Govt steps to encourage Manufacturing of Defence Equipment

By | March 11, 2016

Manufacturing of Defence Equipment

The Value of Procurement of defence items (both Capital & Revenue) by the Armed forces, from Indian sources in the last three years is tabulated below:

(Rs in Crore)

Year 2012-13 2013-14 2014-15
Value of procurement from Indian sources 52719 55014 49531


Under ‘Make in India’ programme, the Government proposes to encourage manufacturing of defence equipment in the country through various policy initiatives which, inter-alia, include the following:

  • Preference to ‘Buy (Indian)’, ‘Buy and Make (Indian)’ & ‘Make’    categories of capital acquisition over ‘Buy & Make (Global)’ or ‘Buy (Global)’ categories in Defence Procurement Procedure.
  • Foreign Direct Investment (FDI) Policy under which  Foreign Investment upto 49% is allowed through automatic route and above 49% under Government route on case-to-case basis, wherever it is likely to result in access to modern and ‘state-of-art’ technology in the country. The foreign investment in defence sector is further subject to industrial license under the Industries (Development & Regulation) Act, 1951.
  • Industrial licencing regime for Indian manufacturers has been liberalised and most of the components/ parts/ sub-systems have been taken out from the list of defence products requiring Industrial Licence.  This has reduced entry barriers for new entrants in this sector, particularly small and medium enterprises.
  • The initial validity of Industrial Licence has been increased from    3 years to 15 years with a provision to further extend it by 3 years on a case to case basis.
  • Issues related to level-playing field between Indian vs. foreign manufacturers and public sector vs. private sector have also been addressed.  These include Exchange Rate Variation (ERV) protection for Indian vendors, offset obligations in ‘Buy (Global)’ cases, Excise/ Custom duties on defence equipment, etc.
  • Offset implementation process has been made flexible by allowing change of Indian Offset Partners (IOPs) and offset components, even in signed contracts.  Foreign Original Equipment Manufacturers (OEMs) are now not required to indicate the details of IOPs and products at the time of signing of contracts.  Services as an avenue for discharge of offsets, have been re-instated.

This information was given by Minister of State for Defence Rao Inderjit Singh in a written reply to Shri Manshankar Ninama in Lok Sabha today.

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