Given the process laden procurement policy of the defence ministry whereby it's Empowered Project Committee steers a project from the stage of formulation of Expression of Interest to the conclusion of the contract, newly-inducted Minister of State of Defence, Shripad Yesso Naik has got down to business right away. In an exclusive interaction with BW’s Manish Kumar Jha, Naik discusses his message for the global players and how they can participate in ‘Make in India’ in defence.

How do you look at ‘Make in India’ in defence? 

There are 41 ordnance factories (OF) and nine defence public sector undertakings (DPSU) in our country that contribute more than Rs 58,000 crore to defence production every year. The Centre is supporting DPSUs and OFs to expand their activities and has issued 439 licenses covering 264 private companies till March 2019. Industrial licences are issued for the manufacture of tanks and other armoured fighting vehicles, defence aircraft, spacecraft and allied items of defence equipment. Also, for a large number of defence components, no license is required. 

The ‘Make in India’ procedure has been simplified with provisions for funding of 90 per cent of the development cost by the government and reserving projects not exceeding development cost of Rs. 10 crores (government-funded) and Rs. 3 crore (industry funded) for MSMEs. Offset guidelines have been made flexible by allowing changes of Indian Offset Partners (IOPs) and offset components even in signed contracts. Foreign Original Equipment Manufacturers (OEMs) are now not required to indicate the details of IOPs and products at the time of the signing of contracts. ‘Services’ as an avenue of offset have been re-instated. The Centre has set up a Technology Development Fund to encourage the participation of public/private industries, especially MSMEs, through the provision of grants, so as to create an ecosystem for enhancing cutting-edge technology capability for defence applications.

The government has notified a policy for indigenisation of components and spares used in defence platforms with the objective to create an industry ecosystem, which is able to indigenise the imported components (including alloys and special materials) and sub-assemblies for defence equipment and platform manufactured in India.

There has hardly been any investment in defence via foreign direct investment (FDI). Any incentive or proposal to attract the global defence OEMs to make India their hub for the supply chain and be part of the defence ecosystem?

In May 2001, the defence sector, which was hitherto reserved for the public sector, was opened up to 100 per cent for Indian private sector participation, with FDI up to 26 per cent. The FDI policy was further liberalised and allowed under the automatic route up to 49 per cent and above 49 per cent through the government route. So far 42 FDI proposals/JVs have been approved in the defence sector for manufacturing of various equipment, both in the public and private sector. Foreign direct investment amounting to Rs. 41.5 crore has been received in the defence sector from April 2000 to March 2019.

Goa had hosted a mega defence exhibition in 2016. Are you planning to host the next edition of the defence exposition in Goa again?

The venue for the DefExpo is yet to be decided.

Global CEOs are eyeing India and looking for more flexibility in terms of acquiring majority stakes in JVs with Indian firms?

The FDI policy was liberalised in 2016, wherein up to 49 per cent FDI is allowed under the automatic route and above 49 per cent via the government route, wherever it is likely to result in access to modern technology. 

Do you see corporatisation of OFs and a move towards optimisation of resources?

Several steps have been taken to strengthen the OF Board. Already, in-principle approval has been granted for 15 proposals amounting to Rs. 861 crore for capital up-gradation and modernisation of OFs during 2018-19. The OF Board Procurement Manual has been revised to streamline the procurement of store items in OFB. An export division has been started to promote greater exports from OFB along with an enhanced delegation of powers to Member (Exports) OFB.

Do you think the budget allocation for the defence is not sufficient for the various modernisation plans?

The defence budget allocation is Rs. 3.19 lakh crore (excluding defence pension), which represents a 7.9 per cent growth over Rs 2.96 lakh crore in the previous year. In the current year, Rs 1.08 lakh crore (including capital under MoD Civil) has been allocated for defence CAPEX against Rs. 99,564 crore earlier. The total defence capital budget is 32 per cent of the total government CAPEX. 

India is all set to buy the S-400 Triumf missiles from Russia. How are we making the payments and when should we expect their delivery?

The payment mechanism for procurement is being finalised. The deliveries of S-400 Triumf are laid down in the contractual agreement signed. The details of the delivery of the missiles are considered to be sensitive in nature from the national security point of view and cannot be divulged.