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Defence Reforms and Impact on Atmanirbharta

India would spend US $130 billion on modernising the military over the next 7-8 years. India was producing only 30 per cent of its arms requirements in 1992-93, now it is about   40-45 per cent as of now. The dominant Govt sector in defence production i.e, Defence public sector undertakings (DPSUs) and 41 ordnance factories (OFs) delivered $9 billion worth of defence equipment in 2019-20 – a year-on-year rise of 6 per cent over the preceding two years. The Private sector with 490 Defence Industrial licences so far, delivered $2.2 billion dollars worth of defence equipment in 2019-20.

MoD has sets the goal of Defence production turnover of 25 Bn USD (175,000 Crs) and export target of 5 Bn USD (35000 Crs) by 2025. The public sector has the major share of about 80 percent in overall defence manufacturing; while the private sector has about 20 percent. However, on export front last year, the public sector was able to do about $100 Million (one tenth) of defence exports as compared to the private sector which has been over $1 Billion (over 10 times more than the public sector).Hence such target projection would need to make  the defence industry dynamic, robust and competitive, reducing import dependence (current global share 15%), and promoting exports, encouraging R&D, rewarding innovation, creating more and more Indian Intellectual Property (IP) etc.

To promote Atmanirbhar Bharat in defence manufacturing, some of the measures taken by Govt are likely to offer new opportunities in Defence manufacturing.

Import Negative List

The first major decision is the release of a Negative List of 101 Defence Equipment, banning their import beyond a timeline, thus giving manufacturing opportunities to the Indian companies. These items includes artillery guns, assault rifles, corvettes, sonar systems, transport aircrafts, light combat helicopters (LCHs), radars and many other items with market projection to the tune of Rs 4 lakh crore for the domestic defence industry –OFB, Defence PSUs and private sector.

FDI Limit Raised

The Government on September 17, 2020 issued Press Note 4 of 2020 (PN4) to raise Foreign Direct Investment limits in the defence sector under the automatic route from 49% to 74%.  Press Note 4 of 2020 permits 74% FDI only in “companies seeking new industrial licenses”, i.e. greenfield projects, yet retains the requirement of Government approval for existing defence sector entities increasing FDI from 49% to 74%. FDI above 74% continues to require Government approval.  It would encourage global defence players to consider fresh investments in India, for now they can control and hold more than 50% equity stake in such Indian entities.

Domestic procurement

A separate budget of Rs 52,000 crore has been set aside for procurement from domestic vendors in the current financial year.

Defence Production and Export Promotion Policy

The draft of Production and Export Promotion policy proposes establishment of an aero-engines complex with focus on Maintenance Repair Overhaul (MRO) as well as critical technologies. Under this policy, export target has been set as 25 percent of the revenue.

DRDO Technology Transfer

DRDO has  identified about 108 systems and subsystems for designing and development by the Indian Industry only and the requirement can be met through development contracts or production orders on suitable Indian industry. DRDO  can provide support to industries for design, development and testing of these systems on requirement basis. DRDO to focus on design & development of critical and advanced technologies and systems.

Other Reforms

Other reforms include:-

  • Setting up of Defence corridors in Uttar Pradesh and Tamil Nadu
  • Strategic Partnership (SP) Model to promote investments
  • Liberalisation of Industrial License regime
  • 'Defence Investor Cell' to address the problems of investors.
  • MoD would designate 5,000 defence items to be indigenised by 2025. Most of these would then be produced by MSMES.
  • Innovations for Defence Excellence (iDEX) scheme, had already sanctioned $5.4 million in funding, and signed contracts with 33 innovators.

Corporatisation of OFB

 The Corporatisation of Ordnance Factory Board (OFB), as a corporate entities will improve its autonomy, accountability and efficiency in Ordnance Supplies.

Let us hope the Atmanirbhar Bharat does not end like earlier self reliance or Make in India paradoxes by successive Governments on indigenisation and strengthening of Defence Industrial Base (DIB)  and  defence product development which has been overwhelmingly dominated by the Government sector. Their dominance has been associated with inefficiency and lack of accountability on delivery, productivity and quality, etc. Synergizing public and private sector is a must for creating robust indigenous defence industrial capabilities and will thereby lead to gradual and systemic reduction of import dependence. It is time for the Government to be realistic and actionable rather than merely coming out with slogans/statements year on year such as ‘Self Reliance in Defence’, ‘Make in India’ and now the latest one to join the bandwagon is ‘Antamnirbhar Bharat’.

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