Make in India is not like Newton's First Law, Will Take Time

Indian companies will get a boost for import substitution and meeting the future needs of Indian armed forces

Goa: Asserting that Make in India was not like Newton's first law, Defence Minister Manohar Parrikar said all policy and procedural framework will be ready by November and big doses of FDI inflows will take some time.

"May be in next 6-8 weeks, most of the procedural and policy decisions will be in place. You have to clear the road for flows to come. We are preparing the grounds for it. But FDI inflows will take some time," he said in an interview to Bloomberg TV India.

Stating that strategic partnership in defence offset with global companies was "work in progress", Parrikar said Indian companies will get a boost for import substitution and meeting the future needs of Indian armed forces.

"Make in India is not like Newton's first law--every action will have an equal and opposite reaction. It takes some time to show effect," Parrikar said.

India’s defence offset projects are set to cross $35 billion in FY16 which will power Prime Minister Narendra Modi’s ambitious “Make in India” program.

The Defence Acquisition Council, the apex decision-making body of the Defence Ministry, has been aggressively clearing orders for defence wares since last year and a majority of this will be manufactured in India by the foreign companies in collaboration with Indian firms. During FY15, the DAC approved projects worth Rs 178,036 crore ($28 billion) to kick-start the programme to modernise armed forces.

Since June 2014, the government has issued 70 industrial licenses in the defence sector while another 60 applications were as on July 2015. So far, India has issued a total 287 industrial licenses in defence sector.

Parrikar said the government is in process of selecting strategic partners. A committee is preparing the guidelines for choosing the partners in a transparent manner. "I don't believe that defence can be dealt through tendering process. Government-to-government has been carried out for last 40 years," he said but hastened to add the process of nomination will be based on a transparent process.

The government is also finalising a revised offset policy to woo more foreign investment.

Global arms manufacturers are keenly waiting for relaxation of rules to tap India’s defence sector. Citi Reseach estimates India’s capital expenditure in defence at a staggering $245 billion spread over a decade as the world’s fourth largest importer of military ware looks to source most of its requirement from domestic industry. Much of the defence wares are expected to be manufactured in India going forward.

The Budget estimates defence capex at Rs 95,377 crore or $15 billion during FY16. Private players like Reliance Defence, Tatas, Mahindras and L&T are heavily investing in defence offset capacity to bag government orders in India and abroad.

The move to push defence manufacturing started last year as part of the Make in India initiative.

In October 2014, the DAC cleared projects worth over Rs 80,000 crore including plans to build six submarines in India at a cost of about Rs 50,000 crore and purchase over 8,000 Israeli antitank guided missiles and upgrade 12 Dornier surveillance aircrafts. Of the Rs. 80,000 crore, more than Rs. 65,000 crore will be part of Make in India initiative with private sector.

DAC also approved the purchase of Integrated Anti-Submarine Warfare Suites (torpedo decoys and active towed array sonars) to be fitted on seven stealth frigates and four destroyers, which are to be built in India.

In order to give a boost to private sector participation in defence production, the Government has decided to replace the present fleet of 56 AVRO Transport of IAF by reserving the project for the private sector only. The DAC also decided that all the 384 light-utility helicopters needed by the Army and Air Force to replace the existing Cheetah and Chetak fleets will be made in India with foreign collaboration.

India has already relaxed the FDI policy for the defence sector. The government has increased the composite foreign investment up to 49 per cent is allowed through FIPB route from 26 per cent and beyond 49 per cent with the approval of the Cabinet Committee on Security (CCS) on case-to-case basis wherever it is likely to result in access to modern and state-of-the art technology in the country.