Efforts to encourage domestic manufacturing in the defense sector

• The Government has taken several policy initiatives and brought reforms to promote self-reliance in defence manufacturing.
• These policy initiatives are aimed at encouraging indigenous design, development and manufacture of defence equipment in the country, thereby reducing dependency on imports in long run.
• During the last five financial years and current financial year 2021-22, 264 contracts have been signed.
• Approximately 60% of the total contracts have been signed with local vendors.

Important policy initiatives and reforms:

• Defence Procurement Procedure 2016 has been revised as Defence Acquisition Procedure (DAP) - 2020, which is driven by the tenets of Defence Reforms announced as part of ‘Aatmanirbhar Bharat Abhiyan’.
• In order to promote indigenous design and development of defence equipment ‘Buy Indian-IDDM (Indigenously Designed, Developed and Manufactured)’ category has been accorded topmost priority for procurement of capital equipment.
• Ministry of Defence has notified two ‘Positive indigenisation lists’ of 209 items for which there would be an embargo on the import beyond the timeline indicated against them.
• This would help to the Indian defence industry to manufacture listed items using their own design and development capabilities to meet the requirements of the Indian Armed Forces.
• The ‘Make’ Procedure of capital procurement has been simplified. There is a provision for funding upto 70% of development cost by the Government to Indian industry under Make-I category.
• In addition, there are specific reservations for MSMEs under the ‘Make’ procedure.
• Procedure for ‘Make-II’ category (Industry funded), introduced in DPP-2016 to encourage indigenous development and manufacture of defence equipment has number of industry friendly provisions such as relaxation of eligibility criterion, minimal documentation, provision for considering proposals suggested by industry/ individual etc.
• The Government has approved enhanced delegation of Financial Powers under Capital Procurement to levels below Vice-Chief of Armed Forces in February, 2021.
• The Government has also approved enhanced delegation of Financial Powers in the Make-I category under which Government funding up to 70% of the prototype development cost is available for Design & Development of equipment, systems, major platforms or upgrades thereof.
• The Government of India has enhanced FDI in Defence Sector up to 74% through the Automatic Route and up to 100% by Government Route wherever it is likely to result in access to modern technology or for other reasons to be recorded.
• An innovation ecosystem for Defence titled Innovations for Defence Excellence (iDEX) has been launched in April, 2018.
• iDEX is aimed at creation of an ecosystem to foster innovation and technology development in Defence and Aerospace by engaging Industries including MSMEs, Start-ups, Individual Innovators, R&D institutes and Academia and provide them grants/funding and other support to carry out R&D which has potential for future adoption for Indian defence and aerospace needs.
• An indigenization portal namely SRIJAN has been launched in August, 2020 for DPSUs/OFB/Services with an industry interface to provide development support to MSMEs/Startups/Industry for import substitution.
• Reforms in Offset policy have been included in DAP-2020, with thrust on attracting investment and Transfer of Technology for Defence manufacturing, by assigning higher multipliers to them.
• Government has notified the ‘Strategic Partnership (SP)’ Model in May 2017, which envisages establishment of long-term strategic partnerships with Indian entities through a transparent and competitive process, wherein they may tie up with global Original Equipment Manufacturers (OEMs) to seek technology transfers to set up domestic manufacturing infrastructure and supply chains.
• 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 sub-assemblies for defence equipment and platform manufactured in India.
• The government has established two Defence Industrial Corridors, one each in Uttar Pradesh and Tamil Nadu.
• An Inter-Governmental Agreement (IGA) on “Mutual Cooperation in Joint Manufacturing of Spares, Components, Aggregates and other material related to Russian/Soviet Origin Arms and Defence Equipment” was signed in September 2019.
• Defence Investor Cell (DIC) has been created in Feb-2018 in the Ministry to provide all necessary information including addressing queries related to investment opportunities, procedures and regulatory requirements for investment in the sector.
• The ‘First Positive Indigenisation list (erstwhile Negative list)’ of 101 items was notified on 21 August, 2020 and the ‘2nd Positive Indigenisation list’ of 108 items was notified on 31 May, 2021 by the Government.
• The aim of the Positive Indigenisation list is to give boost to indigenous manufacturing, development of Intellectual Property besides acquiring ‘know-how’ of advanced technologies.