EX­CLU­SIVE In­ter­view

In a rare me­dia in­ter­ac­tion with SP’s Land Forces, Ashok Ku­mar Gupta, Sec­re­tary, De­fence Pro­duc­tion, out­lined his vi­sion for de­fence man­u­fac­tur­ing in In­dia and ad­dressed a wide range of sub­jects in­clud­ing ‘Make in In­dia’, DPP 2016, de­fence off­sets, role o

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Ashok Ku­mar Gupta

Sec­re­tary, De­fence Pro­duc­tion

SP’s Land Forces (SP’s): In your opin­ion, what are the new key points of DPP 2016 for a for­eign OEM look­ing at In­dian mar­ket?

Sec­re­tary: In­dia is in the midst of mod­ernising its armed forces and it is es­ti­mated that $250 bil­lion will be spent on cap­i­tal pro­cure­ment in the next 10 years. In the new De­fence Pro­cure­ment Pro­ce­dure 2016, ‘ Buy (In­dian-IDDM)’, ‘ Buy (In­dian)’, ‘Buy & Make (In­dian)’ are the most pre­ferred cat­e­gories which means that in­creas­ingly re­quest for pro­pos­als (RFP) will be is­sued to the do­mes­tic in­dus­try. The only way for the for­eign OEMs to lever­age do­mes­tic de­mand is to tie up with do­mes­tic com­pa­nies ei­ther for col­lab­o­ra­tive R&D fol­lowed by pro­duc­tion or through trans­fer of tech­nol­ogy for pro­duc­tion through joint ven­tures or they can set up their own man­u­fac­tur­ing base.

In ad­di­tion, a num­ber of po­ten­tial ‘Make’ projects have been iden­ti­fied by the de­part­ment; which are likely to fol­low ‘Make’ pro­ce­dure for de­vel­op­ment-cum-pro­cure­ment. The for­eign OEMs can col­lab­o­rate with the In­dian ven­dor, the prime con­trac­tor, for de­vel­op­ment for de­fence equip­ment.

Pro­vi­sions have also been in­tro­duced to al­low for­eign OEMs to se­lect In­dian pro­duc­tion agency of its choice for trans­fer of tech­nol­ogy for main­te­nance in­fra­struc­ture.

More­over, off­set im­ple­men­ta­tion process has been made flex­i­ble by al­low­ing change of In­dian off­set part­ners (IOPs) and off­set com­po­nents, even in signed con­tracts. For­eign OEMs are now not re­quired to in­di­cate the de­tails of IOPs and prod­ucts at the time of sign­ing of con­tracts.

Ser­vices as an av­enue of off­sets have been re­in­stated with cer­tain con­di­tion­al­i­ties.

SP’s: How ex­actly are the ‘Make in In­dia’ ini­tia­tives for aerospace and de­fence sec­tor be­ing pro­moted? What has been the re­ac­tion of for­eign OEMs to it till date?

Sec­re­tary: ‘Make in In­dia’ ini­tia­tives for aerospace and de­fence sec­tor are be­ing pro­moted though var­i­ous pol­icy ini­tia­tives and amend­ments in pro­cure­ment pro­ce­dures which would re­sult in ease of do­ing busi­ness, en­cour­age and fa­cil­i­tate In­dian pri­vate sec­tor to par­tic­i­pate in de­fence man­u­fac­tur­ing, nur­tur­ing R&D cul­ture in de­fence.

Fol­low­ing ini­tia­tives have been taken by the De­part­ment of De­fence Pro­duc­tion to boost the ‘Make in In­dia’ in de­fence sec­tor:

For­eign Di­rect In­vest­ment: FDI pol­icy un­der which for­eign in­vest­ment is al­lowed through au­to­matic route up to 49 per cent and gov­ern­ment route be­yond 49 per cent wher­ever it is likely to re­sult in ac­cess to mod­ern tech­nol­ogy or for other rea­sons to be recorded.

In­dus­trial Li­cens­ing: The De­fence Prod­ucts List for the pur­pose of is­su­ing in­dus­trial li­cences (ILs) un­der IDR Act has been re­vised and most of the com­po­nents, parts, sub­sys­tems, test­ing equip­ment and pro­duc­tion equip­ment have been re­moved from the list so as to re­duce the en­try bar­ri­ers for the in­dus­try, par­tic­u­larly small and medium seg­ment. The ini­tial va­lid­ity of the in­dus­trial li­cence has been in­creased from three years to 15 years with a pro­vi­sion to fur­ther ex­tend it by three years on a case-to-case ba­sis. De­fence Ex­ports: – The list of mil­i­tary stores has been fi­nalised and put in the pub­lic do­main so as to make the process trans­par­ent and un­am­bigu­ous. The process of re­ceiv­ing ap­pli­ca­tions for no ob­jec­tion cer­tifi­cate (NOC) for ex­port of mil­i­tary stores and for is­su­ing NOC has been made on­line.

– The stan­dard op­er­at­ing pro­ce­dure (SOP) for the is­sue of NOC for ex­port of mil­i­tary stores has been re­vised and put on the web­site. Un­der the re­vised SOP, the re­quire­ment of en­duser cer­tifi­cate (EUC) to be counter- signed/stamped by the gov­ern­ment au­thor­i­ties has been done away with for the ex­port of parts, com­po­nents, sub­sys­tems, etc. – Recog­nis­ing the need for pro­mo­tion of de­fence ex­ports to make the In­dian de­fence in­dus­try eco­nom­i­cally sus­tain­able, de­fence ex­ports strat­egy out­lin­ing the var­i­ous steps to be taken has been for­mu­lated and put up in pub­lic do­main.

De­fence Off­sets: Off­set im­ple­men­ta­tion process has been made flex­i­ble by al­low­ing change of In­dian off­set part­ners (IOPs) and off­set com­po­nents, even in signed con­tracts. Ser­vices as an av­enue of off­set have been re­in­stated with cer­tain con­di­tion­al­i­ties. Level Play­ing Field: – Ex­change rate vari­a­tion pro­tec­tion has been made ap­pli­ca­ble for In­dian pri­vate sec­tor at par with pub­lic sec­tor un­der­tak­ings for all cat­e­gories of cap­i­tal ac­qui­si­tions.

– The pref­er­en­tial treat­ment given to de­fence pub­lic sec­tor un­der­tak­ings (DPSUs) in ex­cise duty/cus­toms duty has been dis­con­tin­ued. As per the re­vised pol­icy, all In­dian in­dus­tries (pub­lic and pri­vate) are sub­ject to the same kind of ex­cise and cus­toms duty levies. ‘Make’ Pro­ce­dure: The ‘Make’ pro­ce­dure has been re­vised to pro­mote in­dige­nous de­sign, de­vel­op­ment and man­u­fac­ture of de­fence equip­ment/plat­form. It pro­vides for en­hanced gov­ern­ment fund­ing of 90 per cent of de­vel­op­ment cost and pref­er­ence to MSMEs for cer­tain cat­e­gories of projects, which will give a tremen­dous boost to man­u­fac­tur­ing of indigenously de­signed prod­ucts through col­lab­o­ra­tive process with In­dian in­dus­try. Buy (In­dian-IDDM) in DPP 2016: One of the no­table fea­tures of DPP 2016 is the in­tro­duc­tion of a new pro­cure­ment cat­e­gory ‘Buy (In­dian-IDDM)’ by which pri­or­ity has been ac­corded to pro­cure­ment from In­dian ven­dors of prod­ucts that are indigenously de­signed, de­vel­oped and man­u­fac­tured. Pref­er­ence to In­dige­nous Pro­cure­ment: In DPP 2016, pref­er­ence has been pro­vided to pro­cure­ment un­der ‘Buy (In­dian-IDDM)’, ‘Buy (In­dian)’ and ‘Buy and Make (In­dian)’ cat­e­gories of cap­i­tal ac­qui­si­tion over ‘Buy & Make’ or ‘Buy (Global)’ cat­e­gories.

The for­eign OEMs have ex­hib­ited a lot of en­thu­si­asm to par­tic­i­pate in ‘Make in In­dia’ ini­tia­tive. Sev­eral OEMs have en­tered into or are in the process of tie-ups with In­dian de­fence com­pa­nies for sup­ply of de­fence equip­ment cat­e­gorised as ‘Buy and Make (In­dian)’ and ‘Buy and Make’.

SP’s: In­dia has a large in­ven­tory of age­ing weapons and equip­ment. How do you see the ‘Make in In­dia’ play out where up­grades are re­quired?

Sec­re­tary: The re­vised ‘ Make’ pro­ce­dure would be a sig­nif­i­cant driver for tak­ing up up­grades of ex­ist­ing in­ven­tory of weapons and equip­ment. Un­der this pro­ce­dure, the gov­ern­ment has made pro­vi­sions for 90 per cent fund­ing of de­vel­op­ment cost. There is also a pro­vi­sion to take up de­vel­op­ment with­out gov­ern­ment fund­ing in low-risk projects. In both the cases there is as­sur­ance of orders. The up­grade projects, be­ing lowrisk/low-in­vest­ment projects, the In­dian in­dus­try will be en­cour­aged to take up such projects on pri­or­ity. SP’s: There seems to be a lot of in­ter­est from big In­dian cor­po­rates who want to in­vest in man­u­fac­tur­ing in the de­fence sec­tor. How are you go­ing to en­sure that qual­ity and safety stan­dards are met by these com­pa­nies who are new en­trants in this sec­tor?

Sec­re­tary: De­liv­ery of de­fence equip­ment to armed forces by any com­pany is sub­ject to tri­als/test­ing and other qual­ity checks pre­scribed as per terms and con­di­tions of the con­tract. This en­sures the qual­ity of the item.

SP’s: The de­fence off­set pol­icy has not led to any im­port of core tech­nolo­gies for the de­fence sec­tor. Can you com­ment on this?

Sec­re­tary: De­fence off­set guide­lines en­cour­age ven­dors for in­vest­ment in terms of tech­nol­ogy in In­dian en­ter­prises. They also pro­vide for ac­qui­si­tion of crit­i­cal tech­nol­ogy by DRDO.

In case of trans­fer of tech­nol­ogy to In­dian en­ter­prises (MSME), a mul­ti­plier of 1.5 is given.

Tech­nol­ogy ac­qui­si­tion by DRDO has a mul­ti­plier up to a fac­tor of 3 de­pend­ing upon the rights of util­i­sa­tion.

The de­fence off­set guide­lines pro­vide full free­dom to the ven­dors in se­lec­tion of av­enues for off­set dis­charge. The util­i­sa­tion/ ex­ploita­tion of any av­enue is to­tally at the dis­cre­tion of the ven­dor.

Off­set im­ple­men­ta­tion process has been made flex­i­ble by al­low­ing change of In­dian off­set part­ners (IOPs) and off­set com­po­nents, even in signed con­tracts. For­eign OEMs are now not re­quired to in­di­cate the de­tails of IOPs and prod­ucts at the time of sign­ing of con­tracts.

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