Lok Sabha Question No. 2646 (UNSTARRED), answered on 2019-12-04
Subject: Private Participation in Defence Manufacturing
Ministry: DEFENCE
Asked by: Rajyavardhan Singh Rathore

## GOVERNMENT OF INDIA MINISTRY OF DEFENCE DEPARTMENT OF DEFENCE PRODUCTION

## LOK SABHA UNSTARRED QUESTION NO.2646

TO BE ANSWERED ON 4 th  December, 2019

## PRIVATE PARTICIPATION IN DEFENCE MANUFACTURING

## 2646. COL. RAJYAVARDHAN RATHORE:

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

- (a) the steps being taken to promote Indian private defence industry and to ensure that there  is  level  playing  field  between  private  industry  and  Defence  Public  Sector Undertakings (DPSUs) in large Defence Procurements;
- (b) the quantum of investment by the private sector in defence manufacture during the last five years;
- (c) whether the Indian private defence industry matured to be at par with DPSUs and if so, the criteria/procedure and security protocol adopted while awarding tenders/projects to private firms; and
- (d)  whether  the  tenders  are  still  being  awarded  on  nomination  to  DPSUs,  if  so,  the reasons therefor and the total value of such tenders awarded over the last five years?

## A    N    S    W    E    R

MINISTER OF STATE IN THE MINISTRY OF DEFENCE

(SHRI SHRIPAD NAIK)

रक्षा राज्य मंत्री

( श्री श्रीपाद नाईक )

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

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## STATEMENT REFERRED TO IN REPLY TO PARTS (a) TO (d) OF LOK SABHA UNSTARRED QUESTION NO. 2646 FOR ANSWER ON 04.12.2019 REGARDING 'PRIVATE PARTICIPATION IN DEFENCE MANUFACTURING'

- (a) to (d) In May, 2001, the Defence Industry sector, which was hitherto reserved for the public sector, was opened up to 100% for Indian private sector participation through licensing. 452 licenses for manufacturing of defence items have been issued so far. As per  Department  for  Policy  of  Industry  and  Internal  Trade  (DPIIT),  Ministry  of Commerce & Industry the proposed investments as provided by the companies in their license application for Defence Sector is Rs 13,743.53 crores in the last five years [from 2015 to 2019 (upto 26.11.2019)].
2. Many steps have been taken by government to promote Indian private defence industry and to ensure that there is level playing field between the private industry and Defence Public Sector Undertakings in large Defence procurements:-
-  The Government has promulgated the Strategic Partnership (SP)  model under which  select  Indian  firms  will  be  roped  in  to  build  military  platforms  like, fighter  jets,  helicopters  and  armoured  fighting  vehicles/main  battle  tanks  in India in strategic partnerships with Indian Defence Majors 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 global supply chains.
-  Defence  Procurement  Procedure  (DPP)  has  been  revised  in  2016  wherein specific provisions have been introduced for stimulating growth of the domestic defence industry.
-  A new category of procurement 'Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)}' has been introduced in DPP-2016 to promote indigenous design and development of defence equipment. It has been accorded top most priority for procurement of capital equipment. Besides this, preference has  been  accorded  to  'Buy  (Indian)','Buy  and  Make  (Indian)'  &  'Make' categories of capital acquisition over 'Buy (Global)' & 'Buy &Make (Global)' categories.
-  The 'Make' Procedure has been simplified with provisions for funding of 90% of  development  cost  by  the  Government  to  Indian  industry  and  reserving Government funded Make-I projects not exceeding development cost of Rs.10 Crore & procurement cost Rs. 50 Cr per year for MSMEs.  The industry funded Make-II Projects not exceeding development cost of Rs.3 Crore & procurement cost Rs. 50 Cr per year have also been reserved for MSMEs.

-  Separate  procedure  for  'Make-II'  category  has  been  notified  under  DPP  to encourage  indigenous  development  and  manufacture  of  defence  equipment. Number of industry friendly provisions such as relaxation of eligibility criterion, minimal  documentation,  provision  for  considering  proposals  suggested  by industry/individual etc. have been introduced in this procedure.
-  Few  initiatives  that  have  been  taken,  inter-alia,  include  making  test  facilities with the government entities available to the private sector and provisions for payment through Letter of Credit (LC) to Indian Vendors in global tenders.
-  Exchange Rate Variation protection has been made applicable for Indian private sector  on  par  with  Public  Sector  Undertakings  for  all  categories  of  capital acquisitions.
-  The  preferential  treatment  given  to  Defence  Public  Sector  Undertakings  in excise  duty/custom  duty  has  been  discontinued.  As  per  the  revised  policy,  all Indian industries (public and private) are subject to the same kind of excise and custom duty levies.

3. Other  important  steps  taken  by  government  to  promote  Indian  private  defence industry are enclosed as per Annexure .

4. RFPs/Tenders are being awarded on nomination basis to defence public sector undertakings  taking  into  consideration  the  capability  and  capacity  available  in  the country for the requisite defence item. The total value of capital contracts awarded on nomination basis to the DPSUs since 2015-16 and upto October, 2019 is Rs 51,600 crore (approx).

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## ANNEXURE   REFERRED TO IN  REPLY  TO  PARTS  (a)  TO  (d)  OF  LOK SABHA UNSTARRED QUESTION NO. 2646 FOR ANSWER ON 04.12.2019 REGARDING 'PRIVATE PARTICIPATION IN DEFENCE MANUFACTURING'

-  Make  in  India'  initiative  was  launched  by  Hon'ble  Prime  Minister  in September,  2014,  with  the  primary  objective  of  making  India  a  global manufacturing  hub,  by  encouraging  both  domestic  as  well  as  foreign OEMs to manufacture their products within the country.
-  FDI Policy has been revised and under the revised policy, FDI is allowed under  automatic  route  upto  49%  and  beyond  49%  through  Government route wherever it is likely to result in access to modern technology or for other reasons to be recorded.
-  An  innovation  ecosystem  for  Defence  titled  Innovations  for  Defence Excellence (iDEX) has been launched in April, 2018. iDEX is aimed at creation of an ecosystem to foster innovation and technology development in  Defence  and  Aerospace  by  engaging  Industries  including  MSMEs, Start-ups, Individual  Innovators,  R&D  institutes  and  Academia  and provide them grants/funding and other support to carry out R&D which has potential for future adoption for Indian defence and aerospace needs. 24  contracts  have  been  signed  so  far  by  the  implementing  agency  Defence Innovation Organisation (DIO).
-  Government has notified a Policy for indigenisation of components and spares  used  in  Defence  Platforms  in  March,  2019  with  the  objective  to create  an  industry  ecosystem  which  is  able  to  indigenize  the  imported components (including alloys & special materials) and sub-assemblies for defence equipment and platform manufactured in India.
-  Government has decided to establish two defence industrial corridors to serve  as  an  engine  of  economic  development  and  growth  of  defence industrial base in the country. They span across Chennai, Hosur, Coimbatore,  Salem  and  Tiruchirappalli  in  Tamil  Nadu  and  spanning across  Aligarh,  Agra,  Jhansi,  Kanpur,  Chitrakoot  and  Lucknow  in  Uttar Pradesh (UP).
-  A  Policy  on  'Utilisation  of  Third  Party  Inspection  Services'  has  been notified in May, 2018 for effective administration of inspection Services with involvement of third parties and promote Ease of Doing Business for MSMEs and private sector.
-  Offset guidelines have been made flexible by allowing change of Indian Offset  Partners  (IOPs)  and  offset  components,  even  in  signed  contracts. Foreign Original Equipment Manufacturers (OEMs) are now allowed to provide  the  details  of  IOPs  and  products  after  signing  of  contracts.  In order to bring more transparency and efficiency into the Offset discharge process, 'Offset portal' has been created in May, 2019.

-  The Ministry has instituted a new framework titled 'Mission Raksha Gyan Shakti' in November, 2018 which aims to provide boost to the Intellectual Property Rights (IPR) culture in indigenous defence industry.
-  Test  facilities  with  the  Government  entities  have  been  published  on  the MoD website to make them available to the Private sector.
-  To support the growing private Industry, govt has launched a mega 'Skill India' programme, which is well poised to ensure adequate availability of skilled workers.
-  Defence Investor Cell has been created in February, 2018 the Ministry to provide all necessary information including addressing queries related to investment  opportunities,  procedures  and  regulatory  requirements  for investment in the sector.
-  The process for export clearance has been streamlined  and  made transparent  &  online.  An  Export  Promotion  Cell  has  been  setup  to  coordinate  and  follow-up  on  export  related  action  including  enquiries received  from  various  countries  and  facilitate  private  sector  and  public sector companies for export promotion.
-  Department  of  Defence  Production  has  notified  112  items  under  Public Procurement  Order  2017  notified  by  Department  for  Promotion  of Industry  and  Internal  Trade  (DPIIT).  The  Defence  PSUs  and  OFB  are thereby  required  to  give  preference  to  domestic  manufacturers  while procuring these items in accordance with the said policy.
-  A new online portal  has  been  developed  for  facilitating  filing  of  online applications  for  Industrial  License  under  Industries  (Development  & Regulation)  -  IDR  Act  1951/Arms  Act  1959.  The  link  of  the  portal  is https;//service.dipp.gov.in. This online portal is available for Public with effect from 16.10.2018 for filing applications.
-  Based  on  the  initiative  taken  by  Department  of  Defence  Production  to review Defence Product List for the liberalization in defence manufacturing sector,  the Defence Product List has got rationalized and trimmed.
-  Further,  vide  Press  note  no.  2(2019  Series)  DPIIT  has  notified  that  in reference  to  Press  note  1(2019  Series)  dated  01.01.2019,  no  Industrial license/Arms license is required for the manufacture of any parts or any accessories in Defence sector, unless they are specifically listed in any of the Annexures of the said Press note.

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