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Business News/ Politics / Policy/  Local defence manufacturing is the heart of Make in India: Modi

Local defence manufacturing is the heart of Make in India: Modi

Prime minister says strong Indian defence industry will boost country's security, add 200,000 skilled personnel in 10 years

Photo: Hemant Mishra/MintPremium
Photo: Hemant Mishra/Mint

Bengaluru: With 60% of India’s defence requirements met through imports, local defence production is the heart of Make In India programme, Prime Minister Narendra Modi said at the inauguration of Aero India 2015 in Bengaluru.

“We have the reputation of the largest importer of defence equipment.... We too need to increase our defence preparedness. We need to modernize our defence forces," Modi said.

He said that a strong Indian defence industry will make India more secure. It will have room for the public sector, private sector and foreign firms.

Make in India—the theme of Aero India 2015, derived from the government’s larger campaign of the same name—aims to transform the country into a manufacturing powerhouse and advocates boosting of exports, and incentivize import substitution. The 10th international edition of the aerospace and aviation exhibition, which opened on Wednesday, runs till 22 February.

Inaugurating the air show on Wednesday, Modi said India will need 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," he said.

Modi said foreign companies can use India as an export hub and as part of a supply chain. The prime minister said India must bridge the gap between prototype and production. He said India needs to improve the acquisition and approval process and India will ensure that its technology does not fall into the wrong hands. The government, he said, is introducing a technology development fund and export policy has been made simple, clear and predictable.

He also said the government will ensure the tax system does not discriminate against domestic manufacturing in comparison to imports. India’s goal is to provide a level-playing field for Indian and foreign firms. The government is introducing significant reforms to defence offset policies to enable high value exports, he added.

India’s defence offset policy mandates that foreign contractors source components and systems from local vendors for at least 30% of the value of government orders above 300 crore.

“Offset is a crucial instrument. I want India’s offsets policy not as a means to export low-end products but to acquire state-of-art technology and skills," the prime minister said.

Modi said that India needs to increase defence preparedness as it has huge requirements to manage internal security. He said the air show is not a trade fair of defence equipment but a platform to showcase India’s defence manufacturing sector. “More than 250 Indian firms and foreign firms are here. This is the largest ever air show."

The air show will also include sectors such as defence manufacturing and airport infrastructure besides aerospace, defence and civil aviation. There are around 72 military and civil aircraft on display at the show.

Among the foreign military aircraft on display are the F-15C Eagle, Lockheed F-16C, Boeing KC-135 Stratotanker, Boeing C-17 A Globemaster III, Boeing P-8A Poseidon, Rafale Dassault and EMB-145 I.

Foreign civil aircraft include Pilatus PC-12 NG, Dassault Falcon 2000, Phenom 100E, Boeing B75, A75, Viking, Catwalk, WASP, RRJ 95, EMB 505, Bell 407 GX Helicopter, King Air 350 ER, 19-seater Turbo Prop AI Industry, Zlin Z-50 LX, Oma Sud Sky Car, Dassault Falcon 7X and Dornier 228-New Gen.

“If we could raise the percentage of domestic procurement from 40% to 70% in the next five years, we would double the output in our defence industry. Imagine the impact in terms of jobs created directly and in the related manufacturing and services sector," Modi said.

He said that the government is reforming defence procurement policies and procedures. “There would be a clear preference for equipment manufactured in India. Our procurement procedures will ensure simplicity, accountability and speedy decision-making," he said.

The government has raised the permitted level of foreign direct investment in the defence sector to 49%.

“This can go higher, if the project brings state-of-the-art technology. We have permitted investments up to 24% by foreign institutional investments. And there is no longer a need to have a single Indian investor with at least a 51% stake," Modi said.

Industrial licensing requirements have been eliminated for a number of items. Where it is needed, the process has been simplified, he said.

India is expecting a total defence budget allocation to be $620 billion between financial year 2014 and 2022 of which 50% would be on capital expenditure.

The annual opportunity for Indian companies—both public sector undertakings and private companies—is expected to reach $41 billion in size by financial year 2022 and $168 billion of cumulative opportunity between fiscal 2014 and 2022, driven by domestic and external demand.

This is according to a report released by the lobby group Federation of Indian Chambers of Commerce and Industry (Ficci) and financial services company Centrum Capital Ltd early February 2015. The report noted that the domestic defence sector spends have seen continuous underspending vis-à-vis budgets, due to procedural delays.

Majority of the spending were for maintenance and salaries of the forces rather than for buying new equipment.

In the aerospace value chain, there is significant movement and capability creation being seen at sub-system levels in aerostructures, avionics, and actuation and control, said Rahul Gangal, partner, aerospace and defence, Roland Berger Strategy Consultants, when asked about new capabilities added by the government in defence manufacturing.

“In the areas of engines and related components, India as a supply base is still nascent and development will take time. In the areas identified, there is capability that is evolving at multiple levels and across multiple technical and process competencies," Gangal said.

India is forecast to spend $250 billion over the next decade to upgrade its military, which still largely relies on Russian equipment it bought from the 1960s to the 1980s, and catch up with strategic rivals like China.

Defence contractors such as The Boeing Co., Lockheed Martin Corp., Airbus SA and Dassault Aviation SA have made a beeline to India in recent years in search of deals.

Reuters contributed to this story.

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Published: 18 Feb 2015, 11:48 AM IST
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