A new defence procurement policy or DPP that will give priority to indigenously made defence products and boost the Make in India initiative will be ready by April, Union defence minister Manohar Parrikar said on Monday.

The defence ministry has already finalized the draft DPP and it has been approved by the Defence Acquisition Council (DAC), the apex body of defence ministry. “DPP will be notified next month, effective 2 April," Parrikar said.

“If Make in India goes in same speed, growth will be in double digit, definitely more than current 7-8%," Parrikar said. The government, however, has no plans to make the indigenous clause in the DPP mandatory, but it will be given top preference in the defence acquisitions, he added.

The minister said defence acquisition spending can come down by 25%, if the system is clean, without compromising on quality. He also said skill development will be included in the offset clause in future to boost technology transfer.

Last month, the defence ministry had approved key policy changes to give priority to locally-made defence equipment and fund Indian private sector research and development in defence. The DAC had approved changes to DPP to introduce a new category called Indigenously Designed, Developed and Manufactured (IDDM) equipment. Under the new category, it will be mandatory for 40% of the content to be sourced locally.

It has also revised the so-called defence offset clause, which will now be applied to contracts of more than 2,000 crore instead of the current 300 crore, thereby removing a hurdle to foreign companies eyeing the Indian market.

Offsets, currently, are a provision in the DPP that require any foreign arms manufacturer securing an order worth more than 300 crore from India to source components worth 30% of the value of the order from India.

The offsets opportunity is expected to be worth $15 billion in the next 10-15 years, assuming that several proposed purchases are completed on time, according to consultancy firm KPMG.

On Monday, Parrikar said the government wants to increase contribution of manufacturing to the GDP to 25% from the current 16%.

“Investment is speeding up in India and there has been 40% increase in FDI flow in the country. We have increased defence PSU production," he said.

India has signed $5 billion worth defence offset contracts while $10 billion of additional contracts are in the pipeline.

For more than 15 years, India has tried to attract the private sector into defence production. But domestic defence manufacturing is still dominated by the defence public sector undertakings (DPSU) and the Ordnance Factories Board (OFB), which together have an 80-90% share.

Local manufacture of defence equipment is at the heart of the Make in India programme too, but the country continues to import nearly 60% of its defence equipment.

Of late, however, Indian companies have shown interest in the defence equipment business and have applied for industrial licences from the ministry of commerce to locally manufacture military equipment, including airplanes and warships.

Companies such as Bharat Forge Ltd, Reliance Industries Ltd, the Tata Group, Larsen and Toubro Ltd, the Godrej Group and the Mahindra Group are looking for more opportunities.

Anil Ambani’s Reliance Group and Adani Group’s Adani Defence Systems and Technologies Ltd are the latest to enter the race.

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