Lok Sabha Question No. 1483 (UNSTARRED), answered on 2021-02-10
Subject: Foreign Defence Industry
Ministry: DEFENCE
Asked by: Rita Bahuguna Joshi

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

## LOK SABHA UNSTARRED QUESTION NO.1483

TO BE ANSWERED ON 10 th  February, 2021

## FOREIGN DEFENCE INDUSTRY

## 1483. SHRIMATI RITA BAHUGUNA JOSHI:

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

- (a) the measures that have been taken to attract foreign defence industry in India;
- (b) the investment made by foreign defence industry in India during the last three years; and
- (c) the measures proposed to provide further fillip to these proposals?

## A    N    S    W    E    R

MINISTER OF STATE IN THE MINISTRY OF DEFENCE

(SHRI SHRIPAD NAIK)

- (a) To attract foreign investment in Defence Sector, Foreign Direct Investment (FDI) policy has been amended vide Press Note 4 (2020 series) dated 17.09.2020. Now, FDI in defence sector is allowed  up  to  74%  through  automatic  route  (from  earlier  49%)  for  companies  seeking  new industrial licenses. FDI beyond 74% and up to 100% will be permitted under Government route. For existing FDI approval holders/defence licensees, infusion of fresh foreign investment up to 49%  resulting  in  change  in  equity/  shareholding  pattern  can  be  done  by  making  declaration within  30  days  (earlier  Government  approval  was  required).  Now,  foreign  investments  in  the defence sector shall be subject to scrutiny on grounds of National Security.
- (b) So far, FDI inflows of over Rs 4191 crores have been reported by the companies operating in defence and aerospace sector.  Further, FDI inflows of over Rs 2871 crores have been reported in defence and aerospace sector after 2014.
- (c)  Department of Defence Production (DDP) has taken many measures to provide further fillip to foreign investment and improve the Defence ecosystem. Steps taken are as per Annexure .

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## ANNEXURE REFERRED TO IN REPLY TO PART (c) OF LOK SABHA UNSTARRED QUESTION  NO.  1483  FOR  ANSWER  ON  10.02.2021  REGARDING  'FOREIGN DEFENCE INDUSTRY'.

- i. Cabinet  vide  Department  of  Economic  Affairs'  OM No.  01/01/FC/2017-FIPB  dated 05.06.2017  approved  abolition  of  Foreign  Investment  Promotion  Board  (FIPB). Pursuant to the  abolition,  Department of Defence Production  (DDP) has been  made Administrative  authority  for  Defence  sector  and  Foreign  Investment  Facilitation Section  (FIFS),  Department  for  Promotion  of  Industry  and  Internal  Trade  (DPIIT) marks the foreign investment proposals to DDP.
- ii. DPP-2016 has been revised as Defence Acquisition Procedure (DAP)- 2020, which is driven by the tenets of Defence Reforms announced as part of 'Aatmanirbhar Bharat Abhiyan'.
- iii. In  order  to  promote indigenous design and development of defence equipment 'Buy {Indian-IDDM  (Indigenously  Designed,  Developed  and  Manufactured)}'  category was introduced in 2016 and was accorded top most priority for procurement of capital equipment.
- iv. Ministry of Defence has notified a 'Negative list' of 101 items for which there would be an embargo on the import beyond the timeline indicated against them. This is a big step  towards  self-reliance  in  defence.  This  would  offer  a  great  opportunity  to  the Indian  defence  industry  to  manufacture  these  items  using  their  own  design  and development capabilities to meet the requirements of the Armed Forces in the coming years.  This  list  includes  some  high  technology  weapon  systems  like  artillery  guns, assault  rifles,  corvettes,  sonar  systems,  transport  aircrafts,  light  combat  helicopters (LCHs), radars and many other items to fulfil the needs of our Defence Services.
- v. The 'Make' Procedure of capital procurement has been simplified. There is a provision for funding upto 70% of development cost by the Government to Indian industry under 'Make-I' category. In addition, there are specific reservations for MSMEs under the 'Make' procedure.
- vi. Procedure  for  'Make-II'  category  (Industry  funded),  introduced  in  DPP-2016  to encourage  indigenous  development  and  manufacture  of  defence  equipment  has number  of  industry  friendly  provisions  such  as  relaxation  of  eligibility  criterion, minimal documentation, provision for considering proposals suggested by industry/individual etc. So far, 55 projects relating to Army, Navy & Air Force, have been accorded 'Approval in Principle', valuing about Rs. 30,000 Crores.

- vii. The Government of India has enhanced FDI in Defence Sector up to 74% through the Automatic  Route  for  companies  seeking  new  defence  industrial  license  and  up  to 100%  by  Government  Route  wherever  it  is  likely  to  result  in  access  to  modern technology or for other reasons to be recorded. The obligatory government approval for  existing  FDI  approval  holders  /  current  defence  licensees  for  change  in  equity  / shareholding pattern up to 49% FDI has been replaced with mandatory declaration for the same within 30 days of change of equity / shareholding pattern. The proposals for raising  FDI  beyond  49%  from  such  companies  could  also  be  considered  with Government approval.
- viii. 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.
- ix. An  indigenization  portal  namely  SRIJAN  has  been  launched  in  August,  2020  for DPSUs/OFB/Services  with  an  industry  interface  to  provide  development  support  to MSMEs/Startups/Industry for import substitution.
- x. 'Offset  portal'  has  been  created  in  May,  2019  to  ensure  Greater  transparency, efficiency  and  accountability  in  the  process.  Reforms  in  Offset  policy  have  been included  in  DAP  2020,  with  thrust  on  attracting  investment  and  Technology  for Defence manufacturing.
- xi. Government has notified the 'Strategic Partnership (SP)' Model in May, 2017, 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.
- xii. 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.

- xiii. An Inter-Governmental Agreement (IGA) on 'Mutual Cooperation in Joint Manufacturing  of  Spares,  Components,  Aggregates  and  other  material  related  to Russian/Soviet Origin Arms and Defence Equipment' was signed in September,  2019. The objective of the IGA is to enhance the After Sales Support and operational  availability  of  Russian  origin  equipment  currently  in  service  in  Indian Armed Forces by organizing production of spares and components in the territory of India by Indian Industry by way of creation of Joint Ventures/Partnership with Russian Original  Equipment  Manufacturers  (OEMs)  under  the  framework  of  the  'Make  in India' initiative.
- 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 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 caseto-case basis. About 500 Industrial Licenses have been issued so far.
- xv. 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.

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