Transforming India’s Import Dependent Defence Sectorinto Self-reliant
Sunil Kumar Gupta, celebrated expert in the fields commerce, investment development and project implementation, emphasises on the need to develop R&D facilities in India, as means of becoming a future global armaments hub. He envisions a more self-reliant and efficient nation in terms of defence, which could potentially decrease the import burden of arms on the Indian government.
The production of defence equipment has always been under the purview of the government. India has kept defence production in the public sector since its first industrial policy, outlined in the Industry Policy Resolution of 1948. The Industries (Development & Regulation) Act 1951 gave statutory base to that policy. India is among the world’s top countries in terms of defence expenditure, including import of defence hardware. In fact, India currently procures approximately 70% of its equipment needs from abroad, but the Government’s aim is to reverse this balance and manufacture 70% or more of its defence equipment needs in India. This will provide immense opportunities for both domestic and foreign player in the defence sector. The ‘Make in India’ initiative by the Government is focusing its efforts on increasing indigenous defence manufacturing and becoming self-reliant. The opening up of the defence sector for private sector participation is helping foreign original equipment manufacturers (OEMs) enter into strategic partnerships with Indian companies and leverage opportunities in the domestic market as well as global markets.
India’s focus on indigenous manufacturing in the defence space is paying off as the Ministry of Defence over the last two years unveiled several products manufactured in India like the HAL Tejas Light Combat Aircraft, the composites Sonar dome, a Portable Telemedicine System (PDF) for Armed Forces, Penetration-cum-Blast (PCB) and Thermobaric (TB) ammunition specifically designed for Arjun tanks, a heavyweight torpedo called Varunastra manufactured with 95% locally sourced parts and medium range surface to air missiles (MSRAM).
The Defence Acquisition Council (DAC) under Ministry of Defence, cleared defence deals worth more than INR 82,000 crore under ‘Buy and Make (Indian)’ and ‘Buy Indian’ category. The deals include the procurement of Light Combat Aircraft (LCA), T-90 Tanks, Mini-Unmanned Aerial Vehicles (UAV) & light combat helicopters.
3rd largest armed forces in the world.
31.5% of budget spent on capital acquisitions.
60% of requirements met by imports.
INR 250 billion to be invested in 7-8 years.
India is one of the largest importers of conventional defence
equipment. The allocation for defence in the last budget was approximate INR 2467.27 billion.
The allocation for Defence in the Union Budget 2016-17 is approximate USD 34.53 billion.Sector Policy Procurement Policy
The defence procurement is governed by the Defence Procurement Procedure (DPP).Offset Policy
The key objectives of the defence offset policy are to leverage capital acquisitions to develop the Indian defence industry. Mandatory offset requirements of a minimum of 30% for procurement of defence equipment in excess of INR 3 billion have been envisaged. Guidelines for Establishing Joint Venture (JV) Companies by Defence PSUS
A well laid-out policy for formulation of joint venture between
defence PSUs and private sector, keeping in view the objective of Defence Production Policy. Procedures for the Grant of Industrial Licenses Have Been Streamlined
The initial validity period of industrial licenses has been increased to 3 years from the present 2 years.
Partial commencement of production is treated as commencement of production of all the items included in the license. Reasons to Invest
India’s current requirements on defence are catered largely by imports. The opening of the strategic defence sector for private sector participation will help foreign original equipment anufacturers to enter into strategic partnerships with Indian companies and leverage the domestic markets and also aim at global business. Besides helping build domestic capabilities, this will bolster exports in the long term.
Opportunities to avail defence offset obligations to the tune of approximately INR 250 billion during the next 7-8 years.
The government policy of promoting self-reliance, indigenization, technology upgradation and achieving economies of scale and developing capabilities for exports in the defence sector.
The country’s extensive modernization plans, an increased focus on homeland security and India’s growing attractiveness as a defence sourcing hub.
High government allocation for defence expenditure. Growth Drivers
Defence Production Policy 2011 to encourage indigenous manufacture of defence equipment. Defence Procurement Procedure (DPP) has been amended in 2016 to provide for the following :
i. Preference to ‘Buy (Indian)’ and ‘Buy and Make (Indian)’ over ‘Buy (Global)’.
ii. Simplification of the procedure for ‘Buy and Make (Indian)’.
iii. Clear and unambiguous definition of indigenous content.
iv. Provision for maintenance to Indian industry partners.
Defence products list for industrial licensing has been articulated in June 2014, wherein large numbers of parts/components, castings/forgings, etc., have been excluded from the purview of industrial licensing. The same is available at the DIPP’s website – www.dipp.gov.in.
The MAKE procedure, which aims to promote R&D in the industry with support from the government and the placement of orders (if R&D effort is successful), is also being revised to make it more attractive and unambiguous for the private sector. Government Incentives Key Provisions
Provision of INR 2,46,727 crores for defence services.
Capital outlay for defence in last year was INR 94,588 crores. Out of this INR 77,704 crores has been allocated for capital acquisition of the Defence Service.
INR 17,181 crores provided under “Other than Capital Acquisition” segment for capital expenditure of Defence R&D Organization (DRDO), Ordnance Factory Board, Inspection rganization and other agencies and Capital Works projects of the services. Tax Incentives
R&D incentives – Industry/private-sponsored research programmes.
A weighted deduction of 200% is granted to assesses for any sums paid to a national laboratory,university or institute of technology, or specified persons with a specific direction that the said sum would be used for scientific research within a programme approved by the prescribed authority.
For companies engaged in the manufacture of an in-house R&D centre, a weighted tax deduction of 200% under Section 35 (2AB) of the Income Tax Act for both capital and revenue expenditure
incurred on scientific research and development. Expenditures on land and buildings are not eligible for deduction.State Incentives
Apart from the above, each state in India offers additional incentives for industrial projects. Incentives are in areas like subsidised land cost, relaxation in stamp duty exemption on sale/lease of land, power tariff incentives, concessional rates of interest on loans,
investment subsidies/tax incentives, backward areas subsidies and special incentive packages for mega projects.Export Incentives
Export promotion capital goods scheme.
Duty remission scheme.
Focus product scheme, special focus product scheme, focus market scheme.
Incentives as per ‘merchandise Exports from India Scheme (MEIS)’under new Foreign Trade Policy.Area-Based Incentives
Incentives for units in SEZ/NIMZ as specified in respective Acts or for the setting up of projects inspecial areas such as the North-east, Jammu & Kashmir, Himachal Pradesh and Uttarakhand.Governing Authority
Ministry of Defence, Government of India (www.mod.nic.in)
Department of Defence Production, Ministry of Defence (www.ddpmod.gov.in)
Department of Industrial Policy and Promotion, Ministry of Commerce & Industry, Government of India (www.dipp.gov.in)
Department of Commerce, Ministry of Commerce & Industry, Government of India(www.commerce.gov.in)
Defence and Strategic Industries Association of India (www.disa-india.org)
The defence sector thus has great scope for investment and development. Sunil Kumar Gupta hasfurther elaborated on these very dimensions, by providing more information on schemes andincentives, in his book “Make in India.” You can find out more by reading his engaging and informative blogs, or checking out his website www.sunilkumargupta.com.