Opportunities In Defense Manufacturing As Government Unveils Strategic Partnership Model
Legal Era|November 2017
Opportunities In Defense Manufacturing As Government Unveils Strategic Partnership Model

Fostering constructive partnership with the Indian private defense industry is considered not just a sound economic option but a strategic imperative to minimize dependence on imports and infuse self-sufficiency in defense manufacturing; however, only time will tell if the strategic partnership model has the desired effect

The Indian Government’s policies in the last few years have gradually moved in the direction of making the defense manufacturing sector more attractive for private entities. This sector has been traditionally dominated by public sector utilities. In an attempt to simplify the regulations involving defense sector and to project India as an attractive destination for defense manufacturing, a series of policy level changes have been notified:

• FDI policy for the defense sector has been reviewed and as per the revised policy, composite foreign investment up to 49% is allowed under the automatic route and beyond 49% with government approval.

• The Defense Products List for the purpose of issuing Industrial Licenses (ILs) under the IDR Act has been revised and most of the components, parts, sub-systems, testing equipments, and production equipments have been removed from the List, so as to reduce entry barriers for the industry, particularly the small & medium segment.

• Validity of Industrial License granted under the IDR Act has been increased from 3 years to 15 years with a provision to further extend it by 3 years on a case-tocase basis.

• To establish a level-playing field between the Indian private sector and the public sector, anomalies in excise duty / custom duty (now GST) have been removed. As per the revised policy, all Indian industries (public and private) are subject to the same kind of excise and custom duty levies.

• The Exchange Rate Variation protection has been allowed on foreign exchange component to all Indian companies, including private companies in all categories of capital acquisitions, so as to create a level playing field between the Indian and foreign industry.

• In order to encourage indigenous design, development and manufacturing of defense equipment, the Defense Procurement Procedure 2016 (‘DPP 2016’) introduced a new category of capital procurement - Buy Indian-IDDM (Indigenously Designed, Developed and Manufactured). As per the DPP 2016, preference will be given to ‘Buy (Indian-IDDM)’, ‘Buy (Indian)’ and ‘Buy and Make (Indian)’ over the ‘Buy (Global)’ categories of capital acquisition.

As a further push for increasing private participation, promoting indigenous production and housing of critical technologies, the Government has recently released the ‘Strategic Partnership’ model by adding the seventh chapter under the DPP 2016, thereby allowing Indian private players to play the strategic partner role for critical Indian defense programs.

Strategic Partnership: The Model


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November 2017