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Indigenisation of Defence{1/2}

▪️About:

◆Indigenisation is the capability of developing and producing any defence equipment within the country for the dual purpose of achieving self reliance and reducing the burden of imports.

◆Self-reliance in defence manufacturing is one of the key objectives of Department of Defence Production.

◆Defence Research Development Organisation (DRDO), Defence Public Sector Undertakings (DPSUs) and private organisations are playing a critical role in indigenisation of defence industries.

◆India is among the world’s largest arms importers, and the armed forces are expected to spend about USD 130 billion on defence purchases over the next five years.

▪️ Background:

●Overdependence on the Soviet Union brought about a change in India’s approach to defence industrialisation.

●From the mid-1980s, the government pumped resources into R&D (Research and Development) to enable the DRDO to undertake high profile projects.

●A significant beginning in defence indigenisation was made in 1983, when the government sanctioned the Integrated Guided Missile Development Programme (IGMDP) to develop 5 missile systems (Prithvi, Agni, Trishul, Akash, Nag).

●The indigenous efforts were not adequate to meet the requirements of the armed forces, this resulted in the shift of focus towards co-development and co-production in partnership with foreign companies.

●A beginning was made in 1998, when India and Russia signed an inter-governmental agreement to jointly produce Brahmos supersonic cruise missile.

▪️Need:

❗️Reducing Fiscal Deficit:

◆India is the second largest arms importer in the world (after Saudi Arabia).

◆Higher import dependency leads to an increase in the fiscal deficit.

◆Despite having the fifth largest defence budget in the world, India procures 60% of its weapon systems from foreign markets

❗️Security perspective:

●Indigenisation in defence is critical to national security also. It keeps intact the technological expertise and encourages spin-off technologies and innovation that often stem from it.

●Indigenisation is needed in order to avert the threats associated with the frequent ceasefire violations like that of the Uri, Pathankot and Pulwama attacks..

❗️Employment Generation:

●It will lead to the generation of satellite industries that in turn will pave the way for generation of employment opportunities.

●As per government estimates, a reduction in 20-25% in defence related imports could directly create an additional 100,000 to 120,000 highly skilled jobs in India.

❗️Strategic Capability:

A self sufficient and self reliant defence industry will place India among the top global powers.

❗️Notion of Patriotism:

Nationalism and Patriotism can increase with indegenious production of defence equipment, that in turn will not only boost the trust and confidence of the Indian forces but will also strengthen a sense of integrity and sovereignty in them.

❗️Challenges:

◆Lack of an institutional capacity and capability to take different policies aimed at indigenisation of defence to its logical conclusion.

◆Infrastructural deficit increases India's logistics costs thus reducing the country's cost competitiveness and efficiency.

◆Land acquisition issues restrict entry of new players in the defence manufacturing and production.

◆Policy dilemma offset requirements under the DPP (Defence Procurement Policy, now replaced with DAP 2020) didn't help achieve its goal. (Offsets are a portion of a contracted price with a foreign supplier that must be re-invested in the Indian defence sector, or against which the government can purchase technology).

◆Only government-to-government agreements (G2G), ab initio single vendor contracts or inter-governmental agreements (IGA) will not have offset clauses anymore.

◆According to DAP 2020, all other international deals that are competitive, and have multiple vendors vying for it, will continue to have a 30% offset clause.

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Indigenisation of Defence {2/2}

✔️Related Initiatives:

▪️Increased the FDI limit:

●In May 2020, the foreign direct investment (FDI) limit under the automatic route in the defence sector was hiked from 49% to 74%.

▪️Corporatization of the Ordnance Factory Boards:

●In October 2021, the government dissolved the four-decade-old Ordnance Factory Board (OFB) and amalgamated 41 factories under seven new state-owned companies to manufacture defence hardware ranging from munitions to heavy weapons and vehicles.

✔️Defence India Startup Challenge

●DISC aims at supporting Startups/MSMEs/Innovators to create prototypes and/or commercialize products/solutions in the area of National Defence and Security.

●It has been launched by the Ministry of Defence in partnership with Atal Innovation Mission.

✔️SRIJAN Portal:

●It is a one stop shop online portal that provides access to the vendors to take up items for indigenization.

✔️E-Biz Portal:

Process of applying for Industrial License (IL) and Industrial Entrepreneur Memorandum (IEM) has been made completely online on ebiz portal.

❓Way Forward

●A Permanent Arbitration Cell can be set up to deal with all objections and disputes.

●Private Sector boost is necessary as it can infuse efficient and effective technology and human capital required for modernisation of indegenious defence industry.

●Software Industry and technologies like Artificial intelligence and cyber security should be used to develop and manufacture the “chip” indigenously.

●Providing Financial and Administrative autonomy to DRDO in order to enhance its confidence and authority.

●The staff at the Department of Defence Production need to be trained and given longer tenures to ensure continuity.

●In⎯house design capability should be improved amongst the three services, the Navy has progressed well on the path of indigenisation primarily because of the in⎯house design capability, the Naval Design Bureau.

●Robust supply chain is critical for a defence manufacturer looking to optimize costs.

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PRIVATE PLAYERS IN DEFENCE MANUFACTURING SECTOR

◆The Defence Industry sector, which was hitherto reserved for the public sector, was opened up to 100% for Indian private sector participation in May, 2001. As on date, 333 Private companies have been issued a total of 539 Industrial Licenses. Out of these, 110 companies have reported commencement of production.

◆Further, following measures have been taken by the Government to promote private sector participation in Defence sector –

◆Out of the total Capital Acquisition Budget for the year 2021-22, 64.09% has been earmarked for domestic capital procurement.

◆Defence capital outlay has been increased by 18.75 % in the budget of 2021 – 22.

◆DPP-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 top most priority for procurement of capital equipment.

◆Positive indigenisation list: Ministry of Defence has notified a ‘Positive indigenisation list’ of 209 items for which there would be an embargo on the import beyond the timeline indicated against them. This would offer a great opportunity to the Indian defence industry to manufacture these items using their own design and development capabilities to meet the requirements of the Armed Forces in the coming years.

◆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. So far, 58 projects relating to Army, Navy & Air Force, have been accorded ‘Approval in Principle’.

◆The Government of India has enhanced FDI in Defence Sector up to 74% through the Automatic Route for companies seeking new defence industrial license 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.

◆To give a major boost to development of innovative defence technology and support a growing Startup base in the country, MoD has earmarked Rs 1000 crore during 2021 – 22 for the procurement from the iDEX Startups.

◆Department of Defence Production, Ministry of Defence has also approved a scheme for Innovation in Defence Excellence (iDEX) during current year worth Rs 498 crore for 5 years. The scheme aims to benefit 300 new Startups for innovative design and development in defence sector.

◆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.

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Contd...........

◆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 would 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.

◆Government has established two Defence Industrial Corridors, one each in Uttar Pradesh and Tamil Nadu. The investments of Rs 20,000 Cr have been envisaged in Defence corridors of Uttar Pradesh and Tamil Nadu by the year 2024. So far, investment of approx. Rs 3342 Cr has been made in both the corridors by public as well private sector companies.

◆Moreover, the respective State Governments have also announced their Aerospace &Defence Policies to attract private players as well as foreign companies including Original Equipment Manufacturers (OEMs) in these two corridors.

◆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 Sep 2019. The objective of the IGA is to enhance the After Sales Support and operational availability of Russian origin equipment currently in service in Indian Armed Forces by organizing production of spares and components in the territory of India by Indian Industry by way of creation of Joint Ventures/Partnership with Russian Original Equipment Manufacturers (OEMs) under the framework of the “Make in India” initiative.

◆Defence Products list requiring Industrial Licenses has been rationalised and manufacture of most of parts or components does not require Industrial License. The initial validity of the Industrial License granted under the IDR Act has been increased from 03 years to 15 years with a provision to further extend it by 03 years on a case-to-case basis.

◆Department of Defence Production has notified 46 items under the latest Public Procurement Order 2017 notified by Department for Promotion of Industry and Internal Trade (DPIIT), for which there is sufficient local capacity and competition and procurement of these items shall be done from local suppliers only irrespective of the purchase value.

◆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. As on date, 1182 queries had been received and addressed by Defence Investor Cell.

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Boosting Indigenous Capabilities in Defence Production{1/2}

◆The Government has taken several policy initiatives and brought in reforms to promote indigenisation and self-reliance in defence manufacturing, under AatmaNirbhar Bharat Mission in the defence sector. Important policy initiatives are as under:-

✔️Ministry of Defence has notified a ‘First Positive Indigenisation list’ of 101 items on 21st August, 2020 and ‘2nd Positive Indigenisation list’ of 108 items on 31st May, 2021 for which there would be an embargo on the import beyond the timelines indicated against them. This is a big step to promote indigenisation in defence sector. This offers a great opportunity to the Indian defence industry to manufacture these items using their own design and development capabilities to meet the requirements of the Indian Armed Forces. These lists includes some high technology weapon systems like artillery guns, assault rifles, corvettes, sonar systems, transport aircrafts, light combat helicopters (LCHs), radars, wheeled armoured platform, rockets, bombs, armoured command post vehicle, armoured dozor and many other items to fulfill the needs of our Defence Services.

✔️SRIJAN portal to promote indigenisation was launched on 14 August, 2020. As on date, 10,929 items, which were earlier imported, have been displayed on the portal for indigenisation. The Indian industry has shown interest for 2,890 displayed items so far. DPSUs/OFB are interacting with these industries to facilitate indigenisation of the items as per extant procedures.

✔️1,776 components & spares have been indigenised in the year 2020-21 as a result of efforts of indigenisation by DPSUs, OFB & SHQs through their own process of indigenisation (In-house, Make-II & Other than Make-II).

✔️DPP-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 top most priority for procurement of capital equipment.

✔️The ‘Make’ Procedure of capital procurement has been simplified. There is a provision for funding up to 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. So far, 58 projects relating to Army, Navy & Air Force, have been accorded ‘Approval in Principle’.

✔️FDI: The Government of India has enhanced FDI in Defence Sector up to 74% through the Automatic Route for companies seeking new defence industrial license and up to 100% by Government Route.

✔️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, startups, 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.

✔️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.

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Boosting Indigenous Capabilities in Defence Production{2/2}

✔️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 would 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 indigenise the imported components (including alloys & special materials) and sub-assemblies for defence equipment and platform manufactured in India.

✔️Government has established two Defence Industrial Corridors, one each in the States of Uttar Pradesh and Tamil Nadu. The investments of Rs 20,000 crore are planned in Defence corridors of Uttar Pradesh and Tamil Nadu by year 2024. The progress is reviewed regularly at apex level. So far, investment of approx. Rs 3,342 crore have been made in both the corridors by public as well private sector companies. Moreover, the respective State Governments have also announced their Aerospace & Defence Policies to attract private players as well as foreign companies including Original Equipment Manufacturers (OEMs) in these two corridors.

✔️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. The objective of the IGA is to enhance the After Sales Support and operational availability of Russian origin equipment currently in service in Indian Armed Forces by organising production of spares and components in the territory of India by Indian Industry by way of creation of Joint Ventures/Partnership with Russian Original Equipment Manufacturers (OEMs) under the framework of the ‘Make in India’ initiative.

✔️Defence Products list requiring Industrial Licences has been rationalised and manufacture of most of parts or components does not require Industrial License. The initial validity of the Industrial Licence granted under the IDR Act has been increased from 03 years to 15 years with a provision to further extend it by 03 years on a case-to-case basis.

✔️Department of Defence Production has notified 46 items under the latest Public Procurement Order 2017 notified by Department for Promotion of Industry and Internal Trade (DPIIT), for which there is sufficient local capacity and competition and procurement of these items shall be done from local suppliers only irrespective of the purchase value.

✔️Defence Investor Cell (DIC) has been created in Feb-2018 the Ministry to provide all necessary information including addressing queries related to investment opportunities, procedures and regulatory requirements for investment in the sector. As on date, 1,176 queries had been received and addressed by Defence Investor Cell.

✔️Technology Development Fund (TDF) has been created under DRDO to promote self reliance in Defence Technology through participation of Public/Private industries especially MSMEs and startups.

✔️For the year 2021-22, the allocation for domestic procurement has been enhanced compared to previous years and is about 64.09% i.e. Rs 71438.36 crore of the allocated amount for military modernisation.

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Steps Taken To Enhance Capacity of Security Forces

◆The Government has taken several policy initiatives and reforms to promote indigenous design, development and manufacture of defence equipment in the country and enable development or transfer of technologies in the country. 

◆The salient steps undertaken to achieve self sufficiency in defence sector are as under:- 

i.Defence Procurement Procedure (DPP)-2016 has been revised as Defence Acquisition Procedure (DAP) -2020, which is driven by the tenets of Defence Reforms announced as part of ‘Atmanirbhar Bharat Abhiyan’. 

ii.Opened North & South Defence Industrial corridors to promote setting up of industries supporting defence equipment.

iii.Permitted acceptance of “Suo Moto” proposals from industry for undertaking indigenous design & development for items needed for defence services.

iv.Formulated the iDEX (Innovation in Defence Excellence) framework to provide an ecosystem for Startups/individual innovators/MSMEs to engage with Ministry of Defence/Academia and other such agencies for manufacture of defence related items.

v.Institutionalised the Technology Development Fund and its processes to facilitate the DRDO to engage with Indian industry for technology development needs.

vi.Army Design Bureau (ADB):  Indian Army (IA) launched the ADB on 31st August, 2016.  The role of the ADB is to act as a facilitator for research & development efforts and procurement of indigenously developed weapons and equipment extensive outreach programme for industry, MSMEs, Startups and Academia across the country for promoting ‘Make in India’.  The outreach programmes, apart from generating awareness about the modernization requirements, will help to meet the technology needs of the IA from within the confines of domestic resources and talent

vii.Army Technology Board (ATB):  The ATB enables indigenous Research and Development efforts in accordance with the operational needs of the IA. 

viii.Technology Development Fund (TDF):  TDF has been launched by the Government to giving impetus to research and development projects beyond the proof of concept stage.  It has been provided with a budget of Rs. 100 crores.

ix.The Indian Navy in coordination with Aeronautical Development Agency (ADA) is pursuing the indigenous development and acquisition of a Twin Engine Deck Base Fighter (TEDBF).

x.Ministry of Defence has notified a ‘First Positive Indigenisation List’ of 101 items for which there would be an embargo on the import beyond the timeline indicated against them. This is a big step towards self-reliance in defence. This would offer a great opportunity to the Indian defence industry to manufacture these items using their own design and development capabilities to meet the requirements of the Armed Forces in the coming years. 

◆Modernisation, upgradation and sustenance of military equipment and weapons is a continuous process and constant endeavour to equip the Armed Forces with modern weapon systems/ equipment being carried out under various procurement provisions (DAP & DPM).

◆Also in emergencies as in the prevailing situation, special procurement powers to enhance the operational capability are given to Service Headquarters. 

◆DRDO has played a major role in the development of state-of-the-art platforms, weapon systems and sensors and upgradation of defence equipment in the country which in turn has enhanced capacity of the Armed Forces to tackle the present security scenario of the country efficiently. 

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How to Modernize the Indian Armed Forces?{1/2}

✔️Introduction

◆Prime Minister of India addressed a webinar on the effective implementation of the Union Budget’s provisions in the defence sector.

◆The Prime minister listed a series of measures taken by the government to boost self-reliance in the defence sector and regret the fact that the country is amongst the biggest defence importers in the world.

◆PM urged the private sector to come forward and take up both the designing and manufacturing of defence equipment.

◆A total amount of Rs 4.78 lakh crore has been earmarked for the Ministry of Defence in the Budget, with a nearly 19% increase in capital outlay. A share of the budget has been reserved for domestic procurement.

✔️What is the Current Status of India’s defence sector?

●India is the second-largest importer in defence procurement in the world after Saudi Arabia.

●Airforce: India is gradually moving toward indigenisation in the defence sector, it is only now that India has got its own indigenous aircraft, Tejas.

●India is lagging behind in manufacturing its own engines, avionics and self-sufficient radars.

●Army: India has made a great breakthrough in terms of artillery guns but the technological edge required to modernise its equipment has not been touched yet.

●Navy: The Navy has very serious capability gaps; as per the Maritime Capability Perspective Plan by 2027, India ought to have about 200 ships but there is still a lot to cover to reach the target.

✔️How the modernisation of armed forces can be done?

◆Modernization of the defence Forces is a complex process, which includes cardinal changes in the material capacities in order to accomplish all the strategic objectives.

◆The Forces aim at increasing the qualitative levels through their transformation into a professional force, well-trained, equipped with contemporary systems of the technique and armament, modern and interoperable tools as well as capable of to accomplish the operation of a larger spectrum.

◆The Modernization of the Forces is focused on several important areas -

•Command and Control System.
•System of information, including the systems of the surveillance of the air and maritime space, as well as the security of the systems of other intelligence equipment.
•Systems and equipment for the protection of the troops.

✔️What are the Challenges Associated with the modernisation of armed forces?

◆The entire acquisition process of India is very slow and the time taken from planning to acquire defence equipment to actually executing the thought is a quite long procedure.

◆The public defence manufacturing sector has really not been able to deliver the way it was mandated to which is why the involvement of the private sector should be encouraged.

◆India lacks a proper industrial base for the manufacturing of defence equipment. However, two defence zones have been set up in Tamil Nadu and in Uttar Pradesh which will provide the private sector with a base to operate upon.

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Contd.......{2/2}

✔️What are the Initiatives taken by govt to the modernisation of armed forces?

◆The Defence Ministry has decided to earmark around 64% of its modernisation funds under the capital acquisition budget for 2021-22, for purchases from the domestic sector. Last year it was 58%.

◆It will have a positive impact on enhanced domestic procurement, having a multiplier effect on the industries including MSMEs and start-ups. It would also increase employment in the defence sector. Hence, it is a welcome step towards encouraging Atmanirbhar Bharat goals.

◆The ‘negative import list’ has been prepared by the government containing items that India seeks to stop buying from other countries thus encouraging self-reliant India.

◆The government has taken initiatives like de-licensing, deregulation, export promotion, encouraging FDI, etc to liberalise the defence industry.

✔️Students approach

●India is among the biggest importer of armed weapons, it should focus on exporting its indigenous weapons.

●The scientific community and private players should come together to play an important role in producing quality weapons in India.

●Public sector undertakings need to be boosted and should give the specific task to fulfil the desire of all three services.

●There is a need to invest in the defence economy. If India modernises its defence sector and reduces the defence imports, it can increase its GDP by 2-3% and create lakhs of jobs. It is a win-win situation and economically profitable.

●Indian navy needs to be modernised because this is the time for a blue economy and maritime security.

●Hence, India is a major power and an emerging economy in the world. Its defence should be well equipped.

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