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Recent times have seen the Government introduce a slew of changes aimed at spurring the Indian Aerospace and Defence (A&D) Sector, foremost amongst them being the recognition that this sector will be one of the main pillars of the ‘Atmanirbhar Bharat’ initiative. These vital policy changes reflect a remarkable clarity in understanding the current capabilities of the sector and the intended goal, coupled with adoption of a multi-pronged approach to achieve holistic, qualitative development.
The first category of policy initiatives that deserves mention are the ones aimed at spurring interest in the business opportunity the sector has to offer to Indian players. On February 22, 2021, the Raksha Mantri announced that 63% of India’s defence outlay for 2021-22 will be reserved for domestic procurement (about INR 70,221 crores) and that procurement from private sector will not be limited to 15% but will go much beyond that.[1] Then on May 31, 2021, the Ministry of Defence (MoD) released the second import ban list, bringing the total tally of defence products which can only be bought from Indian sources going forward, to 209.[2] India has been amongst the world’s biggest defence spenders for a long time, and a large part of the capital procurement budget has traditionally been devoted to imports, with Indian players not even being part of the contest. This is now set to change.
The second category of policy changes that may prove to be game changers are those aimed at encouraging transfer of high-end military technologies to India. With the liberalisation of the automatic route limit for foreign investment in the A&D sector to 74%[3], the Government in one clean sweep removed the biggest hurdle – foreign OEMs can now hold majority stake in their Indian joint ventures, and having gained the ability to control the affairs of the Indian subsidiary, the fear of losing control over proprietary intellectual property reduces drastically. Innovative procurement models, such as the Buy (Global – Manufacture in India) category of procurement introduced under the Defence Acquisition Procedure, 2020 (DAP) in priority over the Buy (Global) procurement category, is aimed to encourage foreign OEMs to manufacture at least 50% of the tendered equipment in India, which can only be achieved if at least some major technologies are transferred here. The DAP also introduces higher categories of offset multipliers for foreign OEMs transferring technology to India or investing in Indian A&D manufacturing.
Then there are policy changes aimed at fostering indigenous innovation and excellence in the A&D sector, such as the Innovations for Defence Excellence (iDEX) framework launched in April, 2018 and the Defence India Start-up Challenge.[4] The DRDO, the primary R&D wing of the MoD, has released a policy under which DRDO patents will be made available to the Indian industry at zero cost. The patent licensing policy covers all Indian patents granted to the DRDO and licensing will be undertaken on a non-exclusive basis where the DRDO will retain ownership. The SRIJAN portal launched by the MoD last year lists A&D items that various Government bodies import, provides quantities of expected procurement and allows Indian entrepreneurs to express interest in indigenisation. The concerned defence PSU or service headquarter or ordnance factory board will then work with the Indian entrepreneur who has expressed such interest, to achieve import substitution.
These successive policy decisions taken by the Government leave no doubt that the dispensation is fully focused on paving the way for the Indian private sector to become the white knight for India’s defence preparedness needs. The idea sounds promising enough – if the domestic A&D sector flourishes, large chunks of India’s massive defence budget could be routed to Indian pockets without compromising the needs of the armed forces, and Government order security should in turn result in further proliferation of Indian A&D capabilities – paving a clear course for India’s quest to become ‘Atmanirbhar Bharat’. In 2020, India was the world’s third largest military spender, expending a whopping $72.9 billion.[5] Clearly, the business opportunity is there for the taking, and it is now up to the Indian private sector to rise to the occasion.
[1] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1699992
[2] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1723148
[3] Press Note 4 of 2020 dated September 17, 2020.
[4] https://pib.gov.in/PressReleasePage.aspx?PRID=1705441
[5] Data collected by Stockholm International Peace Research Institute (https://www.sipri.org/media/press-release/2021/world-military-spending-rises-almost-2-trillion-2020)