Government at the Cusp of Introducing a new Defence Production Policy For Adding Life to Make in India

Tejas aircraft with the newly integrated bolt on refueling probe. Source - Deb Rana.

As the NDA Government enters it’s final year of governance, the Government is scrambling all its resources to realise the slew of promises it had made in its mandate in the run up to the 2014 assembly election. Modernisation of the armed forces for better posturing against the hostile neighbours was at the heart of this political mandate.

The advent of ‘Make in India’ in the very initial days of the Government had promised not only to meet the requirements of the forces, but it also had the provisions to make India a thriving defence manufacturing hub. But after 4 years since introduction, the initiative is yet to attain pace and results have remained shy of realisation. While the requirements of the forces have largely remained unanswered, defence manufacturing in India has not received the expected boost.

The Ministry of Defence (MoD) in an effort to address these long standing concerns is working on a brand new target-rich production policy that is expected to be structured around the ‘Make in India’ initiative. The Department of Defence Production that is in charge of handling the manufacturing activities in India, in March, 2018 released the draft of the new policy inviting comments from the OEMs, private and MSME sector. The new policy that has been in the making for about a year, now, is expected to replace the prior DProP – 2011.

A brief study of the draft reveals that the DProP is undoubtedly ambitious and the department has invested a lot of forethought into the document. The document clearly articulates the future course of the country’s production activities and the policy has been drafted with clarity to recognize and nurture the needs of the private and MSME sector. The draft also has clear provisions for enhancing the capabilities of the DPSUs and OFBs.

A Pinaka MBRL in Action; Courtesy - PIB , Artillery Indian Army, Indian Army, India Artillery Modernisation
A Pinaka MBRL in Action; Courtesy – PIB

Further, the draft has accounted the bottlenecks hampering progress with the country’s production capabilities. These factors range from bureaucratic red tape to missing synergy to undue restrictions in tapping the expertise of the private sector. The policy has also made a case for accounting the need to cultivate the country’s expertise in the information and technology arena and the possible means to mobilise them for answering the requirements for future technologies such as cyber warfare, Artificial Intelligence (AI) and robotics.

As far as the production is concerned, the policy has a clear mandate to achieve complete self-reliance by 2020 in the sectors namely fighter aircraft, medium lift and utility helicopter, warships, land combat vehicles, autonomous weapon systems, missile systems, gun systems, small arms, ammunition and explosives, surveillance systems, electronic warfare systems, communication systems and night fighting enablers.

Collectively, the policy aims at generating a turnaround of a whopping INR 1,70,000 crore and for achieving this target, the Government, according to the document, envisions to outlay an additional INR 70,000 crore. A course for making India an export hub has also been drafted with a pre-set target of INR 35,000 crore from export of weapon systems.

The draft has evoked mixed responses from the stakeholders. While a few have cheered for the slew of measures the policy is packed with, a section of the private sector has taken strong reservations to the ambitious targets that the Government plans to achieve.

India’s current defence production turnover stands at close to INR 70,000 crore. With the a growth rate of just over 8%, definitely it is a uphill climb for the country to achieve the envisioned target of INR 1,70,000 crore. While a sustained annual growth at rate of 20% promises to shore up the resources for realisation, procurement programs themselves have failed to come to life.

Kolkata Class and Dlehi Class destroyer of the Indian Navy
Kolkata Class and Dlehi Class destroyer of the Indian Navy

It also remains to be seen how MoD will raise the planned INR 70,000 crore for the additional investments it plans to plough into the manufacturing arena. The Ministry has for years been haunted with budgetary constraints that have taken the life out of several indigenous projects. To invest something to the tune of INR 70,000, which amounts to the capital acquisition budget of two services combined, the production department will have to shore-up resources from the Finance Ministry.

The private sector has also taken strong note of missing measures in the policy to check the monopoly of the DPSUs and OFBs. The much after sought level playing field that has been demanded by the private sector for years now, only remains to be a mirage. The policy, according to the private sector, has no provisions for increasing accountability and measures to have the state-run establishments to execute orders in a time-bound manner.

The proposal for the introduction of a perspective capability roadmap, increase in FDI, liberalised licensing and taxation has all been welcomed by the private sector. It has also supported Government’s measure proposal to limit OFBs activities to niche-category systems. But the sector wants to proceed with caution as the draft does not make any mention of doing away with the dreaded nomination practise.

All in all, the new DProP in undoubtedly a robust roadmap being evolved by the ministry in an effort to place India firmly amongst the top five defence and aerospace manufacturing hubs by the next decade. As the policy matures, it is crucial that the Government ensures that the DPP – 2016 (Defence Procurement Policy – 2016) and DProP are well aligned. The government must also take measures towards ensuring that there is transformation of the policy to procedure as policy always takes precedence over a procedure.

Key Takeaways from the Draft –

  1. The Policy is packed with targets and time frames and sets tone for generating a turnover of INR 1,70,000 by 2025.

  2. Charts the course for heralding a new era in the country’s export capabilities. Envisions a turnover of INR 35,000 crore by 2025.

  3. Government has committed itself to create a competitive, innovative and robust defence manufacturing eco-system by creating a synergy between the private and DPSUs.

  4. To acquire latest technology, manufacturing processes and skill sets, the policy will encourage collaboration between Indian and foreign companies. Emphasis will be laid up on creation of Joint Ventures (JVs).
  5. For fostering the capabilities of start-ups and MSMEs, policy promises to do away with the practise of exante capability assessment. Further, programs such as IDEX and Make – II will be ratified. Hackathons will be conducted on specific problem areas. An amount of Rs 1000 crores will be allocated for this purpose for period 2018-2022.

    Akash Army Launcher passes through the Rajpath, on the occasion of the 68th Republic Day Parade 2017, in New Delhi on January 26, 2017; Source - DPR.
    Akash Army Launcher passes through the Rajpath, on the occasion of the 68th Republic Day Parade 2017, in New Delhi on January 26, 2017; Source – DPR.
  6. Investments will be made for strengthening infrastructure across India; SPVs will be created for realising the recently launched Defence Industry Corridors. Investments for IDDM projects will be increased by several folds.

  7. Increased ease of business doing. Transparency to be enhanced, Government will do away with restrictions of minimum turnover and prior experience. Competency mapping to be undertaken by the Government, identified companies will be engaged in direct conversations and shall be flagged about new procurement opportunities.

  8. A technology perspective capability roadmap which will state the requirements of the forces for at least the next decade will be introduced.

  9. A liberalised licensing process will be set in place. Promises to denotify a majority of equipments for manufacturing by the private and MSME sector. OFB and DPSUs will retain products notified under core/niche category.

  10. OFBs and DPSUs will be asked to focus on system integration. Private sector will be engaged to manufacture and assemble sub-systems. Further, private defence majors will be encouraged to play role of system integrators and to set-up an extensive eco-system by leveraging the capabilities of MSME sector.

  11. FDI cap will be increased to 74% under automatic route. Government is willing to allow 100% FDI in niche-technology area.

  12. Testing infrastructure of defence organisations to be made available for private sector. Government will provide 75% assistance for setting up common testing facilities.

  13. DPSUs/OFBs will be supported for induction of new technology to enable them to take up advanced manufacturing/developmental activities for futuristic weapons and equipment.

  14. Defence export organisation will be set up jointly with industry to promote export of Indian defence products aboard.

  15. R&D capability mapping will be done to identify defence related technologies. This mapping will cover DRDO labs, other public sector laboratories, academic institutions and industry. Support will be given for indigenising components or sub-assemblies from foreign OEMs, which are used for manufacture of final products under licensed production in the country. Competitive funded prototyping will be pursued during the design process to address the multiple challenges of technical feasibility, affordability, productibility and supportability.
  16. Task Force involving experts from Industry, Academia, DRDO, and Government has been set up to chalk out the strategic roadmap for Defence in the area of Artificial Intelligence and Robotics has been set up recently.

 

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