Lok Sabha Question No. 2203 (UNSTARRED), answered on 2020-03-04
Subject: FDI in Defence
Ministry: DEFENCE
Asked by: Manoj Kishorbhai Kotak, Chinta Anuradha

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

## LOK SABHA UNSTARRED QUESTION NO.2203

TO BE ANSWERED ON 4 th  March, 2020

## FDI IN DEFENCE

| 2203. SHRI MANOJ KOTAK: SHRIMATI CHINTA ANURADHA: Will the Minister of DEFENCE j{kk ea=h be pleased to state: (a) the details of the Foreign Direct Investment (FDI) in Defence products during last five years; (b) the details of the benefits of FDI in defence sectors;   | 2203. SHRI MANOJ KOTAK: SHRIMATI CHINTA ANURADHA: Will the Minister of DEFENCE j{kk ea=h be pleased to state: (a) the details of the Foreign Direct Investment (FDI) in Defence products during last five years; (b) the details of the benefits of FDI in defence sectors;   |
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| (d) the Government plan to attract the FDI in defence products A N S W E R MINISTER OF STATE IN THE MINISTRY OF DEFENCE रक्षा राज्य मंत्री                                                                                                                                    | in coming years? (SHRI SHRIPAD NAIK) ( श्री श्रीपाद नाईक )                                                                                                                                                                                                                    |
| (a)                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                               |

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## STATEMENT REFERRED TO IN REPLY TO PARTS (a) TO (d) OF LOK SABHA UNSTARRED QUESTION NO.  2203 FOR ANSWER ON 04.03.2020 REGARDING 'FDI IN DEFENCE'.

(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, with Foreign  Direct  Investment  (FDI)  up  to  26%  both  subject  to  licensing.  Further, Department for Promotion of Industry and Internal Trade, Ministry of Commerce & Industry vide Press Note No. 5 (2016 Series) has allowed FDI under automatic route upto 49% and above 49% through government route wherever it is likely to result in access  to  modern  technology  or  for  other  reasons  to  be  recorded.  As  per  the  data furnished  by  79  companies  operating  in  Defence  and  Aerospace  sector,  so  far,  FDI inflows  of  over  Rs.  1834  crores  have  been  reported  under  both  government  and automatic route till December, 2019. By allowing higher FDI in the Defence sector, the global companies having high-end technologies can be encouraged to set up their manufacturing base in India in collaboration with Indian companies, thereby resulting in  creation  of  employment  opportunities,  saving  of  foreign  exchange  and  increasing indigenisation. FDI is one of the sources available for the industry to access some of the technologies required to indigenously design, develop and produce the equipments, weapon systems/platforms required for defence.

As per Press Note 1(2019 Series) notified by DPIIT, Defence Industrial licenses are  issued  for  various  defence  items  like  tanks  and  other  ground  vehicles,  defence aircraft,  spacecraft  and  parts  thereof,  Unmanned  Aerial  Vehicles  (UAVs),  missiles designed  for  military  purposes,  warships  of  all  kinds,  high  velocity  kinetic  energy weapon systems and related equipment, electronic equipments for military application, armoured  or  protective  equipment,  imaging  or  countermeasure  equipment  and  other miscellaneous  equipments.  The  steps  taken  by  government  to  boost  Indian  Defence sector are enclosed as per Annexure .

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## ANNEXURE  REFERRED  TO  IN  REPLY  TO  PARTS  (a)  TO  (d)  OF  LOK SABHA UNSTARRED QUESTION NO.  2203 FOR ANSWER ON 04.03.2020 REGARDING 'FDI IN DEFENCE'.

Steps taken by government to boost Indian Defence sector are as shown below -

- i. Defence  Procurement  Procedure  (DPP)  has  been  revised  in  2016  wherein specific provisions have been introduced for stimulating growth of the domestic defence industry.
- ii. 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.
- iii. 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.
- iv. 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.
- v. 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  Crore  per  year  for  MSMEs.    The  industry funded  'Make-II'  Projects  not  exceeding  development  cost  of  Rs.3  Crore  & procurement  cost  of          Rs.  50  Crore  per  year  have  also  been  reserved  for MSMEs.
- vi. 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.

- vii. Government has notified the 'Strategic Partnership (SP)' Model which envisages establishment of long-term strategic partnerships with Indian entities through a transparent  and  competitive  process,  wherein  they  would  tie  up  with  global Original Equipment Manufacturers (OEMs) to seek technology transfers to  set up domestic manufacturing infrastructure and supply chains.
- viii. 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.
- ix. 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).
- x. 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.
- xi. 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.
- xii. 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.
- xiii. Defence  Investor  Cell  has  been  created  in  February,  2018  in  the  Ministry  to provide all necessary information including addressing queries related to investment opportunities, procedures and regulatory requirements for investment in the sector.
- xiv. Defence  Products  list  requiring  Industrial  Licences  has  been  rationalised  and manufacture of most of parts or components does not require Industrial License. The initial validity of the Industrial License granted under the IDR Act has been increased from 03 years to 15 years with a provision to further extend it by 03 years on a case-to-case basis.

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