Arun Jaitley’s Major Policy Boost For Defence Sector, Strategic Partnership Policy Cleared

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Anupama Airy

The Ministry of Defence on Saturday cleared the much-awaited Strategic Partnership policy for the entry of private sector in defence manufacturing, a move that will provide a major push to the government’s ‘Make in India’ programme and towards making India emerge a hub for manufacturing of critical and high-end weapon systems like the submarines, fighter jets, helicopters and armoured vehicles.

The move assumes significance as it comes after more than a year of discussions within the defence ministry as also with the industry. Leading industry chambers like CII and FICCI hailed this policy decision of the government. An official statement issued after the crucial meeting of the Defence Acquisition Council (DAC) on Saturday under Defence Minister Arun Jaitley said the broad contours of the policy aimed at engaging the Indian private sector in the manufacturing of high-tech defence equipment in India have been finalized. MoD sources said the final policy will be rolled out shortly after obtaining clearance from the Cabinet Committee on Security (CCS) headed by Prime Minister Narendra Modi.

Once approved, programmes worth Rs 2,00,000 crore are expected to gain momentum. This would include naval utility helicopters (NUH) for Rs 20,000 crore, the P-75 Scorpene submarine programme worth Rs 60,000 crore, the single- or twin-engine fighter-jet deal worth about Rs 1,00,000 crore besides some other projects.

After the CCS approval, the SP policy will form Chapter VII of the Defence Procurement Procedures 2016, released by the government in March last year at the Defence Expo in Goa.

The policy that was cleared by DAC, the highest body on acquisition matters, is aimed at developing the defence industrial eco-system in the country through the involvement of both the major Indian corporate as well as the MSME sector.

“The policy will give a boost to the ‘Make in India’ policy in the Defence sector and set Indian industry on the path to acquiring cutting-edge capabilities which will contribute to the building of self-reliance in the vital sector of national security requirements,” added the statement issued by MoD.

In the initial phase, the policy will be implemented in selected segments – fighter aircraft (including helicopters), submarine and armoured vehicle. More segments will be added as the policy matures, the MoD release said.

According to the defence ministry, the policy, which was developed through extensive stakeholder consultations with Indian industry, envisages the establishment of long-term strategic partnerships with qualified Indian industry majors through a transparent and competitive process wherein the Indian industry partners would tie up with global OEMs(original equipment manufacturer) to seek technology transfers and manufacturing know-how to set up domestic manufacturing infrastructure and supply chains.

Seen as a major initiative, the strategic partnership model aims to create a vibrant defence manufacturing ecosystem in the country through involvement of both the major Indian corporates as well as the MSME sector. With this Strategic Partnership Model, the Defence industry base in the country will be galvanised and MSMEs would be the major beneficiaries of such an eco-system said India’s leading industry body CII.

While CII and FICCI hailed the policy decision, some of the industry members felt the government needs to bring out more clarity. “I think SP policy without specifying how sub systems are to be procured is meaningless. For instance, if they have an SP for naval submarines or battle tanks, the subsystems like electro-optics, imaging, fire control systems form critical components. The government has to create a plan where SPs have to identify these critical subsystems and establish Indian partners for these. Otherwise all the SP is doing is the job of final systems integration and assembly,” said Arvind Laxmi Kumar CEO of Tonbo Imaging.Lakshmi Kumar of Tonbo has built various imaging systems for Boeing and Lockheed Martin and was part of programmes such as Future Combat Systems, which made the US Army combat-ready for modern warfare. During his stint in the US, he was the director for a number of international military programmes (DARPA, US Army, NSF and DRDO) and lead subcontractor on multiple next-generation military programmes.As far as foreign direct investment (FDI) in defence is concerned, the MoD is likely to allow 49 per cent foreign direct investment (FDI) and that there will be no “pyramiding of FDI” in the Indian holding companies by foreign partners, so that the key decision-making rests in the hands of the Indian firm.

On May 15, Jaitley had held a meeting on the SP model with defence companies including Larsen and Toubro, Ashok Leyland, Mahindra and Mahindra, Reliance Infra, Tata Group, Punj Lloyd, Adani Group, Bharat Forge Ltd besides industry associations like CII, FICCI and others.

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