 3 crore are reserved for them. iDEX, as mentioned earlier, also aims at supporting MSMEs and provide them grants/ funding and other support to carry out R&D.

There arenearly 8,000 MSMEs which are engaged in supplying various items to OFB and Defence PSUs. The government has taken various initiative to address issues of timely payments. This include implementation of Trade Receivables electronic Discounting System(TReDS) in DPSUs. Regular interactions are taking place to settle the grievance of vendors at OFB. Defence Investor Cell has beenopened in the Department of Defence (DDP) to address the issues being faced by vendors especiallyMSME vendor. Non-Core items of OFB have been uploaded on Government e-Marketplace (GeM)platform which would enable MSMEs to supply these items to Armed Forces which were hitherto reserved for Ordnance Factories.

Defence Industrial Corridors

The Finance Minister in his Budget Speech on February 1, 2018 announced setting up of two Defence Corridors in the Country. Post FM’s budget announcement, the MoD has launched one such corridor in Uttar Pradesh (UP) and the other one in Tamil Nadu (TN). While the UP corridor joins six nodal points, the one in TN connects five nodal points as mentioned below:

·               Uttar Pradesh: Agra, Aligarh, Chitrakoot, Jhansi, Kanpur and Lucknow

·               Tamil Nadu: Chennai, Coimbatore, Hosur, Salem, and Tiruchirappalli

 

These corridors, set up in collaboration with the state government, intends to provide state-of-the-art infrastructure and facilities for setting up defence production facilities. Development of these corridors will not only help in achievement of accelerated development and regional industry agglomeration, but will also facilitate a well-planned and efficient industrial base which will lead to increased defence production in the country and the region.Till December 2019, an investment of Rs 6,875 crore (Rs 3732 crore in Uttar Pradesh Corridor and Rs 3143 crore in Tamil Nadu Corridor) has been promised by both government and private companies(see Tables).

Table 2. Investments Announced in Uttar Pradesh Defence Corridor (as on 31/12/2019)

 

Table 3. Investments Announced in Tamil Nadu Defence Corridor (as on 31/12/2019)

Opening of Testing Facilities for use by the Private Sector

Over the years, the government has set up expensive test and trial facilities under the control of various public sector entities such as Ordnance Factory Board (OFB), DefencePublic Sector Undertakings (DPSUs), Defence Research and DevelopmentOrganisation (DRDO) andDirectorate General of Quality Assurance (DGQA). These facilities were however not available for use by the private sector companies some of which were forced to go abroad to certify their products, leading to wastage of both time and resources. In order to overcome the difficulties faced by the private sector, the government has opened all test and trial facilities available within the MoD-own entitiesfor use by the private sector. This wold go a long way in assisting the private sector in their efforts to design &development of defence systems. The details of test facilities, procedure and other Terms & conditions are available on websites of respective Government Agencies. An ‘SoP for allocation & utilisation of Proof ranges/Field firing Ranges for Private Industry’ has also been notified.

Mission Raksha Gyan Shakti

In a move to to promote greater culture of innovation and technology development in Defence PSUs and OFB, the MoD launched the Mission Raksha Gyan Shakti in November 2018. As part of the Mission, numerous programmes have been launched to train the employees of the DPSU and OFB and encourage them to file greater number of patents for new technologies/process innovations made by them. In 2018-19, a total 12,088 personnel of DPSUs & OFB have been trained. During the same year 730 IPR applications have been filed by these entities (see Table 4), with the target for 2019-20 being set at 1000. It is to be noted that for some DPSUs and OFB filed their first ever patents as part of this process despite decades of their existence.

Table 4.OFB & DPSU Wise IPRs Filed

Year

OFB

BEL

GRSE

GSL

MDL

BEML

MIDHANI

BDL

HAL

HSL

Total

2016-17

1

20

1

--

--

--

--

--

151

--

174

2017-18

0

25

0

--

--

--

--

--

123

--

148

2018-19

154

302

5

6

57

65

50

4

82

5

730

2019-20 (As on 31/12/2019)

81

10

15

17

12

11

0

31

167

10

354

Indigenisation policy for DPSUs

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 subassemblies for Defence equipment and platform manufactured in India.

Defence Offsets

Offset implementation process has been made flexible by allowing change of Indian Offset Partners (IOPs) and offset components, even in signed contracts. Foreign Original Equipment Manufacturers (OEMs) are now not required to indicate the details of IOPs and products at the time of signing of contracts. Services as an avenue of offset have been re-instated with certain conditionalities. As a result of efforts take, offset compliance has improved significantly. As on 01st Dec, 2019, the total obligation is US $3.59 billion. Out of this, claims for US $ 2.83 billion have been received.

Level-Playing Field

In order to create level playing field between public sector and private sector, Exchange Rate Variation protection has been made applicable for Indian private sector at par with Public Sector Undertakings for all categories of capital acquisitions’.

{The author is Research Fellow at New Delhi-based Institute for Defence Studies and Analyses (IDSA)}

Dr. Laxman Kumar Behera

 

Tags:

Analysis,‘Make,India,Initiative’,Defence

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