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ENERGISING AEROSPACE INDUSTRY

The international conference on 'Energising Indian Aerospace Industry' was conducted by Confederation of Indian Industry (CII) and Centre for Air Power Studies (CAPS) in association with Indian Air Force, on 10-11 September 2014 in New Delhi. The broad objective of the conference was to seek active involvement and participation of industry in sourcing technological and equipment needs of Indian Air Force in aerospace sector as also to debate the indigenisation process put in place by the Government. Around 200 participants from Services, strategic community, think tanks and industry participated and deliberated in the initiative. There was a majority consensus that processes required for imparting the necessitating impetus and thrust to aerospace industry has been provided by recently introduced industry friendly policy stipulations like raising of the FDI limit to 49%, creation of Defence Technology Fund, clarity on industrial licencing, Defence Products export strategy and SoPs, and the Prime Minister's assertion of “MAKE IN INDIA” initiative. The aim is to make India a major exporter of defence equipment. Plans to setup state level export commissions is also a welcome step.

A number of constructive recommendations were made as summarised below.

•    Since R & D activities are resource intensive, more investment should be made by Industry, both in public and private sectors. Government should also financially support R & D by private industry in aerospace sector through specific incentives and tax benefits.
•    Government should encourage joint ventures and co- development between the foreign Original Equipment Manufacturers (OEMs) and Indian private industry. In this regard, the 'Request for Proposal' (RFP) for a suitable replacement for aging AVRO fleet made by Indian Air Force and invitation of  'Request for Information' for projects related to PC-7 mark II trainer aircraft, air to air missiles, air to surface weapons, surface based guided weapons and rotor blades for helicopters are steps in the right direction. The issuance of RFP by MoD to OEMs for AVRO replacement with only private sector Indian Production Agency (IPA) clause represents its resolve to promote aerospace sector.
•    The 'Make in India' initiative must be accelerated; what is important is that manufacturing comes to India, with its associated spin-off effects
•    Energizing and encouraging Indian Micro, Small and Medium Enterprises (MSMEs) to become a part of global supply chain in the aerospace sector will help in acquisition of requisite technologies and skills. This in turn will boost indigenization efforts in the country.
•    The MSMEs in India in aerospace sector are beset with problems such as high capital cost, low volumes and long gestation period. Financial support to MSMEs will provide the requisite impetus to their growth and sustainability. Further, the policies conducive to the functioning of MSMEs should be formulated by the Government.
•    Cooperation and participation of MSMEs in the projects being undertaken by Defence Public Sector Units (DPSUs) will give boost to their growth.
•    Introduction of a new procurement category termed  'Buy MSMEs'  in the Defence Procurement Procedure  for  projects below a given cost, say INR 50 crore, as the first in the hierarchy of various procurement categories would go a long way in energizing MSMEs.
•    The basic premise of No Cost No Commitment (NCNC) trials is dissuasive for MSMEs to take part as it is financially prohibitive due to the risks involved. This needs to be looked into to encourage MSME participation.
•    Outsourcing by DPSUs to promote creation of Centres of Excellence and development of vendor base must be encouraged as it will aid growth of indigenous industry.
•    Foreign companies, while importing defence equipment for the Ministry of Defence and its contractors, are exempt from custom duty as applicable on import of goods. Similarly, goods manufactured by DPSUs are exempt from excise duty on manufacturing activity. Indian industry does not enjoy such exemptions, making them uncompetitive when pitted against foreign companies and DPSUs. The Government should rationalize the tax regime for import of capital goods by Indian manufacturers and should offer them the same tax exemptions, incentives and benefits that are admissible to the DPSUs.
•    The key objective of the defence offset policy is to leverage capital acquisitions to develop the Indian defence industry. However, the offset policy should embrace a capability and capacity building approach with a simplistic structure. Offsets should be looked at as opportunities and not as obligations and the OEM should retain complete responsibility for honouring its commitments. Main concerns on offsets as brought out by OEMs were:-

o    Tier 1 Vendors should be company specific and not program specific for fulfilling offset requirements
o     Offsets contribution should not be limited by work share content
o    Flexibility in changing Offset partner/product should be permitted.

•    Establishing and nurturing a strong Industry-Academia link for regular interactions will accrue rich dividends to both, academic institutes and aerospace sector. Government should initiate measures to promote this. Curriculum revision at university level in the field of aerospace to overcome the present disconnect between the acquired knowledge and the requirement of aerospace industry will go a long way in helping the industry.
•    Formulation of a national level strategy for creating a robust and thriving ecosystem for aerospace industry is a must. In this regard, establishing an Aerospace Commission should be considered.
•    Standardisation of certification processes under the domain of various agencies like RCMA, DGAQA, MSQA, DGQA and DGCA will ensure quality and standards of products and procedures.
•    Accountability of personnel at various level of procurement will bring transparency and effective implementation of policy guidelines.
•    The Government machinery should be made more accessible to the industry. Similarly, interaction between the industry and military should be enhanced for mutual benefit.
•    Defence procurement is a very specialized field and steps must be taken urgently to institutionalize formal training for personnel involved, including that of programme management.

(With input from CII)

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