Third Positive Indigenisation List

• 30 Dec 2021

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

For Mains: Significance of Indigenisation of Defence and associated challenges.

Why in News

Recently, the Ministry of Defence (MoD) has restricted the import of 351 systems and components as a part of third Positive Indigenisation List to boost Indigenisation in Defence Manufacturing.

• In June 2021, the MoD had notified the second negative import list, renamed as the ‘positive indigenisation list' of 108 items.
• The 'First Negative Indigenisation’ List comprising 101 items was notified in August 2020.

Key Points

• Procurement:
  • All the 351 items will now be procured from indigenous sources as per provisions given in Defence 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).
• Timeline:
  • The import of 172 systems and components will be stopped from December 2022, while curbs on another batch of 89 items will come into effect from December 2023. The import of a further 90 items will be stopped from December 2024.
• Items Included:
  • It includes components such as a missile approach warning sensor, shells, propellants, electrical parts, missile containers, a torpedo tube launcher and a gun fire control system.
• Significance:
  • This Atmanirbhar (self-reliance) initiative will save foreign exchange approximately equivalent to Rs 3,000 cr every year.
  • It will give a boost to indigenisation with active participation of the public and private sector for fulfilling the twin objectives of achieving self-reliance. (Atmanirbhar Bharat) and promoting defence exports.
  • Not only does the list recognise the potential of the local defence industry, it will also invigorate impetus to domestic Research & Development by attracting fresh investment into technology and manufacturing capabilities.
  • It also provides an excellent opportunity for ‘start-ups’, as Micro, Small, and Medium Enterprises (MSMEs) will get a tremendous boost from this initiative.

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.
• Need:
  • Reducing Fiscal Deficit:
    • India is the second largest arms importer in the world (after Saudi Arabia).
    • Higher import dependency leads to an increase in the fiscal deficit.
      • Despite having the fifth largest defence budget in the world, India procures 60% of its weapon systems from foreign markets.
  • Security perspective:
    • Indigenisation in defence is critical to national security also. It keeps intact the technological expertise and encourages spin-off technologies and innovation that often stem from it.
    • Indigenisation is needed in order to avert the threats associated with the frequent ceasefire violations like that of the Uri, Pathankot and Pulwama attacks..
  • Employment Generation:
    • It will lead to the generation of satellite industries that in turn will pave the way for generation of employment opportunities.
    • As per government estimates, a reduction in 20-25% in defence related imports could directly create an additional 100,000 to 120,000 highly skilled jobs in India.
  • Strategic Capability:
    • A self sufficient and self reliant defence industry will place India among the top global powers.
  • Notion of Patriotism:
    • Nationalism and Patriotism can increase with indegenious production of defence equipment, that in turn will not only boost the trust and confidence of the Indian forces but will also strengthen a sense of integrity and sovereignty in them.
• Challenges:
  • Lack of an institutional capacity and capability to take different policies aimed at indigenisation of defence to its logical conclusion.
  • Infrastructural deficit increases India's logistics costs thus reducing the country's cost competitiveness and efficiency.
  • Land acquisition issues restrict entry of new players in the defence manufacturing and production.
  • 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), ab initio single vendor contracts or inter-governmental 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.
• 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/MSMEs/Innovators to create prototypes and/or commercialize 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 optimize costs.

Source: HT