Ashok Ku­mar Gupta, Sec­re­tary, De­fence Pro­duc­tion

In a rare me­dia in­ter­ac­tion with SP’s M.A.I., 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 of DPS

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SP’s M.A.I. (SP’s): What is your vi­sion for In­dia’s do­mes­tic de­fence in­dus­try in terms of de­fence pro­duc­tion?

Sec­re­tary, De­fence Pro­duc­tion (Sec­re­tary): As In­dia is trans­form­ing from a re­gional power to a global power, the de­fence sec­tor is in­creas­ingly oc­cu­py­ing a big­ger space in the coun­try’s long-term strate­gic plan­ning. A con­fi­dent and resur­gent In­dian de­fence in­dus­try is mak­ing for­ays into al­most all the sec­tors of man­u­fac­tur­ing. Lately, the huge op­por­tu­ni­ties for growth within the do­mes­tic and global de­fence and aerospace in­dus­tries have at­tracted the at­ten­tion of In­dian in­dus­try.

It is per­ti­nent to men­tion here that the De­fence Pro­duc­tion Pol­icy pro­mul­gated by the gov­ern­ment aims at achiev­ing sub­stan­tive self-re­liance in the de­sign, de­vel­op­ment and pro­duc­tion of equip- ment, weapon sys­tems, plat­forms re­quired for de­fence in as early a time frame as pos­si­ble, cre­at­ing con­di­tions con­ducive for pri­vate in­dus­try to play an ac­tive role in this en­deav­our; en­hanc­ing po­ten­tial of small and medium-sized en­ter­prises (SMEs) in in­di­geni­sa­tion and broad­en­ing the de­fence R&D base of the coun­try.

Pur­suant to the above pol­icy and ‘Make in In­dia’ ini­tia­tive, the gov­ern­ment aims to make the coun­try self-re­liant in de­fence pro­duc­tion, through var­i­ous ini­tia­tives. Sev­eral pol­icy ini­tia­tives have al­ready been im­ple­mented by the gov­ern­ment such as lib­er­al­i­sa­tion of FDI (for­eign di­rect in­vest­ment) pol­icy and in­dus­trial li­cens­ing pol­icy, sim­pli­fi­ca­tion of ex­port pro­ce­dures, cre­at­ing level play­ing field for In­dian pri­vate and pub­lic sec­tor com­pa­nies, stream­lin­ing of off­set im­ple­men­ta­tion process, pro­vid­ing pref­er­ence to ‘Buy (In­dian

De­signed, De­vel­oped and Man­u­fac­tured)’ (In­dian-IDDM), ‘Buy (In­dian)’, ‘Buy and Make (In­dian)’ cat­e­gories of cap­i­tal ac­qui­si­tion over ‘Buy (Global)’ cat­e­gory in De­fence Pro­cure­ment Pro­ce­dure. SP’s: The new DPP 2016 is be­ing re­ferred to as game changer for the sec­tor. How do you see it al­ter­ing the In­dian de­fence growth story?

Sec­re­tary: The new De­fence Pro­cure­ment Pro­ce­dure (DPP) 2016 has come into ef­fect from April 1, 2016. It fo­cuses on achiev­ing the ‘Make in In­dia’ vi­sion by ac­cord­ing pri­or­ity to ‘Buy (In­dian– IDDM)’ and ‘Buy (In­dian)’ cat­e­gories. It also man­dates in­creased in­dige­nous con­tent. The ‘Make’ pro­ce­dure has been sim­pli­fied with pro­vi­sions for fund­ing of 90 per cent of de­vel­op­ment cost by the gov­ern­ment to In­dian in­dus­try and ear­mark­ing projects not ex­ceed­ing de­vel­op­ment cost of ` 10 crore (gov­ern­ment funded) and ` 3 crore (in­dus­try funded) for the mi­cro, small and medium en­ter­prises (MSMEs).

This would cre­ate an ecosys­tem in de­fence man­u­fac­tur­ing by har­ness­ing the ca­pa­bil­i­ties of In­dian pri­vate sec­tor spe­cially MSMEs and in­cul­cate the R&D cul­ture in the sec­tor. 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 (RFPs) will be is­sued to the do­mes­tic in­dus­try. The only way for the for­eign orig­i­nal equip­ment man­u­fac­tur­ers (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 num­bers 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 OEM 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. 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 is 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 end-user cer­tifi­cate (EUC) to be coun­ter­signed/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 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’.

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