The Defence Production Policy, aims at achieving substantive self-reliance in the design, development and production of equipment, weapon systems, platforms required for defence in as early a time frame possible; creating conditions conducive for the private industry to take an active role in this endeavour, enhancing potential of SMEs in indigenisation and broadening the defence R&D base of the country. Indigenous manufacturing of defence equipments is encouraged by the Government through several policy measures, 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 Cap 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 licensing 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 equipments, 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 of offset have been re-instated with certain conditionalities.
In the current financial year 2015-16, Department of Industrial Policy & Promotion (DIPP) has issued 61 Industrial Licenses (ILs) for manufacture of various defence equipment under IDR Act 1951, till December 2015.