India’s Defence Production and Export Promotion Plan draft is not as enticing as suggested

5 August 2020 (Last Updated August 5th, 2020 15:34)

India has unveiled its draft plan was designed to provide an impetus to self-reliance in defense manufacturing and in line with the announcements made earlier in the year. However, while some of the steps and ideas mentioned there do help with support to manufacturing locally, it leaves much to be desired for global firms to shift to India.

India’s Defence Production and Export Promotion Plan draft is not as enticing as suggested

India has unveiled its draft plan was designed to provide an impetus to self-reliance in defense manufacturing and in line with the announcements made earlier in the year. However, while some of the steps and ideas mentioned there do help with support to manufacturing locally, it leaves much to be desired for global firms to shift to India. Portions that will improve production is controlled list of items banned from import, a minimum of 15% for domestic capital procurement and the corporatization of the Ordnance Factory Boards (OFBs) and the encouragement of investment into specific areas including an aero-engine complex and associated maintenance, repair and overhaul (MRO), aircraft MRO, certain critical technologies and materials manufacture and advantages to the use of the two defense corridors set up in the country.

A point of departure from the earlier announcement is increasing the foreign ownership of an Indian defense company to 74% automatically. Such companies would, understandably, not be considered Indian, and would therefore fall out of the ability to compete for certain programs. The DPEPP draft though, outlines the FDI policy for defense sector from 2016 where FDI up to 49% is allowed automatically, and where access to modern technology or other reasons as recorded by the government would allow for FDI above 49%.

It is however, an encouraging point that the government seems to be cognizant of some of the drawbacks that industry and the services had raised and is now seeking to resolve them. This includes the rationalization of funds used by the Ministry of Defense, the development of a Project Management Unit (PMU) to manage acquisitions, a Technology Assessment Cell (TAC) to understand the local manufacturing capability and assess regional and global technological capacities, a comprehensive review and overhaul of the trials and testing procedures to reduce procurement cycle time.

Indigenization and local production of imported components is hoped with a plan of 5000 components indigenized by 2025. The hope for the government is a turnover of USD 25 billion by 2025 in Aerospace and Defense goods and services with exports amounting to USD 5 billion.

For quite a while, India has focused on trying to build its domestic defense production and increase indigenization of equipment, and with the complexities brought about by the COVID-19 situation, this idea gained further traction. India’s aims to change its aerospace and defense industry and provide support to the industry to develop capabilities and plan long term defense requirements are all noteworthy. However, with so many differing views, processes and files that need to accompany every procurement, testing and development program, only time will tell whether this draft policy’s ethos gets translated to real hierarchical change or add another layer of complexity to the supplier to navigate the Ministry of Defence. Ultimately, irrespective of the final DPEPP, ease of conducting business and clear, timely processes and clearances will determine whether India can be the hub of aerospace and defense R&D, production and MRO that it is positioning itself to be.