Modi spearheading ‘Make in India’ in Aerospace and Defence

The Honorable Prime Minister, Narendra Modi, has taken a very important initiative in the form of the ‘Make in India’ campaign to promote and encourage domestic manufacturing for various sectors. The most important sector being that of Defence Manufacturing, because it will not only save precious foreign exchange, but will also address the national security concerns at a local level.

The Indian Defence apparatus is the 3rd largest in the world with expected investment of upto ₹ 250 billion in the next 7-8 years. With 60% of India’s defence requirements being met through imports, local defence production is at the heart of the ‘Make in India’ Campaign.

In the days to come, import of Defence Equipment is going to be the last option and first priority would be given to the Indian Industry to develop and manufacture the required systems. This programme will employ about 200,000 skilled people in the defence and aerospace industry in 10 years. There are studies showing even a 20-25% reduction in imports could directly add up to 120,000 highly skilled jobs.

The offset policy which stipulates the mandatory offset requirement of a minimum 30% for procurement of defence equipment in excess of INR 3 Billion has been introduced in the capital purchase agreements with foreign defence players ensuring that an eco-system of suppliers is built domestically.

The government policy of promoting self-reliance, indigenization, technology upgradation and achieving economies of scale and developing capabilities for exports in the defence sector are a few options making investment in this sector a viable option.

Till now, there were many entry barriers for the domestic industry to enter into defence sector in terms of licensing, FDI policy restrictions etc. In the last six months, the Government has taken several policy initiatives to ease the process of entry into defence manufacturing. The most important is the liberalization of the FDI policy regime for Defence sector to encourage foreign investment in the sector. FDI up to 49% is allowed through Government route (with FIPB approval).

For the first time, a Defence Export Strategy has been formulated and has been put in public domain. The strategy outlines specific initiatives to be taken by the Government for encouraging the export of defence items. It is aimed at making the domestic industry more sustainable in the long run as the industry cannot sustain purely on domestic demand. It is for this reason that Foreign Defence Firms are being invited to enter this sector to not only invest capital, but also to share their know-how and train domestic partners in their respective spheres; namely military hardware, software, encryption and communications.

The Government is committed in creating an eco-system for the domestic industry to rise and to provide a level-playing field to all sectors of industry, both public and private.