Draft policy on defence production

• Government has released a draft policy on defence production which increases the foreign direct investment (FDI) cap in niche technology areas to 74% under the automatic route, in a bid to boost local manufacturing and catapult India into the league of countries housing top defence and aerospace industries.
• At present, the FDI cap for the defence sector is 49% under the automatic route for all categories.

Highlights:

• This policy aims to “create an environment that encourages a dynamic, robust and competitive defence industry, as an important part of the Make in India initiative”.
• It also aims to “facilitate faster absorption of technology and create a tiered defence industrial ecosystem in the country”, besides reducing the “dependence on imports” to “achieve self-reliance”.
• India is currently the top importer of defence hardware in the world. According to the policy, India hopes to achieve a turnover of Rs1.7 trillion in defence goods and services by 2025. It has a goal of becoming an arms exporter to the tune of Rs35,000 crore in defence goods and services by 2025.
• The government is targeting achieving self-reliance in the development and manufacture of fighter aircraft, medium-lift and utility helicopters, warships, land combat vehicles, autonomous weapon systems, missiles, guns, small arms, ammunition, explosives, surveillance, electronic warfare and communication systems and night fighting equipment.
• To achieve all these goals and to make it easier to do business in the area of defence for innovators, small- and medium-sized enterprises, the policy proposes to bring in enabling provisions to ensure start-ups and small enterprises participate “without having restrictions of turnover” or “prior experience”.
• The government will list its requirements in terms of platforms and weapon systems for the next decade to help private sector companies understand the opportunities.
• It will also simplify procedures for private firms to enter defence production, i.e., liberalize the regime by issuing licences in 30 days and pruning no-go areas to a small ‘negative list’ for licensing.
• The government will also do away with capacity assessment, except for critical projects. It will introduce earnest money deposits and performance guarantees as safeguards for others.
• With regard to offsets, the government has proposed to set up an ombudsman for resolving all such claims. Offsets—investments through a local partner to set up an ecosystem of suppliers—would be investment linked.
• In the area of taxation, the government has proposed rationalization of taxes on import of capital goods for services and inputs for defence and aims to prevent inversion of taxes.

By: Vishal