Snapshot

Defending the World

India accounts for 3.7% of the global military spending, making it the third highest military spender in the world. The defence expenditure constituted 2.9% of India’s total GDP with approximately $72.9 billion spent on defence in 2020. Under the Field Artillery Rationalization Plan - 1,580 towed guns, 100 tracked guns, 814 Mounted Gun System will be required in India.

With the growing demand in the defence sector the government has identified it as one of the core areas to boost ‘Atma Nirbhar Bharat or Self-Reliant India. The value of exports of defence items including major items in FY 2014-15 and 2020-21 was INR 1,940.64 crore and INR 8,434.84 crore respectively. The Government has also spelt out its vision of achieving a turnover of $25 bn including export of $5 bn in Aerospace and Defence goods and services by 2025.

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.

To support defence modernisation, in the budget 2021-22 the defence capital outlay was increased. As per the latest budget announcement, 68% of the capital procurement budget for Defence to be earmarked for domestic industry in 2022- 23 (up from 58% in 2021-22). Additionally, to promote Aatmanirbharta and reduce dependence on imports, private players will be encouraged to take up the design and development of military platforms in collaboration with DRDO and other organizations through the special purpose vehicle (SPV) mode.

The government aims to ensure transparency, predictability, and ease of doing business by creating a robust eco-system and supportive government policies. Towards this end the government has taken steps to bring about de-licensing, de-regulation, export promotion and foreign investment liberalisation. To meet export requirements, a draft Production and Export Promotion Policy (DPEPP) 2020 has also been formulated.

The Government of India has enhanced FDI in Defence Sector up to 74% through the Automatic Route for companies seeking new defence industrial license and up to 100% by Government Route.

For further details, please refer FDI Policy

 

  • %

    GDP spent on defence (2021-22)

  • %

    Share in global arms import

  • INR tn

    Union budget 2022-23

  • %

    Increase in Defence Capital Expenditure (FY21-22)

In 2021-22, the allocation for domestic procurement has been enhanced compared to previous year and is about 64.09%, INR 71438.36 Cr of the allocated amount for military modernization.

Ongoing DRDO projects in India of worth $ 7.3 bn

SRIJAN portal launched to promote indigenization. Till July 2021, 10940 items, have been displayed on the portal for indigenisation.

Industry Scenario

To provide impetus to self-reliance in defence manufacturing it is necessary to develop a robust eco-system and supportive government policies. 

DPEPP 2020

Ministry of Defence (MoD) has formulated a draft Defence Production and Export Promotion Policy 2020 (DPEPP 2020) as guiding document of MoD to provide a focused, structured, and significant thrust to defence production capabilities of the country for self-reliance and exports.

Goals and Objectives of DPEPP 2020 are:

  • To achieve a turnover of INR 1,75,000 Cr ($25Bn) including export of INR 35,000 Cr ($5 Bn) in Aerospace and Defence goods and services by 2025.
  • To develop a dynamic, robust and competitive Defence industry, including Aerospace and Naval Shipbuilding industry to cater to the needs of Armed forces with quality products.
  • To reduce dependence on imports and take forward "Make in India" initiatives through domestic design and development.
  • To promote export of defence products and become part of the global defence value chains.
  • To create an environment that encourages R&D, rewards innovation, creates Indian IP ownership and promotes a robust and self-reliant defence industry.

Focus areas of DPEPP 2020 are:

  • Aero Engines: Focus on establishing an Aero Engine Complex for civil and military applications and developing core technologies for Aero Engines 
  • Maintenance, Repair & Overhaul: Leverage favourable tax rationalization measures to promote MRO sector and enable convergence between Civil and Military MROs 
  • Critical Technologies & Materials: List of Critical Technologies and Materials to be identified and R&D strategies to be developed to attain indigenization

DAP 2020

Formulation of DAP 2020 is aligned with the vision of the Government of Atmanirbhar Bharat. DAP 2020 lays down a strict order of preference for procurements. Weapons systems that are designed, developed, and manufactured in India are given higher preference. DAP 2020 has adequately included provisions to encourage FDI to establish manufacturing hubs both for import substitution and exports while protecting interests of Indian domestic industry.

Salient features of DAP 2020 are: 

  • Reservation in Categories for Indian Vendors
  • Enhancement of Indigenous Content      
  • Rationalisation of Trial and Testing Procedures  
  • Make & Innovation  
  • Design & Development
  • Industry Friendly Commercial Terms
  • Offsets   

IDR Act

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 Licence granted under the IDR Act 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.

STRATEGIC PARTNERSHIP MODEL

The Defence Acquisition Council (DAC) approved the broad contours of the Strategic Partnership Model (SPM) in its meeting held on May 20, 2017, under the chairmanship of the defence minister. 

  • The policy is intended to engage the Indian private sector in the manufacture of hi-tech defence equipment in India.
  • It is an establishment of long-term strategic partnerships with qualified Indian industry majors through a transparent and competitive process.
  • The Indian industry partners would tie up with global OEMs (original equipment manufacturer) to seek technology transfers and manufacturing   know-how to set up domestic manufacturing infrastructure and supply chain.
  • In the initial phase, strategic partners will be selected o the following segments:
  • Fighter Aircraft.
  • Helicopters.
  • Submarines.
  • Armoured fighting vehicles (AFV)/Main Battle Tanks (MBT)
     

GROWTH DRIVERS

  • Defence Industrial Corridors

    Government has established two Defence Industrial Corridors in Uttar Pradesh and Tamil Nadu. Investments of $2.85 Bn have been planned in Defence corridors by year 2024.

  • Promotion of indigenous design and development of defence equipment

    A new category of capital procurement ‘Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)}’ has been introduced in Defence Procurement Procedure (DPP)-2016.

  • Technology Development Fund (TDF)

    TDF has been created under DRDO to promote self-reliance in Defence Technology through participation of Public/Private industries especially MSMEs and start-ups.

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FAQs

Frequently
Asked Questions

What is the defence sector overview in recent times?

The Achievement report of the defence sector covering policy initiatives, R&D and other important areas can be accessed on the link.

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Is there funding provided by the government for certain categories?

Yes, projects under 'Make-I' sub-category involves Government funding of 90%, released in a phased manner and based on the progress of the scheme, as per terms agreed between MoD and the vendor.

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Are the any incentives for MSMEs under DPP?

DPP 2016 provides great impetus to the MSMEs with certain categories of 'Make' products earmarked exclusively for MSMEs.

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How are the capital acquisition schemes classified under DPP?

Capital Acquisition schemes are broadly classified as 'Buy', 'Buy and Make' and 'Make'. In decreasing order of priority the procurement of defence equipment, under this procedure are categorised as follows:
1) Buy (Indian - IDDM).
2) Buy (Indian).
3) Buy and Make (Indian).
4) Buy and Make.
5) Buy (Global).

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What is the Defence Procurement Procedure (DPP) 2016?

The DPP is formulated to ensure timely procurement 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. It is worthwhile to mention that the document is not merely a procurement procedure but also an opportunity to improve efficiency of the procurement process to realize the vision of 'Make in India' in the defence sector.

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