Context: The government is soon going to come out with a notification on 74% Foreign Direct Investment (FDI) in defence.
Background
In May 2020, as a part of the Atma Nirbhar Bharat Abhiyan economic stimulus package, the government announced a series of measures to promote domestic defence manufacturing. These include:

• A negative import list
• Separate budgetary allocation for domestic procurements
• Indigenisation of spares and components
• Raising the FDI cap through automatic route from 49% to 74%
• Also, the second draft of the Defence Procurement Procedure (DPP) 2020, now renamed as the Defence Acquisition Procedure (DAP) 2020 has been put out in the public domain for comments.

State of Imports and Exports in the Defence sector

• According to a report released by Stockholm International Peace Research Institute (SIPRI) for the period between 2009-13 and 2014-18, Indian defence imports fell even as exports increased. This is good for a nation that has had the record of being one of the biggest importers of Defence equipment.

Factors responsible for this shift

• ‘Make in India’ initiative, as part of which a number of components from Indian private and public sector enterprises have been prioritised by the government.
• Extraneous factors in the form of delays in supplying equipment by vendors and the outright cancellation of contracts by the Indian government or at least a diminution of existing contracts.

Explaining falling imports

• Growing indigenization is not the sole reason for falling imports. It is also because of the cancellation of some big-ticket items
• India cancelled the India-Russia joint venture for the development of the advanced Su-57 stealth Fifth Generation Fighter Aircraft (FGFA) in 2018 due to delays and not having the actual “5th gen” capabilities
• In 2015, we also reduced the size of the original acquisition of 126 Rafale Medium Multi-Role Combat Aircraft (MMRCA) from Dassault to 36 aircraft
• Delays in the supplies of T-90 battle tanks, and Su-30 combat aircraft from Russia and submarines from France, in 2009-13 and 2014-18, also depressed imports.

Export trends

• The trends look positive on the export front. Between 2012 and 2019, Indian defence exports, both Public and private, have seen a surge
• The sharp rise in defence export products can be attributed to the measures introduced by Government
• In 2014, the government delisted or removed several products that were restricted from exports.
• It dispensed with the erstwhile No Objection Certificate (NOC) under the DPP restricting exports of aerospace products, several dual-use items and did away with two-thirds of all products under these heads.
• Small naval crafts account for the bulk of India’s major defence exports. However, export of ammunition and arms remain low.