Third Positive Indigenisation List

• 08 Apr 2022

For Prelims: Positive Indigenisation List, Defence Acquisition Procedure 2020, Initiatives in the Defence Sector.

For Mains: Government Policies & Interventions, Indigenization of Technology, Significance of Indigenisation of Defence and associated challenges.

Why in News?

Recently, the Ministry of Defence has released the third positive indigenisation list of 101 items, comprising major equipment/platforms.

• The 'First Negative Indigenisation’ List comprising 101 items was notified in August 2020.
• The Second Indigenisation list was notified in June 2021 import list for 108 items.

What is the Third List and its Significance?

• It comprises highly complex Systems, Sensors, Weapons and Ammunitions like Light Weight Tanks, Mounted Arty Gun Systems, Next Generation Offshore Patrol Vessels (NGOPV) etc.
• These weapons and platforms are planned to be indigenised progressively with effect from December 2022 to December 2027.
• These 101 items will, henceforth, be procured from local sources as per provisions of Defense Acquisition Procedure (DAP) 2020.
  • The DAP 2020 includes the following procurement categories: Buy (Indian – Indigenously Designed Developed and Manufactured), Buy (Indian), Buy and Make (Indian), Buy (Global - Manufacture in India) and Buy (Global).

What is the Significance?

• Promote Domestic Industry:
  • These weapons & platforms will promote domestic industry and transform R&D and manufacturing in the country.
• Reducing Fiscal Deficit and Instills Nationalism:
  • The other benefits of indigenisation will be reduction in the fiscal deficit, security against its porous borders and hostile neighbours, generation of employment and ignition of the fire of nationalism and patriotism with the strong sense of integrity and sovereignty amongst the Indian Forces.

What is the Indigenisation of Defence?

• About:
  • Indigenisation is the capability of developing and producing any defence equipment within the country for the dual purpose of achieving self reliance and reducing the burden of imports.
  • Self-reliance in defence manufacturing is one of the key objectives of Department of Defence Production.
    • Defence Research Development Organisation (DRDO), Defence Public Sector Undertakings (DPSUs) and private organisations are playing a critical role in indigenisation of defence industries.
  • India is among the world’s largest arms importers, and the armed forces are expected to spend about USD 130 billion on defence purchases over the next five years.
• Background:
  • Overdependence on the Soviet Union brought about a change in India’s approach to defence industrialisation.
  • From the mid-1980s, the government pumped resources into R&D (Research and Development) to enable the DRDO to undertake high profile projects.
  • A significant beginning in defence indigenisation was made in 1983, when the government sanctioned the Integrated Guided Missile Development Programme (IGMDP) to develop 5 missile systems (Prithvi, Agni, Trishul, Akash, Nag).
  • The indigenous efforts were not adequate to meet the requirements of the armed forces, this resulted in the shift of focus towards co-development and co-production in partnership with foreign companies.
  • A beginning was made in 1998, when India and Russia signed an inter-governmental agreement to jointly produce Brahmos supersonic cruise missile.
• Challenges:
  • Lacking of institutional capacity:
    • Lack of an institutional capacity and capability to take different policies aimed at indigenisation of defence to its logical conclusion.
  • Infrastructural deficit:
    • It increases India's logistics costs thus reducing the country's cost competitiveness and efficiency.
  • Land acquisition issues:
    • it restricts entry of new players in the defence manufacturing and production.
  • Policy dilemma:
    • Policy dilemma offset requirements under the DPP (Defence Procurement Policy, now replaced with DAP 2020) didn't help achieve its goal. (Offsets are a portion of a contracted price with a foreign supplier that must be re-invested in the Indian defence sector, or against which the government can purchase technology).
      • Only government-to-government agreements (G2G), single vendor contracts or Intergovernmental Agreements (IGA) will not have offset clauses anymore.
      • According to DAP 2020, all other international deals that are competitive, and have multiple vendors vying for it, will continue to have a 30% offset clause.

What are the Related Initiatives?

• Increased the FDI limit:
  • In May 2020, the Foreign Direct Investment (FDI) limit under the automatic route in the defence sector was hiked from 49% to 74%.
• Corporatization of the Ordnance Factory Boards:
  • In October 2021, the government dissolved the four-decade-old Ordnance Factory Board (OFB) and amalgamated 41 factories under seven new state-owned companies to manufacture defence hardware ranging from munitions to heavy weapons and vehicles.
• Defence India Startup Challenge:
  • DISC aims at supporting Startups/Micro, Small and Medium Enterprises (MSMEs)/Innovators to create prototypes and/or commercialise products/solutions in the area of National Defence and Security.
  • It has been launched by the Ministry of Defence in partnership with Atal Innovation Mission.
• SRIJAN Portal:
  • It is a one stop shop online portal that provides access to the vendors to take up items for indigenization.
• E-Biz Portal:
  • Process of applying for Industrial License (IL) and Industrial Entrepreneur Memorandum (IEM) has been made completely online on ebiz portal.

Way Forward

• A Permanent Arbitration Cell can be set up to deal with all objections and disputes.
• Private Sector boost is necessary as it can infuse efficient and effective technology and human capital required for modernisation of indegenious defence industry.
• Software Industry and technologies like Artificial intelligence and cyber security should be used to develop and manufacture the “chip” indigenously.
• Providing Financial and Administrative autonomy to DRDO in order to enhance its confidence and authority.
• The staff at the Department of Defence Production need to be trained and given longer tenures to ensure continuity.
• In⎯house design capability should be improved amongst the three services, the Navy has progressed well on the path of indigenisation primarily because of the in⎯house design capability, the Naval Design Bureau.
• Robust supply chain is critical for a defence manufacturer looking to optimise costs.

Source: PIB