Context: Following the two positive indigenisation lists barring import of 209 major platforms and systems, the Defence Ministry notified a list of another 2,500 subsystems and components and 351 more imported items to be made locally in the next three years.
Initiatives under the AatmaNirbhar Bharat Scheme in defence

• The Government has taken several policy initiatives and brought in reforms to promote indigenisation and self-reliance in defence manufacturing, under AatmaNirbhar Bharat Mission in the defence sector.

Lists for indigenization

• Ministry of Defence has notified a ‘First Positive Indigenisation list’ and ‘2nd Positive Indigenisation list’ of more than 100 items each in 2021, for which there would be an embargo on the import beyond the timelines indicated against them.
• The Third positive indigenisation list of subsystems and components notified in 2021 included a list of another 2,500 subsystems and components and 351 more imported items to be made locally in the three years from 2022 to 2025.
• These lists are a part of the MoD’s efforts to achieve self-reliance in manufacturing and minimise imports by the Defence Public Sector Undertakings (DPSUs).
• The items in the list would only be procured from Indian industry after the timelines indicated in the list – DPSUs will work in close coordination with local industrial supply chain to ensure strict adherence to the stipulated timelines.
• This offers a great opportunity to the Indian defence industry to manufacture these items using their own design and development capabilities to meet the requirements of the Indian Armed Forces.

Other steps for Indigenization

• SRIJAN portal to promote indigenisation was launched in 2020 listing over 10 thousand items (which were earlier imported) displayed on the portal for indigenization.
• More than 1500 components & spares have been indigenised in the year 2020-21 as a result of efforts of indigenisation by DPSUs, OFB & SHQs through their own process of indigenisation (In-house, Make-II & Other than Make-II).
• Defence Procurement Procedure (DPP) 2016 has been revised as Defence Acquisition Procedure (DAP)-2020, which is driven by the tenets of Defence Reforms announced as part of ‘AatmaNirbhar Bharat Abhiyan’.
• In order to promote indigenous design and development of defence equipment ‘Buy (Indian-IDDM (Indigenously Designed, Developed and Manufactured))’ category has been accorded top most priority for procurement of capital equipment.
• The ‘Make’ Procedure of capital procurement has been simplified. There is a provision for funding up to 70% of development cost by the Government to Indian industry under Make-I category. In addition, there are specific reservations for MSMEs under the ‘Make’ procedure.

The Government of India has enhanced FDI in Defence Sector up to 74% through the Automatic Route for companies seeking new defence industrial license and up to 100% by Government Route.
An innovation ecosystem for Defence titled ‘Innovations for Defence Excellence (iDEX)’ has been launched in 2018 aimed at creation of an ecosystem to foster innovation and technology development in Defence and Aerospace. iDEX engages Industries including MSMEs, startups, individual innovators, R&D institutes and academia and provide them grants/funding and other support to carry out R&D which has potential for future adoption for Indian defence and aerospace needs.
Government has notified the ‘Strategic Partnership (SP)’ Model in May, 2017, which envisages establishment of long-term strategic partnerships with Indian entities through a transparent and competitive process, wherein they would tie up with global Original Equipment Manufacturers (OEMs) to seek technology transfers to set up domestic manufacturing infrastructure and supply chains.
An Inter-Governmental Agreement (IGA) on ‘Mutual Cooperation in Joint Manufacturing of Spares, Components, Aggregates and other material related to Russian/Soviet Origin Arms and Defence Equipment’ was signed in 2019 to enhance the After Sales Support and operational availability of Russian origin equipment currently in service in Indian Armed Forces.

• More about the Change in Defence Exports and Imports in India
• Public sector driven

Among arms producers, India has four companies among the top 100 biggest arms producers of the world. The largest Indian arms producers are:

1. Indian ordnance factories (37th rank)
2. Hindustan Aeronautics Limited (HAL) (38th)
3. Bharat Electronics Limited (BEL)
4. Bharat Dynamics Limited (BDL)

All four of these companies are public sector enterprises and account for the bulk of the domestic armament demand.
Explaining falling imports

• Growing indigenization is not the sole reason for falling imports. Its 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.

SMEs not the favorites

• SMEs still face stunted growth because India’s defence industrial model is at odds with global trends in that it tends to create disincentives for the private sector.
• Governments, including the incumbent, have tended to privilege Defence Public Sector Units (DPSUs) over the private sector, despite ‘Make in India’.
• This model is highly skewed, undermining the growth of private players and diminishes the strength of research and development.

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.

Speaking of volume

• As a percentage of total Indian trade, defence-related exports for the fiscal years 2017-18 and 2018-19 were 0.8 and 0.73%, respectively.
• Thus, from a volume and value standpoint, Indian defence exports, while showing a promising upward trend, still remain uncompetitive globally.