<div><em>The 'Make in India' initiative of the Narendra Modi-led NDA government will get a big push if the changes suggested to the Defence Procurement Procedures by the expert committee are accepted and implemented. These include key suggestions to the changes in the Offset Policy. The likely outcome: over 6000 MSMEs, nine defence PSUs and around 40 ordinance factories will get the benefit of these changes. <strong>Ashish Sinha</strong> reports</em>. </div><div> </div><div>The recommendations are timely as the new defence procurement procedures 2015 has been pending for a long time. With defence production being a priority area for the central government, these recommendations will go a long way in firming up the DPP 2015, experts said. India, in the last five years has been the world’s top arms importer. India's share in arms import is 15 per cent of the global share of arms imports. India spends nearly half its capital acquisition budget on importing arms.</div><div> </div><div>The expert committee has made several suggestions including creating a strategic task force for developing a key partnership model with the private sector for the manufacture of aircrafts, warships, armoured vehicles etc in the country. The proposed task force will be entrusted to select an Indian strategic partner for the development of any specific platform. There will be stringent oversight mechanisms for reviewing and auditing the financial performance of all such platforms. Selected strategic partners will be allowed to develop only one platform. For example the strategic Indian partner selected to develop fighter aircrafts will only develop fighter aircrafts.</div><div> </div><div>The committee has identified six sectors in which strategic partners from the private sector can be selected to push the 'Make In India' initiative. These include Aircraft (fighters, transport, helicopter along with their operating systems), Armoured vehicles and their systems, warships including the submarines and their systems, complex weapons like guidance system based missiles with diverse usage including anti-ship, air defence, air-to-air, surface-to-air, air-to surface, etc. <br> </div><div>There is a proposal to allow the Original Equipment Manufacturers (OEMs) to complete the project in a timeline of 10 years. However, considering the long gestation period of such projects, the government could extend the time period by two years, if required. Maintenance, Repair and Overhaul (MRO), testing and designing initiatives will be an integral part of the project obligations. Changes in Indian Offset partners will be allowed only if approved by the Secretary, Defence Production. </div><div> </div><div>Suggestions also include defining who is an Indian vendor and what will be the licensing norms, FDI guidelines etc applicable to the Indian Vendors. The committee has also recommended increasing the ratio of indigenous content in projects from current 30 per cent to 40 per cent if India is buying from overseas. However, if India buys and decides to manufacture defence-related equipment’s/hardware, then the indigenous content threshold will go up from existing 50 per cent to 60 per cent. The move is expected to give a boost to the local small and medium enterprises related to defence manufacturing. </div><div> </div><div>The Committee has also recommended the elimination of the inverted duty structure on inputs for defence items. It has also decided to recommend an extension of tax benefits to the defence sector that are currently provided to other core sectors like power, infrastructure etc. </div><div> </div><div>Considering the growing needs of the Indian defence forces and the dire need of world class products, India needs a comprehensive policy framework for defence procurement. Analysis of India's defence budget shows that around 36-40 per cent goes towards capital acquisitions or simply towards footing the import bill. In 2014-15, Indi's defence budget stood at Rs 2.22 lakh crore, virtually double of what it was a decade ago. Simultaneously, the capital acquisition budget has also double at a similar rate in the last 10 years standing today at around Rs 82,000 crore. But India needs more. </div><div> </div><div><em>ashish.sinha@businessworld.in</em></div><div> </div>
