Make in India

Defence manufacturing, the Prime Minister said during his Aero India 2015 address, constitutes the ‘heart’ of ‘Make in India’

Defence manufacturing, PM Narendra Modi said during his Aero India 2015 address, is the ‘heart’ of ‘Make in India’

The government has opened private investment in defence production, including liberalisation of FDI. It has initiated steps to develop two defence industrial production corridors in the country and proposes to bring out an industry-friendly Defence Production Policy 2018 to promote domestic production by public sector, the private sector and MSMEs. Despite these feats, India continues to be overwhelmingly dependent on arms and equipment imports. The target of 70% self-reliance in defence procurement set for 2005 is still to be achieved. Currently, India’s selfreliance is at 35-40%. According to the Stockholm International Peace Research Institute (SIPRI), India with a 15% share in global arms import during 2010-14 was the single-largest arms importer; and China was the world’s third-largest arms exporter ahead of countries like France, Germany and the UK. To reverse the country’s huge arms’ import dependency, the NDA government led by PM Narendra Modi launched ‘Make in India’. Although it covers 25 different sectors, defence manufacturing, as stated by the PM in his Aero India 2015 address, constitutes the ‘heart’ of the initiative. At a recent event organised by FICCI, defence minister Nirmala Sitharaman said the government expects whole-hearted participation of Indian industry and foreign OEMs to leverage the indigenous capability and opportunities for self-reliance in defence production. She said the Defence Ministry was encouraged by the quantum of the outsourced component in defence manufacturing, which had risen to 29% in fiscal 2016-17. This displayed that Tier-1 Indian companies were up to their task and also serve as an assurance to SMEs that their products would be sourced by big companies. It was in this context that the announcement was made in the 2018-19 Budget that two defence industrial production corridors would be established. The one between Chennai and Bengaluru via a stretch of ordnance factories was coming up well and it was encouraging that the SMEs had started to bring in startups to produce for the armed forces. Coordination between the DIPP and the Home Ministry was being actively pursued and this should give comfort to OEMs that different arms of the government were engaged in a welloiled effort. The government was also actively working on the second corridor between Aligarh-Agra-JhansiChitrakoot-Kanpur-Lucknow. Under the ‘Make II’ initiative, the procedure had been simplified and once a prototype was developed and tried out, manufacturers should not worry about orders as these would be forthcoming. The private industry has called for fast-tracking the clearances of licences for production by the private industry, easing of restrictions on the number of contracts a company could bid for and reduction in the requirement of high earnest money for procurement orders. There is also the need for creating a level-playing field for all players to speed up indigenous defence manufacturing. The manufacturing of arms and ammunition is governed by the Arms Act (1959) and Arms Rules (1962). It was protected by the Government of India and only Ordnance Factory Board (OFB) had the licence to manufacture arms and ammunition for the Armed Forces. Indian private industry was only allowed to produce a single barrel and double barrel guns and associated cartridges. The DIPP, finally, opened the manufacture of small arms and ammunition in the private sector with nil or up to 26% FDI in 2002. In 2005, the DIPP further liberalised the sector by issuing industrial licences to a few companies to manufacture arms and ammunition. Has this regime undergone any change since then? Yes. In a landmark move, the MHA revised Arms Rules 1962 (now called as Arms Rules 2016, published on 15 July 2016) to allow Indian companies to manufacture and proof test of firearms. In 2017, the Arms Rules were amended again to boost the ‘Make in India’ initiative. The Defence procurement process for arms and ammunition has been an uphill task for the Indian armed forces. While India has seen success in many other areas like Armoured Fighting Vehicle (AFV) and Missiles in terms of indigenous design, development, and manufacturing, it is still failing to fulfil basic requirements of arms and ammunition inventory. The government’s new Strategic Partnership (SP) model is expected to create a pool of six Indian companies that will be accorded special status. Once the pool is created, the companies will be given the opportunity to bid for mega defence production orders, expected to be worth over $20 billion. As per the SP policy, in the first stage, the six Indian companies will qualify to bid for four upcoming projects – submarines for the navy, a single-engine fighter for the air force, helicopters and armoured vehicles for the army. Interestingly, the new policy means that almost all MoUs that have been signed between Indian companies and foreign players over the last three years for these projects will be rendered infructuous, given the new model of selection. “The defence ministry will shortly invite companies for the qualification process. The companies will be asked to give their priority preference for the four projects, and six companies will be selected based on financial parameters and capability,” according to senior officials.

IT’LL TAKE A COUPLE OF DECADES FOR INDIA TO EMERGE AS A GLOBAL DEFENCE PRODUCTION HUB; FIRST STEPS HAVE BEEN TAKEN