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India Clears $7.5 Billion Worth Military Equipment Under ‘Make In India’

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While this is a major push to the Modi government’s Atmanirbhar Bharat (self-reliant India) campaign, qualms regarding the quality of some indigenous equipment still remain.

Import Ban

Giving an example to highlight the need for being self-reliant in defense, General V.P. Malik (retired), said that during the 1999 Kargil war, the Indian Army had ordered two regiments of 155 mm Denel guns from South Africa. However, when the weapons were to be delivered, they said they didn’t have them.

To avoid tricky situations like these, indigenization in this crucial sector is of prime importance. This is the path the current government has taken as well.

Under the present administration, India’s Defense Ministry first imposed an import ban on 101 military items in August 2020. It then added 108 more items to the existing list a year later to give further impetus to self-reliant defense manufacturing.

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The import ban list comprises systems, sensors, weapons, and ammunition such as mine-protected vehicles, helicopters, mini-UAVs, wheeled armored platforms, tank engines, border surveillance systems, next-generation corvette, and helicopter launched anti-tank guided missiles among others. Import substitution of certain ammunition has been given special focus.

Speaking to The EurAsian Times, Major General Rohit Gupta (retd) said, “It is important to understand that an import ban on 209 military equipment does not imply that the equipment would be 100% indigenous. The percentage of minimum acceptable Indigenous Content (IC) will continue to be dictated by the procurement category which ranges from 50-60% IC.

Some niche technologies are only available with a select few countries. We would need both the foreign companies and, in most cases, their government approval for the technology. At that too, in most cases, the ToT is not given.

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In such cases, 100% indigenization is not possible, at this juncture, and that component will have to be imported and integrated into the complete system with the foreign OEMs assistance. Yes, at a later stage, we can progress towards greater indigenization as our technology thresholds improve,” Gupta, currently, the head of aerospace & defense at Primus Partners, added.

FDI Threshold

Alongside this, the government also decided to increase foreign direct investment (FDI) in the defense sector. The idea is to increase domestic defense production, develop new technology in India and facilitate the growth of the private sector in defense production.

In a Press Note in September 2020, the Department for Promotion of Industry and Internal Trade announced the increase of FDI in the defense sector from 49% to 74% under the automatic route.

Maj Gen. Gupta (retd) opined that an increase of FDI up to 74% through the direct route in the defense sector has the potential to provide impetus to foreign companies to invest and manufacture in India. This will allow a complete higher technology threshold eco-system of indigenous Tier 2 & 3 suppliers to come up.

A few impediments like the restriction in the permissible category of procurement, for such companies, will have to be resolved to make it a viable investment opportunity.

For the financial year 2020-2021, the Defense Ministry also created a separate budget head for domestic capital procurement. It has allocated a budget of INR 52,000 crore for domestic procurement. Previously, the capital procurement budget consisted of both domestic and foreign procurement.

The Defence Acquisition Procedure (DAP) 2020 increased the requirement of indigenous content in all categories of defense procurement. It also proposed other measures — such as increasing indigenous availability of high-end military materials, using locally-made software in equipment/systems, and boosting innovation by start-ups and micro, small and medium enterprises (MSMEs)– to increase indigenization.

Local Manufacturers Get A Boost

In less than a month, New Delhi cleared defense purchases worth almost ₹54,000 crores (around $7.5B). In late September, a ₹22,000-crore (around $3B) contract for 56 C-295 medium transport aircraft was signed between Airbus Defence and Space and India’s Defense Ministry.

This contract, aimed to modernize the Indian Air Force’s transport fleet, will be jointly executed by Airbus Defence and Space and Tata Advanced Systems Ltd. As The EurAsian Times previously reported, Airbus will provide the first 16 aircraft in ready-to-fly condition from Spain while Tata will assemble the other 40 in India.

Just a day before the C-295 deal was signed, the ministry had placed an order worth ₹7,523 crores (one billion USD approx) with Heavy Vehicles Factory in Avadi, Tamil Nadu. This was a contract for 118 Arjun Mk-1A tanks.

Courtesy – eurasiantimes.com

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