New defence production policy to promote domestic industry

The draft of the new DPP, approved in December 2010 by the  Defence Minister A.K. Antony-led Defence Acquisition Council (DAC), focusses on building a robust industrial base for achieving self-relience in meeting the armed forces' needs.

Under the new production policy, the government will give preference to indigenous design, development and manufacture of defence equipment, defence ministry sources said.

In particular, the policy will hold good for long-term needs such as equipment required over 10 years into the future, they said.

Accordingly, the government will rely on foreign sources to buy arms for the army, navy and air force only in case of critical technologies in which indigenous industries do not have capabilities and in cases where they cannot meet delivery timelines.

The draft DPP stipulates that the "government will endeavour to build a robust indigenous defence industrial base by proactively encouraging larger involvement of the Indian private sector in the design, development and manufacture of defence equipment.

"It (the government) will progressively identify and address any issue which impacts or has the potential of impacting the competitiveness of Indian defence industry in comparison to foreign companies," it adds.

Indian defence production was an exclusive domain of the public sector undertakings and the Ordnance Factories till 2000, when the government decided to allow 100 percent private participation in the sector.

In the first decade since the policy shift, the defence ministry has issued about 150 licences and letters of intent to the private sector.

At present, 70 percent of the armament requirements of the Indian armed forces is met through imports. But this scenario is likely to change once the DPP is implemented in full, the sources said.

The draft DPP also says that the "government has decided that preference will be given to indigenous design, development and manufacture of defence equipment. Therefore, wherever the required arms, ammunition and equipment are possible to be made by the Indian industry within the required time frame, the procurement will be made from indigenous sources."

While pursuing this policy, the overall objective that at all times the forces have an edge over potential adversaries will be kept in view.

"Only where the Indian industry is not in a position to make and deliver them (hardware) in the requisite time frame will procurement from foreign sources be permitted," the draft DPP says.

Also, the time taken for delivery of the equipment by companies abroad against timelines for indigenous production would be factors in deciding to permit imports keeping in mind the urgency and criticality of the requirement.

In the case of strategic and critical technologies, the draft DPP stresses the need to be self-reliant. In technology transfer from foreign companies, the Defence Research and Development Organisation (DRDO) will be "a necessary party" for assistance in identification, evaluation and absorption of the technology, apart from encouraging the defence public sector units and the Ordnance Factory Board to strengthen their R&D wings.

Only last week the defence ministry had released the revised procurement procedure to be followed for acquiring arms, weapons and other systems for the armed forces under which it had diluted the offsets clause.

Offsets, introduced in 2008, made it mandatory for foreign arms vendors to plough back 30 percent of a defence deal worth over
Rs.300 crore ($66 million) to the domestic defence industry, thereby vitalising the sector in India.

But the procuredure for 2011 has now included sectors such as civil aviation and internal security for foreign vendors to discharge their liabilities under the offsets clause. This had been a long-standing demand of the vendors, who felt the clause was restrictive.