Positive Indigenisation Lists

Fifth Positive Indigenisation List (PIL) of Department of Military Affairs (DMA) comprising 98 items was released by Raksha Mantri Shri Rajnath Singh during the plenary session of ‘Swavlamban 2.0’. The list includes Highly complex systems, sensors, weapons and ammunition have been included in the list. All these items will be procured from indigenous sources as per provisions given in Atmanirbharta in Defence Acquisition Procedure 2020 in staggered timeline. The DMA had earlier promulgated four PILs comprising 411 military items. Separately, the Department of Defence Production (DDP) has notified four PILs consisting of a total of 4,666 items, including Line Replacement Units/Sub-systems/Spares & Components for DPSUs. The fourth PIL of 928 items was released by DDP in 2023.

Record Defence Production

The value of defence production in Financial Year (FY) 2022-23 crossed the figure of Rs one lakh crore for the first time ever. It was Rs 95,000 crore in FY 2021-22. The Government is continuously working with defence industries and their associations to remove the challenges faced by them and promote defence production in the country. A number of policy reforms have been taken to achieve the objective of ease of doing business, including the integration of MSMEs and start-ups into the supply chain. Due to these policies, the industries, including MSMEs and start-ups, are forthcoming in defence design, development & manufacturing and there is almost a 200% increase in the number of defence licenses issued to the industries in the last 7-8 years by the Government.

Record Defence Exports

Through consistent policy initiatives of the Government and tremendous contribution of the defence industry, defence exports reached an all-time high of approx. Rs 16,000 crore in FY 2022-23, almost Rs 3,000 crore more than the previous financial year. It a rise of over 10 times since 2016-17. India is now exporting to over 85 countries. Indian industry has shown its capability of design and development to the world, with 100 firms exporting defence products at present. Major platforms being exported include Dornier-228, 155 mm Advanced Towed Artillery Guns, Brahmos Missiles, Akash Missile System, Radars, Simulators, Mine Protected Vehicles, Armoured Vehicles, PINAKA Rockets & Launchers, Ammunitions, Thermal Imagers, Body Armours, besides Systems, Line Replaceable Units and Parts & components of Avionics and Small Arms. There is growing global demand of LCA-Tejas, Light Combat Helicopters, Aircraft Carrier, MRO activities etc.

Separate Budget for Domestic Industry

Record 75 per cent (approx. Rs one lakh crore) of the defence capital procurement budget was earmarked for domestic industry in FY 2023-24, up from 68 per cent in 2022-23. This was announced by the Raksha Mantri during 14th Aero India in Bengaluru. In FY 2023-24, Ministry of Defence was allocated a total Budget of Rs 5.94 lakh crore, which is 13.18 per cent of the total budget (Rs 45.03 lakh crore). Capital outlay pertaining to modernisation and infrastructure development was increased to Rs 1.63 lakh crore.

HAL Helicopter Factory

Hindustan Aeronautics Limited (HAL) Helicopter Factory was dedicated to the nation by Prime Minister Shri Narendra Modi at Tumakuru in Karnataka. The factory is India’s largest helicopter manufacturing facility and will initially produce Light Utility Helicopters (LUHs). The LUH is an indigenously designed and developed three-ton class, single engine multipurpose utility helicopter with unique features of high manoeuvrability. Initially, the factory will produce around 30 helicopters per year and can be enhanced to 60 and then 90 per year in a phased manner.

ALSO READ:Safran and HAL to form joint venture company for helicopter engines

LCA Tejas

HAL handed over the first twin-seater Light Combat Aircraft ‘Tejas’ to the IAF in the presence of Rakha Rajya Mantri Shri Ajay Bhatt in Bengaluru. It is a light weight, all weather multi-role 4.5 generation aircraft, designed to support the training requirements of the IAF and augment itself to the role of a fighter in case of necessity. It is an amalgamation of contemporary concepts and technologies such as relaxed static-stability, quadraplex fly-by-wire flight control, carefree manoeuvring, advanced glass cockpit, integrated digital avionics systems and advanced composite materials for the airframe. The IAF placed an order for 83 LCAs with HAL.

C-295 Transport Aircraft

First C-295 MW transport aircraft was formally inducted into the Indian Air Force in the presence of Raksha Mantri Shri Rajnath Singh. The aircraft are being inducted through a collaboration between Tata Advanced Systems Limited and Airbus Defence and Space S.A., Spain. Fifteen more aircraft will be delivered in flyaway condition and they are scheduled to be received till August 2025. Remaining forty will be manufactured at the C-295 transport aircraft manufacturing facility, the foundation stone of which was laid by the Prime Minister in Vadodara, Gujarat in October 2022. The first Made in India aircraft is expected from September 2026. This medium lift tactical aircraft, which is capable of taking off and landing from unprepared landing grounds, will replace the HS-748 Avro aircraft.

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In continuous pursuit of self-reliance in defence manufacturing and to minimise imports by Defence Public Sector Undertakings (DPSUs) under ‘Aatmanirbhar Bharat Abhiyan’, Dept of Defence Production (DDP) notified 4th Positive Indigenisation List (PIL) of 928 items on May 12, 2023, which includes LRUs/ sub-systems/ assemblies/ sub-assemblies, raw material, low value critical spares and components of DPSUs for time-bound indigenisation. These items are to be indigenised within the timelines of December 2023 to December 2029. As compared to previous year, 4500+ items of Srijan Portal including 173 PIL items, have been indigenised in 2023.

To give fillip to the ongoing indigenisation, a portal – www.srijandefence.gov.in – was launched in August 2020 for DPSUs/Services with an industry interface to provide development support to MSMEs/ Startups/ Industry for import substitution.

The MoD has successfully indigenised 10,451 items during the period of 3 years since the launch of Srijan Portal. More than 34,000 items were uploaded by the DPSUs and Service Headquarters on Srijan Portal for indigenisation by Industry. This includes the 4,666 items under PILs being notified by DDP.

Standardisation of defence equipment/ inventory is undertaken through 13 Standardisation Sub-Committees dealing with specialized equipment/ technologies. During 2023, a new Standardisation Sub-Committee namely, Marine Equipment Standardisation Sub-Committee, was formed to formulate Standards for Marine Equipment.

During 2023, training on standardisation and codification was imparted to 333 personnel of Tri-Services, Defence Public Sector Undertakings (DPSUs), Authority Holding Sealed Particulars (AHSPs), Ordnance Factories and civil industries, through two Training Institutes located at Pune and Badarpur (New Delhi).

The 14th edition of Aero India-2023 was held from 13th–17th February at Bengaluru, Karnataka and has been the largest ever edition since its inception in 1996 with more than 100 countries, 809 exhibitors, first ever Fly past with 53 aircrafts showcasing our airpower to global attendees and a total footfall of 7+ lakh visitors over five days.

Start-ups promotion was a focus area at Aero India-2023 with Indian Start-ups being showcased at an exclusive iDEX pavilion, and at the Chiefs of Air Staff Conclave. The Annual Start-up event ‘Manthan’ was also conducted. The maiden iDEX Investor Hub (iIH) was conducted with over Rs 200 crore pledged during iIH.

A concerted effort was made towards forging B2B partnerships at the ‘Bandhan’ ceremony and more than 250 such partnerships with a total value of more than Rs 75,000 crore have been finalized. The partnerships are a step towards increasing traction for business, ToT and Joint development between the companies.

Defence Exports

Export leads received from various stakeholders are being disseminated to the registered Indian Defence Exporters through online portal. This facility helps the Indian defence exporters to quickly respond to export opportunities arising in other countries. The online portal has been upgraded with a feedback mechanism from Indian Industry for online monitoring/ follow-up of the disseminated export leads. Total 245 leads have been disseminated through the portal since Jan 2023.

In order to boost defence exports, webinars were organized with Friendly Foreign Countries (FFCs) under the aegis of DDP, MoD through Industry Associations. Total 26 webinars have been organised since Jan 2023.

A scheme for financial assistance to Defence Attaches (DAs) for promotion of “Brand India” in defence was approved by the RM in Nov’ 2023. Under this scheme DAs have been mandated for export promotion of Indigenous defence products of both public and private sector through enhanced financial grants to the Indian missions. For FY 2023-24, DAs of 64 countries were allocated a total of Rs. 3.76 crores.

An institutional support mechanism has been created for facilitation and hand-holding of Indian defence companies for promoting the export of UN Contingent Owned Equipment (COE) to troop contributing countries.

In line with India’s Defence Export Strategy to enhance defence exports, 1310 Export Authorisations were issued by Dept of Defence Production to 73 countries during 2023, having value of Rs. 13345 crore.

Defence Innovations

During 2023, 101 winners of iDEX challenges were declared, 131 contracts were signed and 15 prototypes were developed. Three versions of Defence India Start-up Challenges (DISC) i.e., DISC 8, DISC 9 & DISC X were launched. Three versions of Open Challenges, i.e., OC 7, OC 8 & OC 9 were launched.

iDEX in partnership with US DoD conducted the India-U.S. Defence Acceleration Ecosystem (INDUX-X) event in Washington DC, USA on 20-21 June 2023. The initiative will expand the strategic technology partnership and defence industrial cooperation between the start-up eco-system, businesses, and academic institutions.

iDEX Investor Hub (iIH) brought additional funding of Rs 50 cr through ITI Growth Opportunities Fund (a venture capital fund of the Investment Trust of India group), raising the total iIH amount to Rs 260 cr.

Swavlamban 2023. During Swavlamban 2023 event on 4 Oct 2023, Raksha Mantri launched a number of initiatives.

Collaboration with US DoD. Along with 76 Challenges of DISC X, 5 problem statements under iDEX 4 Fauji and first 2 challenges under ‘INDUS-X Mutual Promotion of Advanced Collaborative Technologies’ (IMPACT were jointly launched by iDEX and United States Department of Defence (US, DoD).

iDEX-Navy Venture for Technology (iNVent): Naval Innovation and Indigenisation Organisation (NIIO) and Defence Innovation Organisation (DIO) entered into an MoU for jointly working on facilitating the infusion of Venture Capital into the defence ecosystem through the iDEX Investor Hub (iIH).

DAC Approvals. Indigenous Design & Development of Defence Systems has been undertaken through ‘Make Procedure’ provided under Defence Acquisition Procedure-2020. In 2023, 18 projects were accorded ‘Approval-in-principle’ bringing the total tally to 149 projects. Also, 11 projects have been accorded Acceptance of Necessity (AoN) in 2023, taking the number of AoN projects to 60.

Defence Industrial Corridors. Two Defence Industrial Corridors (DIC) have been established at Uttar Pradesh and Tamil Nadu to boost Defence Manufacturing ecosystem in the country with intent to attract investment of Rs. 10,000 Crore in each DIC. In Uttar Pradesh Defence Industrial Corridor (UPDIC), Uttar Pradesh Expressways Industrial Development Authority (UPEIDA), the nodal agency, has signed 138 Memoranda of Understanding (MoUs) with industries, etc. Actual investment of Rs. 2656 core has been made in UPDIC. In Tamil Nadu Defence Industrial Corridor (TNDIC), Tamil Nadu Industrial Development Corporation (TIDCO), the nodal agency, has made arrangements through 57 MoUs, etc. Actual investment of Rs. 4085 Crore has been made in TNDIC.

Helicopter Factory. Prime Minister Narendra Modi dedicated HAL’s New Helicopter factory in Tumkuru to the nation on 6th Feb ’23. During the same event, Prime Minister unveiled HAL’s indigenously designed and developed Light Utility Helicopter (LUH).

DPSU’s Successes

Raksha Mantri Rajnath Singh inaugurated first overseas regional marketing office of HAL in Kuala Lumpur, Malaysia on 11 July 2023.

HAL received the ‘State Export Excellence Award’ (for the years 2017-18, 2018-19 & 2019-20) from Department of Industries and Commerce, Govt. of Karnataka under the category of ‘Govt. of India Undertaking Exporter’ on 22 Jul 2023.

HAL played key role in success of Chandrayaan-3 including on-time delivery of 30 types of rivetted structure, six types of welded structure and the satellite’s bus structure Rover, Lander and Castings & Forgings, appreciation received.

ASTRA indigenous Beyond Visual Range (BVR) air-to-air missile, successfully fired from Light Combat Aircraft (LCA) LSP-7, off the coast of Goa on 23 Aug 2023. All the objectives of the test were met. This was a joint effort by ADA and HAL.

HAL received DGCA approval under ‘CAR21 Subpart G’ for series production of Hindustan 228 aircraft, indigenously built, as Make-in-India project and ‘Maintenance Type Training Certificate’ under CAR147 under category B1 and B2 for imparting AME type rated licence on Hindustan-228 aircraft.

Prime Minister Narendra Modi visited HAL Bangalore on 25 Nov 2023 and undertook a sortie on the LCA Tejas Twin Seater Aircraft. PM is the first Prime Minister of the Country who undertook a sortie in our home grown technology marvel-Tejas.

Indigenous Air Traffic Management System (ATMAS), jointly developed & installed by BEL and Airports Authority of India (AAI), was inaugurated & commissioned at Bhubaneswar airport on 27 Oct 2023.

Combat trial of indigenously developed Varunastra, a ship-launched anti-submarine heavy-weight torpedo (HWT) was successfully conducted on 6 June 2023 by Indian Navy. The Torpedo was fired from a submarine and successfully hit an underwater target demonstrating the combat worthiness and capable of meeting the Navy’s operational requirements. BDL has manufactured and supplied the torpedo and associated in integration, torpedo preparation for sea trials and firing onboard ship.

BDL has launched three new products i.e., Vertically Launch Short Range Surface to Air Missile (VL SRSAM), SAL Seeker ATGM for BMP II and Drone Delivered Missile (JISHNU) during the Bandhan event at Aero India held in Feb 2023.

BDL carried out field firing of 3rd Generation Fire and Forget Man Portable Anti-Tank Guided Missile named Amogha-III on 26 Mar 2023.

The i-ATS (Indigenous- Automatic Train Supervision) system, developed by BEL, was formally launched on the Delhi Metro Red Line on 18 Feb 2023 from the Operations Control Centre (OCC), Shastri Park.

MIDHANI indigenously developed SNI C276 sheets, a premier corrosion-resistant material. Alloy C276, strengthened with nickel, molybdenum, chromium, and a touch of tungsten, excels in oxidizing and reducing environments used for flue gas purification. This achievement was appreciated at BHEL SAMVAAD 3.0 held at New Delhi on 9 Nov 2023.

MIDHANI developed 1000th heat in the indigenously developed Vacuum Arc Remelting (VAR) furnace within 6 years.

MIDHANI launched five newly developed products and signed 11 MoUs during the 14th edition of Aero India 2023, organised by BEL along with HAL, held at Yelahanka, Bengaluru on 13-17 Feb 2023.

The 4th ship of Project-17A “Mahendragiri”, built by MDL, was launched on 1 Sep 2023.

Goa Shipyard Limited (GSL) and Foundation for Science innovation and Development, IISC Bengaluru signed MoU on 29 July 2023 towards fostering joint development and implementation of AI technologies in the field of shipbuilding & defence applications.

GSL & Kenya Shipyards Limited signed MoU in Capacity Building & for collaboration in ship design & construction, during the bilateral meeting held between Defence Minister Rajnath Singh and Kenya’s Cabinet Secretary for Defence, Aden Bare Duale in New Delhi.

Yard ‘Infrastructure Augmentation Plan’ worth Rs. 1393.55 cr was executed in five phases and completed in all manners on 31 Mar 2023 by GSL.

Two Diving Support Vessels (DSV), indigenously designed by Hindustan Shipyard Limited (HSL), are being built for Indian Navy for the first time by an Indian yard.

HSL has received three Inmex Maritime Excellence Awards in categories of Best Ship Repair Company, Best Technology Innovation and Women Leadership Award.

IOL has signed 13 MOUs valuing approx Rs 6,100 crore for cooperation in designing, development, manufacture, upgradation etc. of new products/ technologies with different parties like BEML and others.

In pursuance of MoD’s policy to promote ‘Aatmanirbhar Bharat’ Programmes, IOL has indigenised many ex-import components/sub-assemblies using Srijan portal. IOL has placed 101 project sanction orders on Indian manufacturers, under Make-II scheme of DAP-2020 and 8 RFPs/EOIs have also been published. IOL has 189 items in PIL1 and 47 items in PIL3 Lists, out of which 184 Items have already been indigenised. IOL has also sponsored five innovative technology projects under iDEX.

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This increase is due to a number of factors, including the Make in India initiative, which has encouraged the development of a domestic defence manufacturing industry. The government has also been providing financial incentives to defence exporters, and has been working to improve the ease of doing business in the defence sector.

Promotion of Defence Exports

The government has taken a number of steps to promote defence exports in recent years. These include:

• Streamlining export procedures: Export procedures have been simplified to make it easier for companies to export defence equipment and technologies. This includes reducing the number of approvals required, and making it easier to obtain export licenses.

• Providing financial incentives: A number of financial incentives have been introduced to encourage defence exports. These include the Scheme for Promotion of Defence Exports (SPDE), which provides financial support for attending international defence exhibitions, marketing, and publicity of Indian defence products abroad.

• Encouraging partnerships with overseas firms: Indian defence companies have been encouraged to form partnerships with overseas firms. This can help Indian companies to access new markets, and to gain access to foreign technology and expertise.

• Promoting India’s defence manufacturing capabilities: The Make in India initiative has promoted India’s defence manufacturing capabilities by attracting foreign investment in the defence sector, and encouraged the development of a domestic defence manufacturing industry.

The government is also working to improve the ease of doing business in the defence sector. This includes simplifying the regulatory environment, and providing better infrastructure and support services to defence companies. The government is also working to promote India’s defence exports to countries in the Indian Ocean Region (IOR).

Streamlining Export Procedures

A number of steps have been taken to streamline export procedures for defence equipment. These include:

•  Establishing a single-window clearance mechanism: A single-window clearance mechanism has been established for defence exports. This means that all approvals required for export of defence equipment can be obtained from a single agency, the Department of Defence Production (DDP).

• Introducing an online export tracking system: An online export tracking system has been introduced for exporters to track the progress of their export applications, and to get updates on the status of their applications.

•  Simplifying the export documentation: The export documentation required for defence exports has been simplified to reduce the time and cost involved in obtaining export licenses.

• Providing online training on export procedures: The government provides online training on export procedures to defence exporters to help exporters understand the export procedures, and to comply with the export regulations.

Financial Incentives

A number of financial incentives have been introduced to encourage defence exports. These include:

• The Scheme for Promotion of Defence Exports (SPDE): The SPDE provides financial support for attending international defence exhibitions, marketing, and publicity of Indian defence products abroad. The scheme also provides financial assistance for the development of new defence products, and for the testing and certification of defence products.

• The Defence Export Promotion Capital Goods (DEPCG) Scheme: The DEPCG Scheme provides financial assistance for the purchase of capital goods by defence exporters. This can help exporters to upgrade their production facilities, and to improve the quality of their products.

• The Defence Export Promotion Rebate (DEPR) Scheme: The DEPR Scheme provides a rebate on customs duty for imported components used in the manufacture of defence exports. This can help to reduce the cost of production for defence exporters.

The SPDE is the main financial incentive for defence exports administered by the Department of Defence Production (DDP). It is a centrally-sponsored scheme, which means that the central government provides the funding.

The SPDE provides financial support for a variety of activities related to defence exports. These activities include:

• Attending international defence exhibitions

• Marketing and publicity of Indian defence products abroad

• Development of new defence products

• Testing and certification of defence products

The SPDE is a competitive scheme. Exporters must submit a proposal to the DDP, and the proposals are evaluated on a number of factors, including the commercial viability of the project, the export potential of the product, and the benefits to the Indian economy.

In addition to the SPDE, there are a number of other financial incentives available to defence exporters. These incentives are available from the central government, as well as from state governments and from financial institutions.

Defence Manufacturing

A number of steps have been taken by the government to promote India’s defence manufacturing capabilities. These include:

• The Make in India initiative: The Make in India initiative was launched in 2014 to attract foreign investment and to encourage the development of a domestic manufacturing industry. The initiative has been successful in attracting foreign investment in the defence sector, and has helped to boost the growth of the Indian defence manufacturing industry.

• The Defence Production Policy 2020: The Defence Production Policy 2020 was released in 2020. The policy aims to promote self-reliance in defence manufacturing, and to increase the share of domestic production in the Indian defence market. The policy includes a number of measures to promote defence manufacturing, such as increasing the FDI limit in the defence sector, and providing financial incentives to defence manufacturers.

• The Strategic Partnership (SP) Model: The SP Model was introduced in 2017. The model allows Indian companies to partner with foreign Original Equipment Manufacturers (OEMs) to develop and manufacture defence products in India. The SP Model has helped to attract foreign investment in the Indian defence sector, and has helped to boost the growth of the Indian defence manufacturing industry.

• The Defence Innovation and Research (DIR) Fund: The DIR Fund was launched in 2018 to promote innovation and research in the defence sector. The fund provides financial support to start-ups and small businesses that are developing new defence technologies.

Defence R&D by Private Sector

A number of steps have been taken to enhance defence research & development (R&D) by Indian private sector companies. These steps include:

• The Defence Research and Development Policy 2018: The Policy was aims to promote private sector participation in defence R&D. It includes a number of measures to promote private sector participation, such as providing financial incentives, and setting up defence R&D parks.

• The Innovations for Defence Excellence (iDEX) scheme: Launched in 2016, the iDEX scheme is designed to promote innovation and R&D in the defence sector. The scheme provides financial support to start-ups and small businesses that are developing new defence technologies.

• The Defence Technology Development Fund (TDF): The TDF was launched in 2016 to promote defence R&D by Indian companies. The fund provides financial support to companies that are developing new defence technologies.

• The Defence Innovation and Research (DIR) Fund: The DIR Fund was launched in 2018 to promote innovation and research in the defence sector. The fund provides financial support to start-ups and small businesses that are developing new defence technologies.

Some of the specific incentives and schemes that are available to Indian private sector companies for defence R&D are:

• Financial incentives: The government provides financial incentives in the form of grants, loans, or tax breaks to companies that are involved in defence R&D. These incentives can take the.

• Access to government facilities: The government provides access to its facilities like laboratories, test ranges, and other infrastructure to companies that are involved in defence R&D.

• Collaboration with government agencies: The government collaborates with companies that are involved in defence R&D. This collaboration can take the form of joint research projects, or the sharing of information.

• Access to foreign technology: The government provides access to foreign technology to companies that are involved in defence R&D. This can help companies to develop new technologies that are not available in India.

Comments

The increase in defence exports is also a reflection of India’s growing military power. India is now one of the world’s largest arms importers, and is increasingly looking to develop its own defence capabilities. This has led to an increased demand for Indian-made defence equipment, both from the Indian military and from foreign buyers.

The growth of India’s defence exports is  helping to boost the economy, create jobs, and enhance India’s global standing. It is also helping to reduce India’s dependence on foreign arms imports.

The steps taken to boost exports have helped to streamline export procedures for defence equipment, and have made it easier for companies to export defence equipment from India.

The government is also working to improve the infrastructure and support services available to defence manufacturers. This includes providing better training and education facilities, and improving the availability of raw materials and components. The government is also working to promote defence exports, and to create a more favourable environment for defence manufacturing in India.

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Based on data presented in parliament and published through the Press Information Bureau India’s defence exports record is as follows:

Year       Rs in crores

2013-14                686

2014-15                794

2015-16                1,056

2016-17                1,521

2017-18                4,682

2018-19                10,746

2019-20                9,116

2020-21                8,435

2021-22                12,815

2022-23               15,918 (est)

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On the other hand, if the private sector focuses primarily on import substitution through Make in India projects and design & development of advanced munitions, with no assurance of successful outcomes, low or no return on investment (ROI) on huge initial investments will not enthuse the private sector.

Ammunition is procured through both DAP-2020 (Capital) and DPM-2009 (Revenue) routes. Unlike weapon platforms, development of munitions calls for experimentation in the real world, with real weapon systems and platforms, which most private players are unlikely to have. Therefore, the munitions ecosystem has nuanced dynamics and calls for a flexibility in relevant policies and approach.

Armed Forces’ Perspective

The armed forces require advanced, smart, precision-guided, beyond line of sight (BLOS), loitering and intelligent munitions, for land, naval and aerial weapons alike. 

Advanced munitions requirements are centered on autonomous/ man-in-loop munitions, modular and dual band, jam resistant sensors and guidance, dual CCD, cooled and uncooled seekers, pulsed motor/ SFDR/ ramjet propulsion and penetration-cum-blast/blast-fragmentation warheads.

The armed forces are also looking for munitions and payloads for unmanned platforms – anti-personnel, anti-tank, kamikaze, EW, loitering and Swarms. 

For existing inventories the armed forces would like to have range extension and precision guidance kits. 

In particular, the Indian Air Force (IAF) would also like to see indigenisation of electronic fuzes, indigenous immune GPS and ECM/ECCM. In addition, seamless integration of munitions/ missiles with platforms and provision of battle management systems for the munitions was required.

The Navy would also like to see indigenization of underwater systems, missiles, fuzes, torpedos, mines, gun ammunition, counter-drone systems and chaff. 

The Ministry of Home Affairs (MHA) was earlier procuring small arms (SA) ammunition from Ordnance Factory Board (OFB). With creation of Munitions India Ltd (MIL), a corporate entity, procurement, QA/QC and testing policies and procedures need a review. 

Import dependence for ammunition of Tavor Rifles, AMR, AGL, Dragunov Sniper Rifle, UBGL, MGL should be overcome and accorded priority. 

Similarly, indigenous advanced materials and alloys are required and dependence on import should be reduced. 

Atmanirbharta in Munitions

The Indian armed forces exploited precision munitions during the 1999 Kargil War with great effect and during the Balakot Strikes (2019). Thus was felt the inescapable need to develop smart and precision munitions.

There have been policy shifts to enhance the role of private industry and MSMEs to strengthening the ecosystem for munitions. Many barriers like capping of number of bids, criteria for financial eligibility and credit rating have been removed by the Government through considerable relaxations.

In 2016 the Government kick started “Manufacturing of Ammunition for Indian Army by Indian Industry” and issued RFPs in 2017, which were duly amended based on the market response. Four of the 12 projects have reached the trial stage. The three positive indigenisation lists promulgated in the recent past list nearly 50 items of ammunition, including Guided Extended Range Pinaka Rockets, Advanced Light Weight Torpedos, Anti-Radiation Missiles and Loitering Munitions. This reflects the confidence of the Government in R&D and manufacturing prowess of the domestic defence industry.

DRDO-Industry Special Purpose Vehicles (SPV) are allowed to develop essential advanced defence products.

Sixty eight per cent of the capital acquisition budget has been earmarked for the domestic industry in 2022-23 and 25 per cent of the domestic capital procurement budget earmarked for promotion of private industry, MSMEs and start-ups.

The scope of Defence Innovation Start-Up Challenges and Technology Development Fund has been expanded to create more opportunities for them.

Industry Perspective

As compared to the view prevailing about 10-20 years ago, the armed forces have better confidence in private industry and defence PSUs is high on their ability to meet their requirements. This has been substantiated by 11 tenders which were issued for munitions between March 2021 and May 2022, are under the Category of Make in India, spanning a 10-year requirement. 

The armed forces have demonstrated a flexible and pragmatic approach through interactive RFPs.  

The Industry thinks that rate contracts, with agreed variable rates over time, would be more viable for contracts spanning 10 years, as for munitions. 

Make 1 and 2 Categories. Make 1 & 2 are unviable for rockets/ missiles and certain advanced munitions, considering the time and costs involved in the development of the prototypes. Integration kits for aerial munitions carry a high cost of Rs 14 Cr per aircraft, rendering Make 2 unviable.

Another case in point is the timeframe provided for responding to Expression of Interest (EoI) for TGMs for 155mm, where five prototypes were sought in 30 weeks, a product with a CEP of 10 meters, GPS, laser designator, ECM/ ECCM features, all of which required R&D, time and funds. Foreign original equipment manufacturer (FOEM) may not be willing for ToT for Make 2, since a prototype may not result in an order eventually, whereas, for Buy Indian category, even 60% Indian content (IC) may be achievable with a contract in the hands of the Indian Partner. 

FOEMs are likely to exploit the opportunity by partnering with Indian companies, many of which are already exporting items based on competitive advantage in quality and not costs.

Due to peculiar restrictions on FOEMS, ToT and IPR for munitions are more challenging than for other weapons and systems. Moreover, percentages of IC stipulated at 50%-60% are unviable at the prototype stage, and must be lowered. 100 per cent indigenisation was not feasible since the FOEM may not hold IPR for 100 per cent components. In case the material itself was not available in India, it should not be included while determining policy on IC percentage. 

Though 12 RFPs were initiated for procurement of munitions from private industry in 2017, the procedures and outcomes did not inspire much confidence, since there were several amendments issued, only four had reached the trial stage and no order had fructified in five years. Three months timeframe is too short for responding to RFPs for tank/ artillery munitions. 

PPP or SPV models would be more suitable for missiles, rockets and advanced munitions.

Industry feels that even if its products do not meet 100% QRs, a certification stating the extent to which the product met the criterion would help the industry offer the product for exports. 

Though the licensing norms had been opened up and liberalised, not more than 15-20 licenses had been approved for munitions. 

Research & Development

Smart and advanced weapons include components like Inertial Measurement Units (IMU), seekers and Servo actuator motors, which are still imported. The Government needs to provide financial support for design and development.

The Industry feels that transfer of technology (ToT) to the Industry from DRDO is feasible for technologies like thermobaric munitions. For kinetic munitions, where explosives do not play a major role, ToT should be to the OEM for the kinetic component, and not the partner for explosives.

Development cum Production Partner (DcPP) route could result in different types/ models of the same item, creating larger inventories.

Quality Control

Users are concerned about quality, cost, timely delivery and surge capacity. Munitions should be usable and stay stable over a wide temperature range of -40 deg to +50 deg Celsius. The ineffectiveness of thermobaric/blast munitions in high altitude areas could be factored in while framing user requirements. 

Accident occur every four days. Quality is of concern when it comes to propellants, batteries, mines, primers and casings.

Replenishment and life extension of missile systems, which entail testing, refurbishment, safety, servicing and reliability, could be addressed through long term JVs of over 20-30 years. 

Apportioning the process QA/ QC responsibility to the manufacturers is deemed an enabling provision. 

Small Arms/ Mines/ Explosives are stored for decades, and have a long product life. They are safe and life extension procedures are in place. DRDO/ HEMRL/ DGQA and also the industry have set up state-of-the-art facilities for testing and ensuring shelf life in terms of quality and reliability. 

Infrastructure 

Since the shelf life of munitions exceed 10 years, a manufacturer may secure only one to two orders, resulting in production lines remaining idle and unproductive, unless it is utilised for exports. Private Industry should be allowed to partner with MIL/ YIL/ DPSUs for exports. It is financially unviable to harness critical technologies for limited requirements, eg, BMCS for 155mm and four variants of 155mm shells, both spanning 10 years. 

Role of Academia

There is a need for the Services and scientists to study ammunition technologies. IITs have the necessary environment and infrastructure for these studies. MIL has already inked an MoU with the IIT Madras for sponsored M.Tech courses. Collaboration with Academia will ensuring development of reliable products having better design and higher quality standards. 

IIT-M only has policy clearance for research in explosives. This should be extended to other Centres of Excellence/ IITs. It has contributed actively especially in the field of Ramjet Technology for 155mm artillery projectiles. Intelligent munitions are being developed in collaboration with IIT Delhi.

IIT Madras has offered to conduct tailor-made post-graduate programmes for Services as well as DPSUs/MIL/YIL/private industry.

BEL has contributed to the development of 125mm FSAPDS, achieving DOP greater than 530mm.

Recommendations

Flexible Policy Approach. For imported ammunition to be developed by Industry, it is not easy to get to the prototype stage with indigenous content which was feasible with the foreign vendors for weapon systems. For setting up a facility in India with a foreign vendor, FOEM is not likely to agree for providing ToT/ IPR, because ammunition licenses are controlled by foreign Governments. Hence, a flexible approach is necessary for munitions.

Bidding Criteria. Various policies including multiple participation by the bidders, financial eligibility, and issue of credit rating may be relaxed further to incentivise industry participation in defence production. 

Time to Respond to RFP. The time to respond to RFP for tank/ artillery munitions in a three months timeframe is too short. It should be a minimum of 4-6 months. 

Rate Contract. Provision for a Rate Contract for the supply of regular ammunition is recommended. The commercial quotes should remain valid for longer periods. Predictive costing for a period of certain years is not viable due to a large number of intangible attributes in the costing of military goods, therefore, rate contracts provide a viable solution. 

Make II Route. Design, development and R&D for the prototype(s) needs time and financial resources. Though the users now prefer the Make II Route, the private companies find it unviable. Make II cases can be a success story for ammunition manufacturing ecosystem in India, only if the Government provides assurance and monetary incentives, and relaxes the Indigenous content criterion on a case-by-case basis. 

Make II & III Route. Indian firms may manufacture ammunition either in collaboration or with ToT from foreign OEMs. The restrictions of 60 per cent indigenous content (IC) at the prototype stage should be relaxed. 100 per cent indigenisation is not feasible since the FOEM may not hold IPR for 100 per cent components.

DPSU/MIL + 1 Industry Player. The Model of DPSU/ MIL + 1 industry player can be adopted by the Government. Facilitate and stabilise at least two manufacturers (including MIL) for every type of ammunition.

Share Plans with Industry. Industry should be informed about long/ mid-term procurement plans. More transparency and a collaborative environment are required for better outcome delivery. 

Import and Storage of Explosives. It is difficult to store or import ammunition by any private player even if they have an explosive partner. Therefore, private companies and their foreign partners have to depend on Armed Forces for storage, transport and escort. This gives monopoly to DPSUs and a few explosive companies. This needs to be reviewed and redressed. 

Munition Ecosystem. Apart from the MoD/ DDP, the industry needs to proactively engage with the Services to establish and nurture a defence ecosystem that would produce quality, state-of-the-art weapon systems.

Timely Supplies. Once the contract is awarded, timely supply is important and post-sale services must be good. Provisions should be made to ensure that slippages and delays result in automatic activation of penalty clauses to enhance accountability. 

Time Bound Indigenisation. 

Shedding import dependence for ammunition of Tavor Rifles, AMR, AGL, Dragunov Sniper Rifle, UBGL, MGL should be accorded priority. 

Bidding of only 12 items from the three lists of Indigenisation (in revenue route) have been opened. Remainder items (starting from Dec 2021 till Dec 2027) have not been opened for bidding. It takes almost three years after the contract is finalized for the Services to get the ammunition. Regular interaction is required between DDP and Industry/DPSUs/ MIL/ YIL to ascertain which route to take -Make II/Make III by industry, or based on Revenue RFI/ RFP or Make-I.

ToT Provisions. It is recommended that for kinetic munitions, where explosives do not play a major role, ToT should be to the primary OEM for the kinetic component, and not to the partner for explosives. 

Enhancing iDEX and TDF Outcomes. Based on success and experience gained in these innovative approaches, the provisions should be consistently reviewed and refined. 

Incentivisation of Design and Development. To achieve 100 per cent Aatmnirbharta in defence manufacturing, industry needs to foray into niche sectors like the manufacturing of fuzes, seekers, missile engines, etc.

R&D for New Advanced Munitions. Setting up a new design and research organization as an alternative to DRDO, to infuse competition in R&D, is recommended.

New Infrastructure/Capacity  DPSUs/ MIL/ YIL should collaborate with the industry to mutually create and develop new infrastructure, including indigenisation of plants for explosives, to design and develop products. The existing infrastructure for ammunition should optimally be used by diversifying the products. 

Industrial Licence. License for military equipment (including ammunition) is still delayed compared to the expectations. Transparency is required in the grant or denial of licenses.

While the recent policy initiatives of the Government are welcome, the recommendations of the Industry need to be considered by stakeholders in the right earnest for furtherance of Make in India, fostering the growth of the domestic defence industry and ensuring requisite preparedness of the armed forces.

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He exuded confidence that the Defence PSUs would play a major role in achieving this goal with a contribution of 70-80 per cent.

The minister exhorted the Non-Official Directors (NODs) of DPSUs to ensure smooth implementation of various initiatives taken by the government towards achieving ‘Aatmanirbharta in Defence’.

He was addressing the CMDs and NODs of DPSUs during the first-of-its-kind workshop organised by the Department of Defence Production in New Delhi.

Rajnath asserted that the country was witnessing a transitional phase towards self-reliance and active and collective efforts were central to realise Prime Minister Narendra Modi’s vision of ‘Aatmanirbhar Bharat’.

He listed various initiatives taken by the MoD to achieve self-reliance, including simplification of the acquisition process of defence equipment/platforms under the Defence Acquisition Procedure 2020; flexibility in Offset guidelines; increase in FDI limit to 74 per cent under Automatic Route and up to 100 per cent under the government route; simplification of the process of obtaining a license; launch of Innovations for Defence Excellence (iDEX) initiative and enhanced use of Artificial Intelligence in the defence sector.

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He exuded confidence that the Defence PSUs would play a major role in achieving this goal with a contribution of 70-80 per cent.

The minister exhorted the Non-Official Directors (NODs) of DPSUs to ensure smooth implementation of various initiatives taken by the government towards achieving ‘Aatmanirbharta in Defence’.

He was addressing the CMDs and NODs of DPSUs during the first-of-its-kind workshop organised by the Department of Defence Production in New Delhi.

Rajnath asserted that the country was witnessing a transitional phase towards self-reliance and active and collective efforts were central to realise Prime Minister Narendra Modi’s vision of ‘Aatmanirbhar Bharat’.

He listed various initiatives taken by the MoD to achieve self-reliance, including simplification of the acquisition process of defence equipment/platforms under the Defence Acquisition Procedure 2020; flexibility in Offset guidelines; increase in FDI limit to 74 per cent under Automatic Route and up to 100 per cent under the government route; simplification of the process of obtaining a license; launch of Innovations for Defence Excellence (iDEX) initiative and enhanced use of Artificial Intelligence in the defence sector.

Rajnath described NODs as a bridge between DPSUs and the MoD, which not only strengthened corporate governance in public sector companies but also ensured that the work was carried out as per the policies of the government.

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This was discussed in a meeting chaired by defence minister Rajnath Singh on Friday on targets to be achieved by India by 2047 as part of the Narendra Modi government’s Vision@2047. Other major targets discussed at the meeting were increasing the number of micro, small and medium enterprises (MSMEs) in the defence sector to 45,000 from 15,000 at present.

Government sources said what also featured in the discussions with the minister was increasing India’s current market share in the space economy to 15 per cent by 2047 from the current two per cent. They added that India is aiming to be a $1 trillion market by 2047, and this will involve a big investment in the space startup ecosystem.

India’s defence exports in 2020-21 stood at Rs 13,000 crore, Sanjay Jaju, additional secretary (defence production), said on Friday. The Rs 2.6 lakh crore target by 2047 would hence amount to increasing the exports by nearly 20 times, the top source in the government said.

“Increasing defence exports continues to be the top priority of the government and a target of Rs 35,000 crore to Rs 40,000 crore by 2024-25 has been fixed,” the source added. The export of the LCA Tejas of HAL and Brahmos supersonic cruise missiles are the two major focus areas for exports with multiple countries showing interest in them.

The defence ministry is also working on a defence production and export promotion policy, which is learnt to be in its final stages. India is looking at exporting Advanced Light Helicopters Mark III to the Philippines and the Light Combat Aircraft Tejas to Malaysia. The talks between the two countries are at an advanced stage.

India has offered to set up a production line to manufacture LCA and choppers in Egypt, and plans to explore the African market for exports, the source quoted earlier told News18. India also recently inked a $375 million deal for the supply of the BrahMos supersonic cruise missiles to the Philippines. Indonesia is also a potential customer for the Brahmos and talks are ongoing between the two countries.

Ten sectoral groups of secretaries (SGoS) spanning all sectors have been working on preparing a set of targets and a roadmap to achieve them by 2047. One of the sectoral groups is on security and foreign affairs. This is the Modi government’s big roadmap for India’s 100th year of Independence.

Indian defence exports have grown almost six times from Rs 1,500 crore to Rs 9,000 crore in the past five years, in which the participation of the private sector stands at 90 per cent, as per ministry of defence data. These exports are broadly going to 84 countries. A Stockholm International Peace Research Institute (SIPRI) report of 2020 stated that India stands in the list of the top 25 countries in defence exports.

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Many reforms/steps have been taken to boost Defence exports and bring ease of doing business in recent times. There are:

Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) Category 6 titled “Munitions List” that was hitherto “Reserved” has been populated and Military Stores list notified vide Notification No.115(RE-2013)/2009-2014 dated 13th March 2015 stands rescinded.

The Director General of Foreign Trade (DGFT) vide Public Notice No. 4/2015-20 dated 24th April, 2017 has delegated its authority and notified Department of Defence Production (DDP) as the Licensing Authority for export items in Category 6 of SCOMET. The export of items specified in Category 6 (Munitions List) except those covered under Notes 2 & 3 of Commodity Identification Note (CIN) of the SCOMET is now governed by the Standard Operating Procedure issued by the Department of Defence Production (DDP), Ministry of Defence.

Standard Operating Procedure (SOP) for the export of munitions list items have been simplified and placed on the website of the DDP.

A completely end-to-end online portal for receiving and processing export authorisation permission has been developed. The applications submitted on this portal are digitally signed and the authorisation are also issued digitally, at faster pace.

In repeat orders of same product to the same entity, consultation process has been done away with and permission is issued immediately. For the repeat order of same product to different entity, the consultation earlier done with all stakeholders is now limited only with MEA.

In Intra-Company business (which is especially relevant for outsourcing of work by defence related parent company abroad to its subsidiary in India), the earlier requirement of getting End User Certificate (EUC) from the Government of importing country has been done away with and ‘Buying’ Company is authorized to issue the EUC.

The requirement of Government signed EUC in cases of providing engineering services (ToT related to Munitions List) to Wassenaar Arrangement (WA) Countries has been dispensed with.

Legitimate export of systems/platforms for civil end use to WA Member countries is considered subject to submission of EUC or import certificate or equivalent document issued by the Government of importing country.

The legitimate export of the parts and components of small arms and body armour for civil use are now being permitted after prior consultation with MEA.

For export of items for exhibition purposes, the requirement of consultation with stakeholders has been done away with (except for select countries).

Powers have been delegated to DRDO and CMDs of DPSUs for exploring export opportunities and participation in global tenders.

New simplified End User Certificate Format for Parts & Components has been provided in SOP.

Validity of Export Authorization for export of parts & components has been increased from 02 years to date of completion of order/component whichever is later.

A new provision for re-exporting parts and components for undertaking repair or rework to provide replacement for a component under warranty obligation is inserted in the SOP as a sub-classification of repeat orders.

MHA vide Notification dated 1.11.2018 has delegated its powers to Department of Defence Production to issue export license under Arms Rules 2016 in Form X-A, for parts & components of small arms. With this the Department of Defence Production becomes the single point of contact for exporter for export of parts and components of Small Arms & Ammunitions.

The Government has notified the Open General Export License (OGEL) – a one time export license, which permits the industry to export specified items to specified destinations, enumerated in the OGEL, without seeking export authorisation during the validity of the OGEL. OGEL has been integrated with end to end online Portal.

Scheme for Promotion of Defence Exports has been notified to provide an opportunity to the prospective exporters an option to get their product certified by the Govt. and provides access to the testing infrastructure of Ministry of Defence for initial validation of the product and its subsequent field trials. The certificate can be produced by the prospective exporter for marketing their products suitably in the global market.

A separate Cell has been formed in the Department of Defence Production to co-ordinate and follow up on export related action including enquiries received from various countries, sharing the leads with private sector & public sector companies and facilitate exports.

In order to boost defence exports, regular webinars are being organized with Friendly Foreign Countries (FFCs) under the aegis of DDP, MoD through Indian Missions abroad and Industry Associations with active participation from Indian Defence Industries.

A Scheme to provide financial support to Defence Attaches for taking up actions for promoting exports of India made defence products both of public and private sector in the countries to which they are attached has been notified.

Export of Munitions List Items specified in Category 6 of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) is restricted. DGFT has delegated powers to Department of Defence Production to grant authorisation for export of items covered in Category 6 of SCOMET. The authorisation for export of items covered in Category 6 of SCOMET is granted in accordance with the provisions of the Standard Operating Procedure issued by the Department of Defence Production (DDP), Ministry of Defence.

This information was given by Raksha Rajya Mantri Shri Ajay Bhatt in a written reply to Shri Manoj Kotak and others in Lok Sabha on 10 December 2021.

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The corridor is in a special advantage due to its proximity to the Delhi-Mumbai Industrial Corridor (DMIC) and the ACIC. In addition, the corridor will have the benefit of connectivity with the Agra-Lucknow Expressway and the proposed Purvanchal and Bundelkhand Expressway.

Uttar Pradesh Defence and Aerospace Unit and Employment Promotion Policy-2018 has been amended, from 5 December 2018, with the objective that this amendment along with promotion/improvement and development of the region as well as mobiliser of available resources, will also provide employment opportunities in Uttar Pradesh.

The government of UP is offering attractive incentives and subsidies to investors to aid them in setting up of their manufacturing units in the state. KPMG (D&A) Team is the official consulting agency to UPEIDA, the nodal agency for the UPDIC.

Strategic Connectivity

Strategically located on the Golden Quadrilateral, UP is connected to major national and international airports in the country. The state has the largest railway network in the country spanning 8,949 km. Western Dedicated Freight Corridor (WDFC) is being developed from Dadri in Ghaziabad to Jawaharlal Nehru Port of Mumbai.

Likewise, Eastern Dedicated Freight Corridor (EDFC). The 57% covered area of the project is in Uttar Pradesh, which connects the eastern region with the western region. Since the junction of these freight corridors is located in Dadri, Ghaziabad, UP is in a very advantageous position in the logistics and warehousing sector.

A large part of the area covered by the Delhi-Mumbai Industrial Corridor (DMIC) and Amritsar-Kolkata Industrial Corridor (AKIC) is being developed parallel to the EDFC and WDFC.

The existing logistics infrastructure facilities in Uttar Pradesh include the joint domestic Rail and Exim (import-export) terminal at Moradabad, the rail-connected private freight terminal at Kanpur and the non-commercial container depot-IDC. Also , an ICD is located at Kanpur and at Dadri terminal. Apart from this, three multi-nodal logistics / transport hubs are also proposed in the state in Noida, Bodaki and Varanasi. Apart from the special investment centres like Kanpur, Noida, Varanasi and Ghaziabad, new investment areas like Dadri-Noida-Ghaziabad Special Area, Meerut-Muzaffarnagar Special Area, Deendayal Upadhyay Nagar (Mughalsarai) -Varanasi-Mirzapur are also being developed.

ALSO READ: Impact of COVID-19 on Aerospace & Defence MSMEs

In the connectivity network of UP, expressways like Purvanchal Expressway, Bundelkhand Expressway, Lucknow-Agra Expressway, etc, have been developed or are under development. Four lane and six lane National Highways, National Waterway-1 (NW-1, connecting international airport, Allahabad, Varanasi and Haldia Ports, are available. UP Govt will create such an air, water and rail connectivity facilities network, which will help industries and manufacturers of the state to transport their products.

Incentives for Units Investing

Incentives will be provided by the State Government only on purchase of land in the notified area for Defence Corridor in Uttar Pradesh. Such notification will be issued by the Government of Uttar Pradesh from time to time.

Anchor Defence/Aerospace Units, as defined earlier in the policy, will be given a rebate of 25% of the gross selling price of the land in the Defence Corridor.

Anchor units will be allowed to install vendor units in 20% of their land area.

Payment Terms for Land Allotment

The above facilities will be provided by the Uttar Pradesh Expressways Industrial Development Authority (UPEIDA) as per the provisions of the Uttar Pradesh Industrial Development Act, 1976.

Capital Subsidy. In the case of new anchor units in defence/ aerospace sector, back ended capital subsidy to the extent of Rs. 10 crore at the rate of 10% and to new vendor/MSME units at the rate of 5% up to Rs. 5 crore. Capital subsidy will be allowed (calculation of Subsidy will be based on fixed assets less land cost.

Subsidy will be given on start of production. Defence/aerospace units being establish in Bundelkhand Region will attract 15% or Rs. 15 crores, whichever is less, and to vendor/ MSME. Units, 7.50% or Rs. 7.50 crores post-capital subsidy, whichever is less will be applicable.

ALSO READ: India Setting Up a New Complex Jet Engine

Support to Common Facility Centre. The Common Facility Centre will assist in the additional effort of the eco-system of defence/ aerospace manufacturing in the state, and the State Government will provide a promotional incentive exemption for the establishment of a Common Facility Centre at each node in the form of land which is pre-identified in each node’s area. There is also a provision of soft loan for the establishment of CFC. The Common Facility Centre will be a collective collaborative effort in which MSME, defence/ aerospace sectors will participate. For the establishment of Common Facility Centre, the State Government will give 25% grant if 75% grant is given by the Government of India.

Rebates on Transport Charges

Transport of Plant and Machinery. Anchor defence and aerospace Units are eligible 50% Subsidy on Cost of transportation of imported equipment and Plant and Machinery from Logistics Park/Transport Hub/Harbor/Port to the Production Site located in the State, the consolidated maximum limit will be Rs. 2.00 crore. This subsidy will be applicable on the transportation of equipment by Defence and aerospace units for those projects whose contract value is Rs. 50 crore or more, the subsidy will be provided on commencement of production for the first year.

Transportation of Finished products. Defence and aerospace units to transport the finished products to the Logistics Park/ Transport Hub, Harbor/Port are eligible for 30% of transportation cost with effect from the first year of Commercial Production and up to next 05 years. Yearly limit of this subsidy will be Rs. 1.00 core.

Subsidy for the installation of effluent treatment plant. 20 per cent of the cost of the effluent treatment plant set up by the anchor Defence and aerospace units will be reimbursed to a maximum limit of Rs. 1.00 crore.

Technology Transfer Grid. Anchor units will be reimbursed 75% of the cost of transfer of technology to the first 5 vendors to the extent of maximum Rs. 50 lakh for each vendor unit located in the same cluster and 50% to the next 5 vendors thereafter.

Assistance for Research and Development and Testing Facility

Floor space of 2 KA index will be available to the eligible research and development units in the urban area, whereas floor space index will not be application in rural areas.

Promotion of innovation and research and development – Uttar Pradesh government will use the start­up fund created under the UP Start-up Policy 2017 to promote innovation in defence and aerospace manufacturing. In this context, the state government will also partner with reputed innovation and research and development centres like IIT-Kanpur, IIT-BHU etc. The Government of Uttar Pradesh will align its R&D and innovation efforts with the IDEX and other such initiatives of the Government of India.

Capacity Development

Existing Skill Training Base and Strengthening. Where feasible, Uttar Pradesh Government will periodically start specially designed syllabus for Defence and aerospace sector after deliberations with government ITIs and polytechnics.

Educational Agreements. Uttar Pradesh government will encourage universities (in India and abroad) with excellence in Defence and aerospace training and research to enter into educational agreements with the universities of the state.

Subsidy for skill development. For every defence unit, Government of Uttar Pradesh will bear the cost of skilling (On the job Training) for 20 (Twenty only)  persons to the limit of Rs. 10,000/-  (Ten thousand only) per month, per person, for a period of 1 year.

Patent Cost / Quality Certification

The Government of Uttar Pradesh will provide financial assistance for expenditure incurred for obtaining patent registration and quality certificate.

Patent Fee Reimbursement. Defence and Aerospace units established in the country will be reimbursed 100% of the patent fee for domestic payment registration and 50% of the patent fee for international patent registration, the maximum limit of which is up to Rs. 25 lakh per unit. The annual maximum limit of reimbursement payable to all units will be Rs. 1 crore. This reimbursement is applicable only on receipt of the Patent.

Quality Certification. The Government of Uttar Pradesh will provide financial assistance to the MSME units de.ned in this policy for obtaining quality certification such as the AS 9100 series, NADCP. 100%  of the certification fee for each certificate, a maximum of Rs. 01 lakh per unit will be reimbursed, the maximum limit of reimbursement payable to all units will be Rs. 20 lakh per year.

Trademark Registration. Trademark Registration application fees will be fully reimbursed to all eligible Defence and aerospace manufacturing units, a maximum of Rs. 01 lakh per year, per unit will be reimbursed, the cumulative limit of reimbursement payable to all units will be Rs. 10 lakh per year.

Ease of Doing Business

Taking forward the vision and goals of the State’s Industrial Investment and Employment Promotion Policy–2017, this policy also ensures ease of doing business in the state.

Single Window. All desired approvals and clearances to the Defence and aerospace manufacturing units will be provided by the state government through the single window system under the supervision of the Chief Minister’s Office.

Consolidated Payment of Incentives. Uttar Pradesh Expressways Industrial Development Authority (UPEIDA) will be the nodal agency for the facilities / incentives provided under this policy.

Simplification of Procedures. The objective of this policy is to rationalize the existing regulatory system and simplify procedures through self-certification, deemed approval; and third party certification.

Labour Permissions. The Government of Uttar Pradesh will allow the Defence and aerospace industry to provide flexible employment conditions, hours of work and 3-shift (women) and recruitment of workers on contractual basis under the relevant laws.

Infrastructure Facilities. Infrastructure facilities like 132 KVA. Level power supply system, Provision of Water Supply, Road connectivity and land demarcation by pillars shall be provided in each node.

Industrial Security. Uttar Pradesh Government will provide safe and fear-free industrial environment in the state. For this, dedicated police force will be deployed in the industrial cluster/area under the special of.cer and integrated police-cum-.re stations will also be established.

The procedure for acceptance of the facilities/exemptions provided in this policy will be the same as given in the Uttar Pradesh Industrial Investment and Employment Promotion Policy-2017.

100% exemption in stamp duty payable on purchase of land will be allowed to eligible units covered under this policy. Apart from this, no facility / exemption as provided in any other policy of the State Government will be permissible.

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Various committees have, over the years, recommended conversion of the Ordnance Factory Board (OFB) into the Ordnance Factory Corporation Limited to ensure that ordnance factories get the desired functional autonomy and make them accountable and responsible for their operations and performances.

The TKA Nair Committee (2000), Dr Vijay Kelkar Committee (2004), Raman Puri Committee (2015) and Shekatkar Committee (2016) have recommended the corporatisation of the OFB. Based on these reports and to strengthen self-reliance in defence production, the government decided in May 2020 that under the Atmanirbhar Bharat package, the corporatisation of the OFB would be undertaken to improve autonomy, accountability and efficiency in ordnance supplies.

The armed forces have regularly raised concerns about high overhead costs, inconsistent quality and delay in supplies from the OFB. Monopoly of the OFB and lack of innovation and technology development has led to low productivity. No penalties have been imposed for delayed delivery. These figures tell their own story

Production Targets and Achievements

Year       Target          Achievement    % Shortfall

2013-14                382         163         57
2014-15                693         251         64
2015-16                580         194         67
2016-17                576         249         57
2017-18                446         220         51

Corporatisation Blues

The corporatisation of OFB formed part of the Modi 2.0 government’s ‘167 transformative ideas’ to be implemented in 100 days, ie, by October 2019. The Modi government had floated a proposal for corporatisation in Jul/Aug 2019 but the trade unions called for an indefinite strike against the decision on 20 August 2019. However, the strike was called off on 26 August 2019, after assurances by the Secretary of Defence Production that government has not taken any decision yet towards corporatisation of OFB.

The government, thereafter, set up a committee to address the concerns of the employees in September 2019 and subsequently, in November 2019, issued a press release notifying the “proposal to convert Ordnance Factories under the OFB into a 100 per cent Government owned public sector units to provide functional and financial autonomy and managerial flexibility so as to enable the organisation to grow at a faster pace and play a greater role in defence preparedness of the country while also adequately safeguarding the interests of the workers”.

ALSO READ: DEFENCE PROCUREMENT: Defence Acquisition Procedure (DAP) 2020 Released

With the finance minister’s announcement again as part of Defence Reforms package, trade unions again called for an indefinite strike calling the government decision as “arbitrary, illegal and unjustified”.

The biggest concerns of the OFB employees is that ‘Corporatisation’ is the first step towards ‘Privatisation’ and is likely to result in layoffs and job cuts. However, as of now, the Government has made it very clear that it is not thinking of ‘Privatisation’ in the near future and OFB will function akin to the various public sector undertakings (PSUs) in the country post-corporatisation.

Current Organisation

OFB is one of the oldest organisation in the country comprising of 41 ordnance factories, 13 ordnance R&D centres and nine ordnance institutes of learning, distributed all over the country at 24 different locations. It presently functions under the Department of Defence Production of Ministry of Defence and a key supplier of wide variety of products to the armed forces which includes armament, ammunition and also troop comfort items.

The OFs are managed by a three-tiered system with the DDP at the Apex, the OFB which performs the executive functions and individual factory managements. The ordnance factory board is managed by IOFS officers. The board is headed by a Director General and Eight Members. Five members of the board are responsible for functioning of each of the five manufacturing groups and three members are responsible for staff functions of personnel, finance and marketing.

The practice of appointing the senior most IOFS cadre officer as the Chairman without consideration to merit or residual service has resulted in very short tenure of the Chairman.

OFB Financial Structure. The OFB is wholly owned by the government. Budgetary allocations under capital and revenue heads are made to the OFB from the defence budget. These allocations amounting to approximately 1 % of the total defence budget for 2017-18 (BE) cater for shortfall in requirement of the OFB after accounting for income through sales. OFB is unable to run the factories and OFB from its own profits. OFB officers look at Army as their Captive Customer irrespective of shortfalls in quality, delayed supplies, costly products and indifference to complaints.

Affect of Corporatisation

The corporatisation of OFB will put it at par with other defence PSUs managed by its own board of directors with broad guidelines from the government. The government has envisioned growth of OFB post corporatisation expecting it to raise its turnover to Rs 30,000 crore by 2024-25 annually against exiting Rs 12,000 crore, and has set up a high level panel to work out a roadmap to achieve the same. Vice Admiral Raman Puri Committee  recommended grouping existing ordnance factories under three or four verticals with core competencies.

ALSO READ: Draft Defence Production and Export Promotion Policy 2020

Splitting the OFB into three or four segments and converting these into DPSUs seems to be the way forward. A likely structure categorising factories into four verticals of Ammunition, Weapons, Explosives and Combat Vehicles as shown on the table on page 54.

Post-corporatisation, OFB will be allowed to forge partnerships with the private sector as per the MoD’s approved policy and will continue to receive orders from the country’s security forces. It will also be granted a special preference of 15% above L1 price for “Make” and “Buy and Make” category products. The Centre will support OFB In case of losses, by way of loan for 30% of the total shortfall and by way of equity investment for balance 70% of the amount. The working capital for the next five years will be provided by the Department of Defence Production (DDP) as a one-time corpus fund. Capital investment for ongoing and sanctioned projects will also be provided.

Benefits of Corporatisation

Some of the prominent benefits envisaged after corporatisation are highlighted below:-

Improved Efficiency. The corporatisation of OFB is likely to result in better management of its functioning with greater autonomy in functioning and dynamic decision making, also resulting in timely delivery and better quality supplied by factories.

Competitive Pricing. At present, a cost plus mechanism is followed by OFB to fix the prices. In this system the price is fixed by taking max estimated cost plus 20 percent to cater for contingencies which are further raised by another 8 to 15 percent next year. This led to over pricing with CAG even pointing out that in some cases OFB is charging even more than the import value of the equipment. It is envisaged that corporatisation will lead to reduced and competitive pricing, since OFB will be competing with private players in defence industry, albeit with some advantages.

Flexibility in Technology Acquisition.  OFB will be free to form strategic alliances with Indian and overseas companies to boost innovation and develop new products. The factories, if modernised and managed properly will be able to unlock its true potential and be the main key in ‘Make in India’ project.

Financial Independence. OFB may no longer be dependent on government for funding as it will be able to generate funds through other means like being listed on stock exchange similar to other DPSUs. This will enable it to achieve financial independence and the money can be efficiently used for modernisation, R&D and boost innovation.

Optimum Use of Idle Capacities. The idle or under-utilised capacities of the factories will be better utilised post corporatisation.

Increased Defence Export. Corporatized Ordnance factory can use the idle capacities to generate surplus production over and above the requirement of armed forces, which can be exported to generate better revenues.

Improved Equipment State. Armed forces being the biggest customer of ordnance factories are likely to benefit immensely from corporatisation with better pricing and improved product leading to an improved equipment state and better customer satisfaction.

Concerns Over Corporatisation

Some of the concerns highlighted in various forums against corporatisation of OFB are given below:-     

Commercial Viability. The argument given by OFB employees is that corporatisation of OFB will not be commercially viable since there is no fixed demands by the armed forces, coupled with issues of long gaps between orders, uneconomical order quantity, and life cycle support required for 30-40 years after the introduction of equipment. However, OFB can take a leaf out of the functioning of the DPSUs, which seems to be managing these issues without any problem.

Surge in Demand during War. OFBs supposedly have some idle capacity as a war reserve, to cater for surge in demand during war, as was demonstrated during Kargil. The government will need to look into this aspect while formulating laws for corporatisation to not compromise with the logistic support to the forces during war. OFB will need to work at its maximum capacity and look for exports of its surplus capacities during peace time, which will necessitate it to become more efficient and produce world class quality to survive in this competitive world.

Major Issues Affecting OFB Productivity

Cost of Production. Ordnance Factories operate on No Profit No Loss Basis. The products are supplied at a price that includes ‘actual cost of production’. Actual cost of production is very high because all non-production expenditure is added to the pricing making the products extremely expensive. Capture consumers have no choice due to Government policies.

The cost of production includes cost of material, cost of direct labour and overhead costs. The high pricing of OFB items is mainly attributed to the high percentage of overhead costs. Overhead costs can be further divided into fixed overheads such as indirect labour, supervisory charges etc and variable overheads such as indirect stores (stores other than raw material and components), transportation, electricity, depreciation and writing off products which are rejected by DGQA etc.

Examples of high cost of products due to cost plus pricing are as mentioned in the table below.

Degree of Demand Fulfilment by the OFB. The OFB production targets are set in mutual consultation with the Armed Forces. However, there has been a shortfall in the OFBs ability to meet these targets. Details of slippages in supply of ammunition of major categories is given above.               

Sub Optimal Staffing

(a) High Supervisory Costs. The OFB has a staffing structure modelled upon supervisory Government departments rather than that of an industry. This has resulted in a supervisor to industrial employee ration of 1:1.41 as against manufacturing industry standard of 1:5. Supervisory costs account for 65 % as against Industry standards of 30 % of the total labour cost of the OFB and account for 42 % of its overhead costs. Supervisory costs accounted for 67 to 73 % of the total labour cost between 2011 to 2016.

(b) Manhour Utilisation. The average man hour utilisation of the OFB has been around 127 % (Resulting in 27 % additional salary bill for over time) whereas the average machine hour utilisation has been around 75 % for the same year.

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