In fourth tranche, 'make in India' in defence sector gets a push

Govt enhanced FDI limit in defence manufacturing from 49pc to 74pc

PTI16-05-2020_000143B Union Finance Minister Nirmala Sitharaman | PTI

In an attempt to boost the economy through self reliance route in the wake of COVID-19 pandemic, Union Finance Minister Nirmala Sitharaman has announced that government will notify a negative list of military weapons that can be imported besides making a separate budgetary provisions for 'made in India' equipment. The list will include artillery guns and certain types of ammunition that will only be procured indigenously.

Moreover, the government has also enhanced Foreign Direct Investment (FDI) limit in defence manufacturing from 49 per cent to 74 per cent under the automatic route.

"It will have the security clearances and everything else as always,” Sitharaman said referring to the hike in FDI through the direct route. Though the government had already allowed 100 per cent FDI in defence sector on case-to case basis, some experts were apprehensive that by getting a majority stake, foreign corporates will be able to control the supply lines of the country.

Announcing the series of reforms in defence sector as part of the fourth phase of stimulus economy package, Sitharaman said the idea is to bring down India’s large weapons import bill and and added that while certain high technology systems will still be procured from abroad, emphasis will be on procuring locally made products.

The minister further said this move will improve self-reliance in defence manufacturing. "Every year, this list will be increased," she added.

"Even the spares of these weapons have to be manufactured locally. This will help reduce a huge defence import bill," the finance minister said while referring to the list that prohibits certain military platforms from import.

A recently released report by the Swedish think-tank Stockholm International Peace Research Institute (SIPRI) noted that with an expenditure of $71.1 billion in 2019, India has emerged as the third largest military spender in the world, just behind the US and China.

In his last address to the nation, Prime Minister Narendra Modi stressed on the importance of promoting “local” products and called it Atmanirbhar Bharat Abhiyan (or Self-reliant India Mission).

Sitharaman also made it clear that the long pending corporatisation of the Ordnance Factory Board (OFB) has been approved.

"We will corporatise Ordnance Factory Board to improve autonomy, accountability and efficiency in ordnance supplies," Sitharaman said, while adding that in the near future, the OFB factories could be listed in the markets to bring in transparency in their operations. However, employees union of OFB has been opposing the move of the government as they fear it would lead to privatisation.

The government has also announced that time-bound defence procurement process and faster decision making will be ushered in by setting up a project management unit (PMU) to support contract management. Moreover, realistic setting of General Staff Qualitative Requirements (GSQRs) of weapon platforms and overhauling trial and testing procedures was also announced.

The finance minister said sometimes, unrealistic quality requirements are established. "Quite a lot of time is spent in searching for suppliers who will meet all those requirements. You will end up with just one supplier and since buying from a single supplier is not permitted, you do the entire circle all over again,” said Sitharaman.