Lok Sabha Question No. 699 (UNSTARRED), answered on 2017-12-20
Subject: Private Sector Participation
Ministry: DEFENCE
Asked by: (SMT.) RATNA DE(NAG)

## GOVERNMENT OF INDIA MINISTRY OF DEFENCE

## DEPARTMENT OF DEFENCE PRODUCTION

## LOK  SABHA

## UNSTARRED QUESTION NO.699

TO BE ANSWERED ON THE 20 TH  DECEMBER, 2017

## PRIVATE SECTOR PARTICIPATION

699. DR. RATNA DE (NAG):

Will the Minister of DEFENCE j{kk ea=h be pleased to state:

- (a) the  major  initiatives  taken  by  the  Government  during  the  last  three  years  to promote private sector participation in the manufacture of sophisticated weapon systems and armaments;
- (b) the security precautions taken / to be taken by the Government in such a move;
- (c) whether  the  Government  permitted  /  proposes  to  permit  private  companies  to induct defence technology directly from abroad; and
- (d) if so, the details thereof and the criteria set for the purpose?

## A    N    S    W    E    R

MINISTER OF STATE IN THE MINISTRY OF DEFENCE

र  ा रा य मं ी

(a) to (d): A statement is attached.

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(DR. SUBHASH BHAMRE)

(डा. सुभाष भामरे)

## STATEMENT  REFERRED  TO  IN  REPLY  TO  PARTS  (a)  TO  (d)  OF  LOK SABHA UNSTARRED QUESTION NO. 699 FOR ANSWER ON 20.12.2017

- (a) Some of the major initiatives taken by the Government during the last three years to promote private sector participation in the manufacturing of sophisticated weapons systems and armament are enumerated below:-
- (i) Indian companies are allowed for tie-ups with a foreign Original Equipment Manufacturer (OEM) for Transfer of Technology (ToT) under 'Buy & Make (Indian)' category of Capital Acquisition.
- (ii) Under 'Buy & Make' category of Capital Acquisition, the foreign vendor is required to transfer the Technology to Indian Production agency  for  indigenous  production of the items. Provisions have also been made to allow Foreign OEM to select Indian Production agency of its choice for transfer of technology.
- (iii) Under the Make category, Government has made provisions for design  and  development  of  defence  equipment  /  platforms  by Indian  companies  through  harnessing  of  critical  technologies and  use  of  readily  available  commercial,  military  or  dual-use mature technologies.
- (iv) The  Government  has  notified  the  'Strategic  Partnership  (SP)' Model  which  envisages  establishment  of  long-term  strategic partnerships with Indian entity through a transparent and competitive process, wherein they would tie up with global OEMs to  seek technology transfers  to set up domestic manufacturing infrastructure and supply chains.
- (v) In  order  to  facilitate  collaborations  between  Indian  and  foreign companies  so  as  to  have  technology  transfer  from  foreign  to Indian  companies,  Foreign  Direct  Investment  (FDI)  policy  for defence has been revised and under the revised policy, FDI upto 49% is allowed through automatic route and beyond 49% under Government  approval  route  wherever  it  is  likely  to  result  in access to modern  technology or for other reasons to be recorded.
- (vi) Defence  Research  and  Development  Organization  (DRDO)  has issued  Guidelines  for  ToT  which  provide  for  an  institutional mechanism for transfer of technology developed by DRDO both to public and private sector companies.

- (vii) Government of India has also set up the 'Technology Development Fund (TDF)' which aims at funding the development of  defence  and  dual  use  technologies  that  are  currently  not available  with  the  Indian  defence  industry,  or  have  not  been developed  so  far.    The  funding  is  to  public  and  private  sector industry  especially  MSMEs  that  may  work  in  collaboration  with the  academia  or  research  institutions  to  carry  out  innovation, research and development.
- (b) FDI Policy is subject to industrial license and Industrial Licenses are granted  by  Licensing  Committee  in  Department  of  Industrial  Policy  & Promotion  (DIPP),  which  takes  into  account  the  security  clearance  of Ministry  of  Home  Affairs  (MHA),  comments  of  Ministry  of  Defence  (MoD) etc.  Besides, one of the conditions of license is to adhere to the Security Manual  guidelines  by  the  Licenses  Defence  Companies.    The  Security Manual prescribe detailed guidelines on physical, information, documentation,  cyber  and  personal  security  aspects.    The  manual  also prescribes for security audit of such companies by Intelligence Bureau.
- (c) Under Strategic Partnership model, SP is expected to play the role of a  System  Integrator  by  building  an  extensive  eco-system  comprising development  partners,  specialised  vendors  and  suppliers,  particularly MSME sector.  To manufacture major Defence platforms, the SP is required tie-ups  with  Foreign  Original  Equipment  Manufacturers  (OEMs)  to  cover manufacturing, transfer of technology, assistance in training skilled human resources and other support.
- (d) The Strategic Partner when appointed should be an Indian company (as  defined  under  the  Companies  Act,  2013),  owned  and  controlled  by resident  Indian  citizens.    The  Strategic  Partner  is  required  to  enter  into relevant  tie-ups  with  foreign  Original  Equipment  Manufacturers  (OEM)  to cover manufacturing, transfer of technology, assistance in training skilled human resources and other support.  For the selection of Foreign OEMs, ToT  is  one  of  the  main  factors,  the  quantum  and  scope  of  Technology being offered for transfer by the OEMs  is  a primary  consideration in  the  selection  procedure, besides compliance to  Services  Qualitative

:  3  :

Requirement.    Towards  this,  the  shortlisting  of  OEM  inter-alia  take  into consideration the following factors:

- (i) Range, depth and  scope  of technology transfer offered in identified areas.
- (ii) Extent of indigenous content proposed.
- (iii) Extent of eco-system of Indian vendors / manufacturers proposed.
- (iv) Measures to support SP in establishing system for integration of platforms.
- (v) Plans to train skilled manpower.
- (vi) Extent of future R&D planned in India.
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