NEED FOR DEFENCE INDIGENISATION
1. For self reliance
2.To reduce dependency on foreign player and ensure security of nation
3.To conserve or reduce Balance of Payment deficit
4.To promote employment and also exports
5.To reduce cost of production to India and thereby reduce fiscal deficit. According to the Stockholm International Peace Research Institute (SIPRI), in 2019, India became the third-largest defence spender in the world
Challenges
1.Lack of Defence Manufacturing base in India
2.Primarily driven by Government ordnance factories and poor private participation
The public sector (DPSUs/OFs) by far has enjoyed the preferred categorization, particularly for big ticket purchases, when considering the Indian route, despite its poor track record as regards time and cost overruns, inefficiencies and poor financial performance. The defence industry per-se being a capital intensive industry with high risks on investments leaves very few private players in the arena. DPSUs, on the other hand, have not done much to promote proficient business practices by involving the industry and Micro, Small,and Medium Enterprises (MSMEs). The report of the 33rd StandingCommittee on Defence – Indigenization of Defence Production: PublicPrivate Partnership was highly critical of the steps taken by the government to promote indigenisation
3.High costs and involved and lack of assured market
4.Poor technological transfer by foreign companies
5.Lack of Data
Assessment of Degree of Indigenisation: As of today, no scientific system is in place to assess the extent/ level of indigenisation achieved by defence production entities in the country. As a matter of fact, statistical information on the extent of indigenisation available in the open domain fails to reflect the true picture as some of the data does not include the quantum of import content utilised in products manufactured by DPSUs/OFs
6.Bureaucratic delay and licensing issues:there is still no eas of doing business in defence industry.: Investment in the defence sector is subject to compliance with the licensing requirements stipulated by the Department of Industrial Policy and Promotion (DIPP)
MEASURES TAKEN:
1.FDI increased to 74%
2.Strategic partnership model
3.Defence procurement policy and New defence Acquisition Procedure
4.Import ban on 101 defence items
5.Institutional reforms like Defence Acquisition council to counter corruption and Chief of Defence Staff to bring harmony in needs of defence,Defence planning committee etc which can look at procurement suggestions
6.Defence Innovation hubs-for innovation and Defence Industrial Corridors-to link defence investment zones
New Defence Acquisition Procedure of 2020
The aim of the Defence Acquisition Procedure (DAP), erstwhile Defence Procurement Procedure (DPP), is to ensure timely acquisition of military equipment, systems and platforms as required by the Armed Forces in terms of performance, capabilities and quality standards, through optimum utilisation of allocated budgetary resources. While enabling the same, DAP will provide for the highest degree of probity, public accountability, transparency, fair competition and level-playing field.
Highlights of the new policy:
1)Reservations for Indigenous firms:
The policy reserves several procurement categories for indigenous firms.DAP 2020 defines an “Indian vendor” as a company that is owned and controlled by resident Indian citizens, with foreign direct investment (FDI) not more than 49 per cent.
2)New Buy (Global–Manufacture in India) category:
This stipulates indigenisation of at least 50 per cent of the overall contract value of a foreign purchase bought with the intention of subsequently building it in India with technology transfer.
3)Greater indigenous content:
It promotes greater indigenous content in arms and equipment of the military procures, including equipment manufactured in India under licence. In most acquisition categories, DAP-2020 stipulates 10 per cent higher indigenisation than DPP 2016.
4)Import embargo list:
The “import embargo list” of 101 items that the government promulgated last month has been specifically incorporated into DAP 2020. (An embargo is a government order that restricts commerce with a specified country or the exchange of specific goods.)
5)Offset liability:
The government has decided not to have an offset clause in procurement of defence equipment if the deal is done through inter-government agreement (IGA), government-to-government or an ab initio single vendor.The offset clause requires a foreign vendor to invest a part of the contract value in India.
6)In decreasing order of priority, the priority of categories will be as follows: –
(a) Buy (Indian – Indigenously Designed Developed and Manufactured) i.e. Buy (Indian-IDDM).
(b) Buy (Indian).
(c) Buy and Make (Indian).
(d) Buy (Global – Manufacture in India).
(e) Buy (Global).
7)Allows leasing of military platforms
Conclusion
One of the key focus areas of the DAP 2020 was to implement ‘Ease of Doing Business’ with emphasis on simplification, delegation and making the procurement process industry friendly.
The Indian Government has also announced plans to spend USD 130 billion on military modernization in the next 5 years. Changes to the FDI Policy and the DAP 2020 will provide the necessary impetus to the Foreign OEMs to include Indian companies into their global supply chain which is expected to further boost exports.
