Defence Manufacturing

Summary
  • India is among the top five countries with the highest military spending in 2019. 1
  • India has the second-largest standing army in the world. 2
  • As per the Union Budget for the financial year 2020-21, the total allocation for Defense is around USD 62.85 Bn.  Around 1/4th of this amount is allocated for capital expenditure. 3
  • On 21st December 2020, Implementing Arrangement on Defence Industry Cooperation between Dept. of Defence Production, Ministry of Defence, India and General Dept. of Defence Industry, Ministry of National Defence, Vietnam to provide a framework for promoting cooperation between the defence industries of the two countries.
  • The value of defence exports in 2020-21 is INR 5711 cr.30 
  • Union Budget 2021-22 has proposed increased funding for Border Roads Organisation (BRO) to boost infrastructure in frontier areas.
  • Ministry of Defence has notified two “Positive Indigenisation lists” dated 21st August, 2020 and dated 31st May, 2021 of total 209 defence items.
  • India's defence and aerospace manufacturing market is worth INR 85,000 crore. In 2022, it will increase to INR one lakh crore. GOI aims the defence and aerospace manufacturing market in India to be INR five lakh crore by 2047. The present contribution of private companies isINR 18,000 crore in the market of INR 85,000 crore.
Reasons to Invest
  • India’s requirements on defence are catered largely by imports. The opening of the Defence sector for private sector participation will help foreign Original Equipment Manufacturers (OEMs) to enter into strategic partnerships with Indian companies. This will enable them to leverage the domestic markets as well as aim at global markets. Besides helping in building domestic capabilities, it will also bolster exports in the long term.
  • Since 2014 the Ministry of Defence has signed more than 180 contracts with the Indian Industry, as of December 2019. These contracts were valued over USD 25.8 Bn approximately. 4
  • Ministry of Defence has set a target of achieving a turnover of INR 1.75 lakh crore in aerospace and defence goods and services by 2024, including exports of Rs 35,000 crore.
  • Favourable government policy which promotes self-reliance, indigenisation, and technology upgradation. The policies also aim at achieving economies of scale, including the development of capabilities, for exports in the defence sector. 5
  • India’s extensive modernisation plans with an increased focus on homeland security and growing attractiveness as a defence sourcing hub. 5
  • Indian Army unveils Six new ‘Make-II Projects’ spanning technologies across unmanned systems, technologies to counter such systems as well as emerging solutions for augmenting air defence capabilities.
  • A joint airlift exercise, ‘Op Hercules’ was undertaken by the Indian Air Force and Indian Army with the aim to strengthen the logistics supply in the Northern sector and to augment winter stocking in the operational areas.
  • Indian Navy is focused on incorporation of Artificial Intelligence (AI) and Machine Learning (ML) in critical mission areas. 

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Key Achievements
  • Indigenous defence products unveiled - Akash Surface to Air Missile System, Dhanush Artillery Gun system and Light Combat Aircraft 18
  • ABHYAS is designed & developed by DRDO’s Aeronautical Development Establishment , Bengaluru to be used as an aerial target for evaluation of various missile systems and is successfully flight-tested on 22nd October 2021.
  • The Defence Procurement Procedure (DPP) has been amended to introduce Buy Indian-IDDM (Indigenously Designed, Developed and Manufactured) 19
  • Strategic Partnership Model introduced to encourage the participation of the private sector, in the manufacture of defence platforms and equipment such as aircraft, submarines, helicopters and armoured vehicles. 20
  • Ministry of Defence signs contract worth INR 423 Crore with US for procurement of Arms for Indian Navy to be used for Long range Maritime Surveillance, Anti-Submarine Warfare and Anti-Surface Warfare (ASV).
  • The 11th edition of 'DefExpo' was organised from February 5-8, 2020 in Lucknow, Uttar Pradesh.21
  • The final blast for the 980-metre long Sela Tunnel (Tunnel 1) was conducted by Director General Border Roads (DGBR) to mark the culmination of the excavation works on the complete Sela Tunnel Project. 
  • The Government of India has decided to set up two Defence Production corridors, one each in Uttar Pradesh (UP) and Tamil Nadu. 22
  • A Defence Investor Cell is also functional in the Department of Defence Production. 22
  • The maiden flight of indigenously developed Automatic Flight Control System (AFCS) integrated on LCH was conducted successfully by Hindustan Aeronautics Limited (HAL). 23
  • An indigenization portal, namely SRIJAN, has been launched in August 2020 for DPSUs/Services with an industry interface to provide development support to MSMEs/Start-ups/Industry for import substitution. As of November 2021, 16,583 items have been uploaded for indigenisation. Out of them, 2709 items have been indigenised.
  • Enhanced PINAKA rocket, developed by Defence Research and Development Organisation (DRDO) has been successfully flight tested from Integrated Test Range. The design and development has been carried out by Pune based DRDO laboratories.27
  • Defence Research and Development Organisation (DRDO) achieved a major milestone with the launch of Medium Range Surface to Air Missile (MRSAM). The missile completely destroyed a high speed unmanned aerial target which was mimicking an aircraft with a direct hit.29 
  • Indian Air Force and French Air and Space Force will conduct a bilateral Air exercise, Ex Desert Knight-21 at Air Force Station Jodhpur from 20 to 24 Jan 21.
  • Agni-5 capable of striking targets at ranges up to 5,000 km with very high degree of accuracy is successfully launched from APJ Abdul Kalam Island.
  • Defence Acquisition Council headed by Raksha Mantri approves proposals worth INR 7,965 crore for Armed Forces modernisation under ‘Make in India’. Proposal includes twelve Light Utility Helicopters from HAL; Lynx U2 Fire Control System from BEL and Mid Life Upgradation of the Dornier Aircraft from HAL.
  • The Make Projects have been instrumental in enhancing the role of MSMEs in the defence sector with over 40% of the Project Sanction Orders issued to MSMEs and projects amounting to over 1,000 crores reserved for MSMEs.
  • The fourth submarine of the Project – 75, Yard 11878 is delivered to the Indian Navy.  The submarine would soon be commissioned into the Indian Navy and enhance the Indian Navies capability.
  • Two flight tests of indigenously-developed smart anti-airfield weapon have been successfully carried out jointly by DRDO and Indian Air Force.
  • The first Project Agreement under DTTI for Air-Launched Unmanned Aerial Vehicle under the Joint Working Group Air Systems was signed and successful.
  • The Indian Army has inked a MoU with the Bhaskaracharya National Institute for Space Applications and Geo-Informatics (BISAG-N), Gandhinagar, Gujarat.
  • DRDO and Directorate of Defence Research and Development (DDR&D), Ministry of Defence, Israel have entered into a Bilateral Innovation Agreement (BIA) to promote innovation and accelerated R&D in startups and MSMEs of both countries for the development of dual use technologies. 
  • Indian Army entered into a MoU with Rashtriya Raksha University (RRU) to synergise innovations, research, technology incubation, joint projects, publication & patents, training, higher learning and distance education in the Army.
  • Government has issued a total of 568 Defence Industrial Licenses to 351 companies. Out of these, a total of 113 companies covering 170 Defence Industrial Licenses have conveyed commencement of production.
  • The Raksha Mantri has laid foundation stone for an integrated Metal Manufacturing Facility under PTC industries that will produce key Raw Materials in Titanium and other Exotic Alloys for aerospace applications. This plant will significantly reduce the country’s dependence on imports for all platforms which require Titanium and Nickel Super Alloys.
  • The first operationalised private sector defence manufacturing facility is inaugurated in UPDIC in Lucknow. The facility, run by Aerolloy Technologies, a wholly owned subsidiary of PTC industries, will manufacture parts for Aircraft Engines, Helicopter Engines, Structural parts for aircrafts, Drones and UAV, Submarines, Ultra-Light Artillery Guns, Space Launch Vehicles and Strategy Systems etc.
  • Border Roads Organisation (BRO) is recognised with the Guinness World record for the achievement of constructing and black topping the world’s highest motorable road at 19,024 feet at Umlingla Pass in Ladakh.
  • Defence exports of the country has grown by 334 per cent in the last five years and is exported to 75 countries. 
  • Kaveri engine project has achieved higher Technology Readiness Level (TRL) in many critical technology domains including building of 9 Full prototype engines and 4 core engines, Conducting 3217 hours of engine testing and  Completing Altitude tests & Flying Test Bed (FTB) trials. 
  • 37 projects costing INR 191,19,28,932/- have been awarded to various industries especially MSMEs and start-ups under Technology Development Fund (TDF) scheme since its implementation. One product has been accepted by Indian Air Force and many other technologies are in advanced stages of acceptance by the Tri-Services & Users.
  • Maiden ‘Colombo Security Conclave (CSC) Focused Operation’ is being conducted between the lead Maritime Security Agencies of India, Maldives and Sri Lanka with an aim of keeping this vital part of the Indian Ocean Region safe and secure for commercial shipping, international trade and conduct of legitimate maritime activities.
  • Vertical Launch Short Range Surface to Air Missile was successfully flight tested today by Defence Research & Development Organisation (DRDO) from Integrated Test Range, Chandipur, off the coast of Odisha.
  • DRDO and Indian Air Force flight-tested the indigenously designed and developed Helicopter launched Stand-off Anti-tank (SANT) Missile from Pokhran ranges.
  • A first of its kind Defence Technologies & Test Centre (DTTC), over approximately 22 acres is being set up to accelerate the growth of the defence and aerospace manufacturing clusters in Uttar Pradesh Defence Industrial Corridor (UP DIC).
  • The BRAHMOS Manufacturing Centre, announced by BrahMos Aerospace, is a modern, state-of-art facility in the Lucknow node of UP DIC. It will cover over 200 acres and produce the new BRAHMOS-NG (Next Generation) variant, which carries forward the lineage of the BRAHMOS weapons system.
  • Since May 2020, the Indian Navy has deployed ships to 15 Friendly Foreign Countries under SAGAR missions. These deployments spanned over 215 days at sea have delivered cumulative assistance of more than 3,000 MT of food aid, over 300 MT LMO, 900 Oxygen Concentrators and 20 ISO containers.
  • BRO achieves feat of completing record 102 infrastructure projects in a single working season.
  • DRDO developed supersonic missile assisted torpedo system which was successfully launched from Wheeler Island in Odisha.
  • DRDO successfully tested the new generation nuclear-capable ballistic missile ‘Agni P’ from Dr APJ Abdul Kalam island off the coast of Odisha.
  • 175 transfer of technology (ToT) licences were signed during 2021 and the production value of DRDO developed systems till December 2021 is over INR 3 Lakh crore.
  • DRDO successfully flight tested the final deliverable configuration of Man Portable Anti-Tank Guided Missile (MPATGM) which is a low weight, fire & forget missile, launched from a man portable launcher, integrated with thermal sight. The missile impacted the designated target and destroyed it. 
  • Aerial Delivery Research and Development Establishment (ADRDE), Agra conducted a flight demonstration of Controlled Aerial Delivery System of 500 kg capacity. The CADS-500 is used for precise delivery of payload upto 500 kgs at predetermined location by making use of manoeuvrable capabilities of Ram Air Parachute (RAP). 
  • BrahMos supersonic cruise missile, with increased indigenous content and improved performance, was successfully test-fired from Integrated Test Range, Chandipur off the coast of Odisha.
  • A joint maritime exercise Paschim Lehar (XPL-2022) was conducted by the Indian Navy off the West Coast to validate operational plans of the Western Naval Command and enhance Inter-Service synergy among the Indian Navy, IAF, Indian Army and Coast Guard. 
  • The Indian Army commenced implementation of Radio Frequency Identification (RFID) tagging of its ammunition inventory.
  • The Nation’s pride, the visionary project of Atal Tunnel that runs under the ‘Rohtang Pass’ was constructed on the Manali - Leh Highway under the challenging conditions of freezing temperatures in extremely difficult terrain, has officially been certified by World Book of Records, as the ‘World’s Longest Highway Tunnel above 10,000 Feet’. 
  • A joint team of scientists from DRDO and IIT- Delhi, for the first time in the country successfully demonstrated Quantum Key Distribution link between Prayagraj and Vindhyachal in Uttar Pradesh, a distance of more than 100 kilometres to demonstrated indigenous technology of secure key transfer for bootstrapping military grade communication security key hierarchy.
  • The Indian Navy successfully demonstrated the accuracy of an extended-range land attack Brahmos supersonic cruise missile from the stealth destroyer INS Chennai.
  • DRDO has developed Monolithic Microwave Integrated Circuits (MMICs) to be used in radar imaging satellite modules of EOS 04. More than 30,000 modules have been produced at GAETEC foundry for various space missions. 
  • DRDO successfully flight tested Solid Fuel Ducted Ramjet (SFDR) booster at the Integrated Test Range (ITR), Chandipur off the coast of Odisha. The SFDR-based propulsion enables the missile to intercept aerial threats at very long range at supersonic speeds.  
  • Pinaka Mk-I (Enhanced) Rocket System (EPRS) and Pinaka Area Denial Munition (ADM) rocket systems have been successfully flight-tested by Defence Research and Development Organisation (DRDO) and Indian Army at Pokhran Firing Ranges. 
  • DRDO, Indian Army and Indian Air Force (IAF)successfully flight tested the indigenously developed helicopter launched Anti-Tank Guided Missile ‘HELINA’ at high-altitude ranges as part of user validation trials. 
  • Raksha Mantri launches two indigenous frontline warships - Surat (Guided Missile Destroyer) & Udaygiri (Stealth Frigate) to enhance the country’s maritime capability, with focus on achieving ‘Aatmanirbharta’.
  • More than two-thirds of the Navy’s Modernisation Budget has been spent on indigenous procurement in the last five financial years. Of the 41 ships and submarines ordered by the Navy, 39 are from Indian shipyards.
  • HANSA-NG 2 seater flying trainer Aircraft, Design & Developed by CSIR-NAL, has successfully completed in-flight engine relight test at DRDO’s Aeronautical Test Range (ATR) facility.
  • DRDO and Indian Navy successfully conducted maiden flight-test of indigenously-developed Naval Anti-Ship Missile launched from a Naval Helicopter from Integrated Test Range (ITR), Chandipur off the coast of Odisha.
Recent Announcements

18th May 2022: DRDO & Indian Navy conduct successful maiden flight-test of indigenously-developed Naval Anti-Ship Missile off Odisha coast.

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18th May 2022: HANSA-NG 2 seater flying trainer Aircraft, Design & Developed by CSIR-NAL, has successfully completed in-flight engine relight test at DRDO’s Aeronautical Test Range (ATR) facility.

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17th May 2022: Raksha Mantri launches two indigenous frontline warships - Surat (Guided Missile Destroyer) & Udaygiri (Stealth Frigate) - in Mumbai.

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28th April 2022: The Border Roads Organisation (BRO) Engineering Marvel Atal Tunnel built in Rohtang of Himachal Pradesh received Indian Building Congress (IBC) ‘Best Infrastructure Project’ award. 

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20th April 2022: Ministry of Defence signs MoUs with Ministry of AYUSH to start Ayurveda Centres at 37 Cantonment & 12 AFMS military hospitals.

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Statistics
  • India’s total expenditure on modernization and equipment in the defence sector in the last three fiscals (till January 2020) was about USD 37 Bn. 6
  • Around 1/3rd of the allocation to defence (excluding defence pensions) in the budget for FY 2020-21 is allocated for capital expenditure. 7
  • Defence exports grew by 334% in last five years; India now exporting to over 75 countries due to collaborative efforts.
  • Total defence budget allocation for the Ministry of Defence is 15.49% of the total Central Government expenditure in the 2020-21 Budget. The allocation for Defence in India's budget in 2020-21 is around USD 62.06 Bn. 
  • During 2018-19 to 2019-2020 and 2020-21(till December 2020), the Government has accorded Acceptance of Necessity (AoN) to 112 Defence proposals, worth INR 1,99,860 cr approx, under the various categories of Capital Acquisition to promotes domestic manufacturing as per the Defence Acquisition/Procurement Procedure.32
  • In 2020-2021, keeping with the Atamnirbhar Bharat 74% of contracts by Army were awarded to Indian Vendors which is praise worthy.
Growth Drivers
  • GOI has approved the continuation of the Central Sector Umbrella Scheme of “Border Infrastructure and Management” (BIM) over the 15th Finance Commission Cycle from 2021-22 to 2025-26, at a cost of INR 13,020 crore to strengthen the border infrastructure for improving border management, policing and guarding the borders.
  • The BIM scheme will help in the creation of infrastructure such as construction of border fence, border flood lights, technological solutions, border roads and Border Outposts (BOPs)/Company Operating Bases (COBs) to secure the Indo-Pakistan, Indo-Bangladesh, Indo-China, Indo-Nepal, Indo-Bhutan and Indo-Myanmar borders.
  • Defence Procurement Procedure (DPP) has been revised in 2016 and special provisions for simulating growth of domestic defence industry have been introduced: 8
  • DPP focuses on institutionalising, streamlining and simplifying defence procurement procedure to give a boost to “Make in India” initiative. It aims to promote indigenous design, development and manufacturing of defence equipment, platforms, systems and sub-systems. It also aims to enhance the role of MSMEs in the Defence industry.
  • A new category of capital procurement: Buy Indian - Indigenously Designed, Developed and Manufactured (IDDM) has been introduced to encourage indigenous design, development and manufacturing of defence equipment.
  • Preference has been given to ‘Buy (Indian)’, ‘Buy and Make (Indian)’ and ‘Make’ categories over ‘Buy (Global)’ and ‘Buy and Make (Global)’ categories. A clear and unambiguous definition of indigenous content is provided.
  • The ‘Make’ Procedure has been simplified with provisions for funding of 90% of development cost by the Government to Indian industry.
  • 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.
  • 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.
  • Provision for Maintenance Transfer of Technology (MToT) to Indian partners.
  • Provisions to allow foreign Original Equipment Manufacturer (OEM) to select Indian Production Agency (PA).
  • The requirement of minimum indigenous content is rationalised.
  • ‘Services’ as an avenue for discharging offsets is re-introduced. 9
  • For the year 2021-22, the allocation for domestic procurement has been enhanced compared to previous years and is about 64.09% i.e. INR 71,438.36 crore of the allocated amount for military modernisation.
  • DAC accepts the proposal of Indian Air Force for GSAT-7C Satellite and Ground Hubs for real-time connectivity of Software Defined Radios (SDRs) amounting to INR 2,236 Crores. The project envisages complete design, development and launching of satellite in India. It will enhance the ability of our Armed Forces to communicate beyond Line of Sight (LoS) among one another in all circumstances in a secure mode.
  • GOI has planned replacement of aircraft fleet of the defence forces including Cheetah and Chetak helicopters with Naval Utility Helicopter, indigenous Light Utility Helicopter (LUH) manufactured by HAL under “Buy (Indian-IDDM)” project and Russian built Ka-226T as “Buy & Make (Indian)”.
  • The Defence Acquisition Council (DAC) accorded Acceptance of Necessity (AoN) for one Capital Acquisition proposal of Indian Air Force for its modernization and operational needs amounting to INR 2,236 Crore under the category of ‘Make in India’. 
  • Uttar Pradesh Expressways Industrial Development Authority (UPEIDA) has signed Memorandum of Understandings (MoUs) with Indian Air Force (IAF), Defence PSUs-Bharat Earth Movers Limited (BEML), Hindustan Aeronautics Limited (HAL) and Naini Aerospace Ltd. during Aero India 2021 for indigenization programme.
  • The foundation stone of a new plant of Bharat Dynamics Limited worth INR 400 crore has been laid in Jhansi as part of UP Defence Corridor.
  • Ministry of Defence has entered into a MoU with Indian Institute of Teacher Education (IITE) Gandhinagar to facilitate training to teachers of Sainik Schools so as to impart quality education to students with Indian ethos.
  • DRDO conducts maiden launch of indigenously developed new generation surface-to-surface missile ‘Pralay’. The new missile followed the desired quasi ballistic trajectory and reached the designated target with high degree accuracy, validating the control, guidance and mission algorithms. 
  • Indian Naval Ships Shivalik and Kadmatt undertook Maritime Partnership Exercise with Japan Maritime Self-Defence Force(JMSDF) Ships Uraga and Hirado in the Bay of Bengal to strengthen bilateral relations, promote defence cooperation, enhance mutual understanding and inter-operability between the two navies and share best practices.
  • The Sela Tunnel Project is located in the West Kameng District of Arunachal Pradesh. It will be a lifeline as it will provide all weather connectivity to Tawang. 
  • The Sela Tunnel Project comprises of Tunnel 1, which is a 980 m long single tube tunnel and Tunnel 2, which is a 1555 m long twin tube tunnel. Tunnel 2 has one bi-lane tube for traffic and one escape tube for emergencies. 
  • The Indian Army launched a contemporary messaging application named, ASIGMA (Army Secure IndiGeneous Messaging Application) which is a new generation, state of the art, web based application for an enhanced user experience.
  • The Navy is currently in the process of creating a Centre of Excellence (CoE) in the field of AI at INS Valsura, which has been instrumental in progress of pilot projects pertaining to adoption of AI and BDA in the domain of maintenance, HR and perception assessment, in collaboration with academia and industry.
  • Raksha Mantri lays foundation stone for Defence Technology & Test Centre and BRAHMOS Manufacturing Centre of DRDO in Lucknow.
  • The Acquisition Wing of the Ministry of Defence has signed a contract for INR 1075 crore with M/s Bharat Electronics Limited (BEL) for the retro-modification of Commander Sight of Battle Tanks-T-90. The retro-modification will be carried out in 957 T-90 tanks of the Indian Army.
  • MoD accords in-principle approval to four projects under Make-I (Government Funded) & five under Make-II (industry-funded) categories of Defence Acquisition Procedure 2020.
  • Australian Army Research Centre (Aarc) Signs Memorandum of Understanding (Mou) with Centre for Land Warfare Studies (Claws), India to establish academic cooperation and engagement between the countries.
  • UPEIDA has signed 63 MoUs with private/ public industries to develop UP Defence Industrial Corridor, worth potential investments of approx. INR 8,764 crore.
  • In sync with the announcement of the Union Budget 2022-23 that allocated 25% of Defence R&D Budget for industry-led R&D, 18 major platforms have been identified by the Ministry of Defence for industry led Design & Development under various routes.
  • BRO signs MoU with GRSE for construction of 27 double-lane class 70 modular bridges in border areas for greater self-reliance on indigenous equipment and achieving overall aim of ‘Atmanirbhar Bharat’.
  • Flight Control System (FCS) Integration facility at Aeronautical Development Establishment (ADE), a laboratory of DRDO in Bengaluru, Karnataka is inaugurated with in-house hybrid technology consisting of conventional, pre-engineered and precast methodology. 
  • MoD signs contract worth 1075 crore with M/s BEL for the supply of 957 Commander Thermal Imager cum Day Sights for T-90 Tanks
  • Raksha Mantri inaugurates BRO Tourism website to promote tourism in border areas; Portal to facilitate guided tours for people to world famous BRO projects.
  • In continuous pursuit of self-reliance in defence manufacturing and to minimise imports by DPSUs under ‘Aatmanirbhar Bharat’, Ministry of Defence has approved another list of 107 strategically important Line replacement Units (LRUs)/sub-systems with a timeline beyond which there will be an embargo on their import. 
  • DRDO successfully flight tests Indian Army version of Medium Range Surface to Air Missile off Odisha coast.
  • MoD signs INR 473 crore contract with GSL for construction of eight Fast Patrol Vessels for Indian Coast Guard.
  • Ministry of Defence and M/s Bharat Electronics Limited, Hyderabad sign Contract for Instrumented Electronic Warfare Range.
  • Ministry of Defence and M/s Bharat Electronics Limited, Bengaluru sign Contract for Procurement of Advanced Electronic Warfare suite for Fighter Aircraft.
  • Ministry of Defence has signed a contract on 25 Mar 22 with M/s Larsen & Toubro Ltd. for acquisition of Two Multi-Purpose Vessels (MPVs) for Indian Navy at an overall cost of INR 887 Crore under “Buy-Indian” Category.
  • The CCS has approved procurement of 15 Light Combat Helicopter (LCH) Limited Series Production at the cost of INR 3,887 Cr along with Infrastructure sanctions worth INR 377 Cr.
  • The Ministry of Defence and Ministry of Ayush decided to operationalise Ayurveda Centres at 37 Cantonment Hospitals & 12 AFMS military hospitals across the country to integrate Ayurveda into the health establishment.
  • Indian Air Force and IIT Madras signed a MoU to accelerate IAF’s indigenisation efforts for achieving ‘Atma Nirbhar Bharat’. Under the ambit of MoU, IAF has identified key focus areas involving technology development and finding indigenous solutions towards sustenance of various weapon systems. IIT Madras will provide consultancy duly supported by research for feasibility studies and prototype development.
  • An MoU was signed between Indian Navy (IN) and M/s Larsen and Toubro (L&T) to engage M/s L&T as a Knowledge Partner for nurturing technologies in various domains, for induction into the Indian Navy. The MoU encompasses all the aspects related to Electrical, Weapon, Engineering, Machinery and Control, and Hull of a Naval Warship.
FDI Policy
  • FDI in the 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 the Government route. 10
  • The cumulative FDI equity inflow in the Defence industry is USD  12.51 mn during the period April 2000 to December 2021. 25

 

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Sector Policy

PROCUREMENT POLICY 11 

  • Defence procurement is governed by the Defence Procurement Procedure (DPP).
  • The latest revision of DPP was released in March 2016.
  • DPP focuses on institutionalising, streamlining and simplifying defence procurement procedure to give a boost to the “Make in India” initiative.

OFFSET POLICY 11

  • The key objectives of the defence offset policy are to leverage capital acquisitions to develop the domestic Defence industry. The policy stipulates the mandatory offset requirement of a minimum of 30% for procurement of defence equipment by foreign defence players. It is applicable to categories of procurements where the estimated cost of the acquisition proposal is USD 286.04 Mn or more.

PROCEDURES FOR THE GRANT OF INDUSTRIAL LICENSES HAVE BEEN STREAMLINED

  • The initial validity period of industrial licenses has increased from 3 years to 15 years. It also has a provision to grant an extension for a period of 3 years. 12
  • Guidelines for the extension of validity of industrial licenses have been issued. Partial commencement of production is treated as the commencement of production of all the items included in the licence. 13 

DEFENCE ACQUISITION PROCEDURE (DAP)- 202033

  • DAP 2020 encourages indigenous designing and manufacturing of defence items. The ‘Make’ Procedure aims to achieve the objective of self-reliance by involving greater participation of Indian industries including the private sector through the following mechanisms:
  • Make-I (Government Funded): This involves the design and development of equipment, systems, major platforms or upgrades thereof by the industry. Ministry provides financial support upto 70% of prototype development cost or a maximum INR 250 cr per Development Agency (DA).
  • Make-II (Industry Funded): This includes design & development and innovative solutions by Indian vendor, for which no Government funding is provided, but it has the assurance of procurement on successful prototype development.
  • Government has established two Defence Industrial Corridors, one each in the States of Uttar Pradesh and Tamil Nadu. The investments of INR 20,000 cr are planned in Defence corridors of Uttar Pradesh and Tamil Nadu by year 2024.

DEFENCE TESTING INFRASTRUCTURE SCHEME

  • Scheme to boost domestic defence & aerospace manufacturing
  • INR 400 cr outlay to create state-of-the-art testing infrastructure in partnership with industry
  • Scheme was launched by RM in May 2020
  • Project consultant/officer can be contacted for clarification

Innovations for Defence Excellence (iDEX)

  • An innovation ecosystem for Defence, namely “Innovations for Defence Excellence (iDEX)”was launched in April, 2018.
  • iDEX aims 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.
  • INR 1,000 crore have been allocated for iDEX related purchases, which will be increased further in the future. INR 500 crore have also been allocated separately to support startups for the next five years

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Financial Support

UNION BUDGET 2022-2331

  • The total budgetary allocation for FY 2022-23 towards the Ministry of Defence (Civil) is INR 20,100 cr.
  • The total budgetary allocation for FY 2022-23 towards the Defence Services (Revenue) is INR 2,33,000.54 cr.
  • The total budgetary allocation for FY 2022-23 towards the Capital Outlay on Defence Services is INR 1,52,369.61 cr.

 

Investment Opportunities
  • In the Indian Defence Sector, investment opportunities are in the following areas: 16 
    • Supply chain sourcing opportunity
    • Modernization of armed forces
    • Infrastructure development 
    • Research and Development 
  • Defence products manufacturing - Indigenously designed, developed and manufactured (IDDM) is the new method of capital procurement  16

 

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Foreign Investors
  • Airbus (France)
  • BAE India Systems (UK)
  • Pilatus (Switzerland)
  • Lockheed Martin (USA)
  • Boeing India (USA)
  • Raytheon (USA)
  • Israel Aerospace Industries (Israel)
  • Rafael Advanced Defense Systems Ltd. (Israel)
  • Dassault Aviation SA (France) 17
Agencies
  • Department of Defence Production, Ministry of Defence
  • Department for Promotion of Industry & Internal Trade, Ministry of Commerce & Industry, Government of India
  • Department of Commerce, Ministry of Commerce & Industry, Government of India
  • Defence and Strategic Industries Association of India 17
  • Border Roads Organization 26
Sources
    
  1. “The 15 countries with the highest military spending worldwide in 2019,” Statista, https://www.statista.com/statistics/262742/countries-with-the-highest-military-spending/
  2. “Ministry of Defence Annual Report 2018-19,” Ministry of Defence, https://mod.gov.in/sites/default/files/MoDAR2018.pdf 
  3. “Defence Budget 2020-21,” Ministry of Defence, PIB,  https://pib.gov.in/PressReleasePage.aspx?PRID=1601632
  4. “More than 180 contracts valued over Rs 1,96,000 crore signed with Indian Defence Industry since 2014”, Ministry of Defence, PIB, https://pib.gov.in/PressReleseDetailm.aspx?PRID=1595028
  5. “Annual Report 2018-19,” Ministry of Defence, https://mod.gov.in/sites/default/files/MoDAR2018.pdf
  6. “Defence Expenditure as a part of GDP”, Ministry of Defence, PIB, https://pib.gov.in/PressReleasePage.aspx?PRID=1604844
  7. “Defence Budget 2020-21,” Ministry of Defence, PIB,  https://pib.gov.in/PressReleasePage.aspx?PRID=1601632
  8. “FDI in Defence”, Ministry of Defence, PIB, https://pib.nic.in/PressReleseDetail.aspx?PRID=1605127
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