Paving the Way for Indigenization of Defence Manufacturing

Another source stated that the list makes it necessary for the armed forces to place even a second-order on one of the Indian companies. This is because in most cases, foreign organizations can bid lower and swing the contract, mainly in the electronics segment. Again, one of the sources mentioned above stated that the industry is looking forward to an order list instead of only an import negative list.

“The biggest question is where is the order? The industry is looking at knowing the proposed order list,” the source said. “If the MoD says it has reserved Rs 70,000 crore or Rs 75,000 crore to be spent on indigenous production this financial year, it will need a pipeline of Rs 5 lakh crore since payments are done in batches.

The industry wants to know where this pipeline is so that they know what RFP is coming out and when orders will be issued.” Also, one of the leading foreign defence players in the Indian market stated that the list is ‘protectionist’ & ‘not a good idea’.

“The way forward as we see it is to tie up with Indian firms. The negative list will only lead to India playing catch up with global firms whereas the focus should be on building technology for the future and emerge as a foreign OEM (original equipment manufacturer) for the world,” the source said. “I agree that Indian industry needs help, which should be provided, but make it a level playing field also.”

Manufacturing capability for the de-listed import items
“India had an age-old experience in making arms and military equipment but after Independence, this capacity was not strengthened,” PM Modi stated in Feb 2021. He also stated that India is working hard to enhance its capabilities in the defence-manufacturing sector at a fast pace, observing that there were hundreds of ordnance factories before independence with large-scale weapons export from the country in both world wars but this system was not strengthened.

The PM listed a series of measures that were taken by his government with an aim to boost self-reliance in the defence industry and rued the fact that India is one of the biggest defence importers in the world, which he addressed in a webinar that was about the ‘effective implementation of the Union Budget’s provision in the defence sector.

“An India that has the capacity to reach Mars could have made modern weapons also, but it became an easy way to import weapons from abroad,” the PM stated. But now, the country is working hard to change the situation and also to enhance its capabilities at a fast pace, PM Modi asserted.

“Before independence, we used to have hundreds of ordnance factories. In both, the world wars, weapons at a large scale were exported from India. But for various reasons, this system was not strengthened as much as it should have been after independence,” he said. “The condition is such that even for small arms, we have to look at other nations. India is amongst the biggest defence importers and this is not a matter of pride,” PM Modi stressed.

With a nearly 19 percent increase in capital outlay, PM Modi stated that Rs 4.78 lakh crore has been designated or reserved for the defence ministry in the 2021-2022 budget. Also, the government of India has taken numerous measures in order to give the defence-manufacturing sector a boost with multiple initiatives that include foreign investment liberalization, de-licensing, export promotion, and de-regulation.

PM stated that “India has made a list of 100 important items related to defence, which can be manufactured indigenously with the help of local industries. It is called a negative list in the official language, but it is a positive list in the language of self-reliance. This is the positive list on which the country’s manufacturing capacity is going to increase”. This will be the positive list, which will reduce the country’s dependence on other countries for defence needs and not just that it also guarantees the sale of indigenous products in the country.

According to a recent report by IBEF, the Indian defence manufacturing industry has registered a Compound Annual Growth Rate of 3.9 percent during the forecast period - 2016-2020. The Indian government has set the defence manufacturing target at USD 25.00 billion by 2025, which includes USD 5 billion from exports by the same year, as per the report.

The Journey Ahead
The GOI is focussing on innovative solutions intending to empower India’s defence and security through ‘Innovations for Defence Excellence’. This has empowered and provided a platform for start-ups to connect to the Defence establishments and build newer technologies or products in the coming years (2021-2026).