Lok Sabha Question No. 1432 (UNSTARRED), answered on 2019-11-27
Subject: FDI and Private Participation in Defence Production
Ministry: DEFENCE
Asked by: Anto  Antony, Uday Pratap Singh, Vijay Kumar, Amar Singh

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

## LOK SABHA UNSTARRED QUESTION NO.1432

TO BE ANSWERED ON 27 th  November, 2019

## FDI AND PRIVATE PARTICIPATION IN DEFENCE PRODUCTION

## 1432. SHRI ANTO ANTONY:

SHRI UDAY PRATAP SINGH:

SHRI VIJAY KUMAR:

DR. AMAR SINGH:

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

- (a)  whether  the  Government  has  recently  initiated/proposes  to  initiate  any  scheme under the Make in India programme to design, develop and manufacture indigenous military equipment in collaboration with Indian private sector;
- (b) if so, the details thereof including number and name of the private firms engaged in defence productions;
- (c)  whether  the  indigenously  developed  and  manufactured  defence  equipments  are competitive at international level and conform to international standard and if so, the details thereof;
- (d) whether the Government is allowing Foreign Direct Investment (FDI) in defence production sector and if so, the details thereof; and
- (e)  whether  the  Government  proposes  to  provide  eighty  per  cent  funding  to  the Research  &  Development  projects  undertaken  by  the  private  sector  companies  in defence production and if so, the details thereof?

## A    N    S    W    E    R

MINISTER OF STATE

(SHRI SHRIPAD NAIK)

IN THE MINISTRY OF DEFENCE

रक्षा राज्य मंत्री

( श्री श्रीपाद नाईक )

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

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## STATEMENT  IN  RESPECT  OF  PARTS  (a)  TO  (e)  OF  LOK  SABHA UNSTARRED  QUESTION  NO.  1432  REGARDING  'FDI  AND  PRIVATE PARTICIPATION IN DEFENCE PRODUCTION' FOR ANSWER ON 27.11.19

- (a) & (b): Government has taken following policy initiatives to promote indigenous design,  development  &  manufacture  of  defence  equipment  in  collaboration  with Indian private sector:-
- i. A new category of procurement 'Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)}' has been introduced in Defence Procurement  Procedure  (DPP)-2016  to  promote  indigenous  design  and development of defence equipment. It has been accorded top most priority for procurement of capital equipment.
- ii. 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.
- iii. 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.
- 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. 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.

- vi. 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.
- vii. 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.
- viii. 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).
- ix. 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.
- x. 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.
- xi. 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.
- xii. Defence Investor Cell has been created in Feb-2018. The Ministry to provide all necessary information including addressing queries related to investment opportunities, procedures and regulatory requirements for investment in the sector.
- xiii. 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 Licence 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.

- xiv. 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

As a  result  of  the  aforesaid  initiatives  undertaken,  the  Government  in  the  last five years i.e. from 2014-15 to 2018-19 and current year till Sept 2019, has accorded Acceptance of Necessity  (AoN) to 218 proposals, worth Rs. 409,244 Crore approximately,  under  various  categories  of  Capital  procurement  which  promotes domestic manufacturing as per DPP-2016

There are 41 Ordnance Factories, 9 Defence Public Sector Units,275 Licensed companies  and  approx.  42000  vendors  of  OFB  &  DPSUs  are  engaged  in  defence production. The list of Defence Licensed companies is available in public domain at Department for Promotion of Industry and Internal Policy (DPIIT) website.

(c) The  defence  items  are  indigenously  developed  and  manufactured  conforming  to Service Qualitative Requirements (SQRs) which are formulated keeping into consideration the operational requirements of Armed forces and the latest technologies available internationally. Many of defence equipment so produced are also exported to international  market  which  is  indicative  of  the  competitiveness  of  indigenously developed defence products.

(d) As  per  the  latest  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.

(e) Make-I sub-category of 'Make' procedure prescribed at Chapter-III of DPP-2016 provides that90% of the prototype development cost will be borne by the Ministry of Defence.  In  addition,  'Technology  Development  Fund  (TDF)'  administered  by Defence Research & Development Organisation (DRDO), provides for funding upto Rs  10  Crore  across  all  the  required  technology  development  phases,  subject  to maximum of 90% of the total project cost in general; and also upto 100% funding, on case to case basis.

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