Defence projects and acquisition of technology: Modi Government gives a boost to domestic private sector

Newsroom24x7 Staff

Mahindra Defence and Airbus Helicopters have inked a pact to form a joint venture to produce military helicopters in India
Mahindra Defence and Airbus Helicopters have inked a pact to form a joint venture to produce military helicopters in India

New Delhi: The Narendra Modi led Indian Government has taken major policy initiatives to assist the domestic private sector in acquiring indigenous technology or technology from other countries for various Defence related projects.

In the financial year 2015-16, the Government has accorded Acceptance of Necessity (AoN) for proposals worth Rs.45900 Crore approximately, in ‘Buy (Indian)’ and ‘Buy and Make (Indian)’ categories of capital acquisition. Some of the major projects categorized under these categories are Successor 1099 Air Defence Gun, Multi-Purpose Vessels, High Mobility Vehicles (HMV GS 6×6), Short Span Bridges, Multi Spectral Camouflage Net (MSCN) etc.

Indian companies are allowed for tie-ups with a foreign Original Equipment Manufacturer (OEM) for Transfer of Technology (ToT) under ‘Buy & Make (Indian)’ category.

Defence Minister Manohar Parrikar
Defence Minister Manohar Parrikar

Defence Minister Manohar Parrikar, in a written reply in Rajya Sabha today said that under ‘Buy & Make’ Category of Capital Acquisition, the foreign vendor is required to transfer the Technology to Indian Production agency for indigenous production of the items. Provisions have also been made to allow Foreign OEM to select Indian Production agency of its choice for transfer of technology.

Besides Defence Offset Guidelines provide for Transfer of Technology to Indian Companies as one of the eligible avenues for discharge of offsets.

Defence Research and Development Organisation (DRDO) also has issued Guidelines for Transfer of Technology which provides for an institutional mechanism for transfer of technology developed by DRDO to public and private sector industry.

With regard to FDI in Defence Sectors, the Defence Minister told the Upper House that The Government on 24 June 2016 notified review of Foreign Direct Investment (FDI) Policy on various sectors including defence. According to the revised guidelines, foreign investment up to 49% is allowed through automatic route and above 49% under Government route wherever it is likely to result in access to modern technology or for other reasons to be recorded. The foreign investment in defence sector is further subject to industrial licence under the Industries (Development & Regulation) Act, 1951.

On 26 June 2014, the Government had also notified defence products list for the purpose of issuing Industrial License for manufacture of licensable items under the Industries (Development & Regulation) Act, 1951.

Foreign investment in defence industry sector is subject to industrial licensing. Licensing Committee in Department of Industrial Policy and Promotion (DIPP) takes into account security clearance from the Ministry of Home Affairs and views of the Ministry of Defence. The Licensed Defence Companies are required to follow detailed security guidelines applicable to them as per security instructions / architectures prescribed in “Security Manual for Licensed Defence Industries” available at based on their categorization. The Manual provides detailed guidelines on physical security / materials security / documents security / information security etc. The companies are also subjected to external security audit by Intelligence Agencies once in two years and cyber security audit by CERT-IN empanelled auditors once every year.

Foreign investment above 49% is permitted in cases wherever the proposal is likely to result in access to modern technology or for other reasons to be recorded. Such proposals are considered by Foreign Investment Promotion Board (FIPB) based on the security clearance of MHA and comments of Ministry of Defence. In such cases, foreign investment is expected to bring in modern technology and production capability in the domestic defence production sector.
With regard to FDI in Naval Warship Building Industry, Parrikar told Rajya Sabha that Navy has achieved considerable lead in construction of indigenous naval warships. Warship building has matured in the country and various types of warships viz. aircraft carrier, destroyers, stealth frigates, corvettes, submarines and other minor war vessels are being built in the country. Currently, all orders for warships and submarines for Indian Navy have been placed on Indian shipyards (i.e. on Defence PSU / PSU / private shipyards).

Foreign Investment upto 49% is allowed through automatic route and above 49% under Government route, wherever it is likely to result in access to modern technology or for other reasons to be recorded. So far, 36 FDI proposals / Joint Ventures have been approved in defence industry sector for manufacture of various licensable defence items, both in public and private sector.

The Defence Minister went on to underscore that Defence deals in India are now corruption free. He said that no case of corruption in defence procurement has come to light during the last two years.

The Defence Minister said that Capital Procurement of defence equipment from Indian and foreign vendors is done under the provisions of the Defence Procurement Procedure (DPP). The new DPP which has come into effect from 1 April 2016 incorporates provisions to ensure the highest degree of probity, public accountability, transparency, fair completion and level playing field. The DPP 2016 envisages signing of an integrity Pact between Government and the bidders for all capital procurement/ schemes of Rs. 20 crore and above. Earlier such pacts were required only for cases involving Rs. 100 crores and above. DPP 2016 provides that a foreign vendor is required to disclose full details of any such person, party, firm or institution engaged by them for marketing of their equipment in India, either on a country specific basis or as a part of a global or regional arrangement. It also stipulates conditions for appointment of agents. It further provides that the Seller has to confirm and declare to the Buyer that it is the original manufacturer of the stores contracted and that no agent has been engaged to influence or manipulate award of the contract, or indulge in corrupt and unethical practices.
Tejas aircraft will partially meet IAF’s requirement in Light Weight fighter category, the Minister said adding HAL has an installed capacity to produce 8 Light Combat Aircraft – Tejas per annum. There is no fighter aircraft project which is pending for decades, he stated.

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