Market
Defense Aerospace Market
At the Army Technology Seminar ‘ARTECH 2018’, Army Chief General Bipin Rawat has said “Indian Army will walk the extra mile to handhold Indian industry and absorb the technologies since we want to fight Indian wars with Indian solutions.” It’s a very positive statement for the Indian defense industry. India has the third largest military in the world. Improving the internal and external security infrastructure is one of the top priorities of the Indian government. Indian defense sector has opportunities for players of all size, from MSMEs/startups to big brands.
India the world’s second largest arms importers is now pushing for indigenous defense production, defense MSMEs/startups growth and defense exporter goal through ‘Make in India’ programme. During the last three and a half years, the Indian government has taken a number of policy-based initiatives to boost the indigenous defense production, technology upgradation, and defense export capabilities. Indian defense and aerospace market projections are exciting. The Indian aerospace industry is one of the fastest growing sectors. India is expected to become the 3rd largest aerospace industry by 2020.
According to the New Strategic Partnership policy “for achieving self-reliance in defense sector, assimilation of technology, extensive indigenization, developing an ecosystem of Tier I, II & III partners and undertaking long term upgrades of the platforms through R&D will be needed. This will require the private sector partner selected through a laid down procedure by the government to make necessary long term investments in manufacturing infrastructure, an eco-system of suppliers, skilled human resources, R&D for modernization and upgrades as well as and other capabilities, besides production of equipment. “
New strategic partnership policy
On 31st May 2017, the Strategic Partnership Policy has been included in Defence Procurement Procedure. This policy is expected to play the role of a System Integrator by building an extensive eco-system comprising development partners, specialized vendors and suppliers, in particular, those from the MSME sector.
According to this policy, the selected Indian private sector companies will partner with foreign original equipment manufacturers (OEMs) to jointly manufacture fighter jets, helicopters, submarines and armoured vehicles under the “Make in India” framework. The global vendors who want to tie-up with Indian private sector companies will receive the formal assurances from their government to get the necessary licenses. As per the framework given in this policy, the government will play the role of a facilitator in the strategic partnership between Indian Strategic Partner and Foreign Original Equipment Manufacturer. The Indian private companies will get shortlisted by the ministry on the basis of technological and financial parameters. The foreign vendors will also get selected by the Ministry on the basis of technology offered and the lowest price bid. The Strategic Partnership Policy is crucial to building an ecosystem of Indigenous Defence Manufacturing that comprises the government, foreign partners and domestic vendors and suppliers.
This policy has incorporated some of the major recommendations of Dhirendra Singh Committee. The Committee made 43 recommendations, out of which, 16 recommendations were regarding Make-in-India and 27 recommendations were regarding Defence Procurement Policy. One of the most crucial aspects of this Strategic Partnership Policy, according to the Dhirendra Singh report is the selection criteria and selection process.
Segments for Strategic Partnership
- Fighter Aircraft
- Helicopters
- Submarines
- Armoured fighting vehicles (AFV)/Main Battle Tanks (MBT
Procedure for Selection of Strategic Partners
- Issue of Expression of Interest (EOI) to Indian private companies for selection of Strategic Partners in identified segments seeking details of Minimum Qualification Criteria.
- Submission of response to EOI by applicant companies, indicating inter alia choice for segments in which they wish to participate.
- Evaluation of the companies based on Minimum Qualification Criteria.
- Segment-wise verification of Segment Specific criteria.
- Short listing of companies who meet the minimum qualification criteria, for issue of segment-wise RFP.
- Issue of segment-wise RFPs with DAC approval to short-listed companies based on their options of segment submitted in EOI response.
- Submission of techno-commercial offer in response to RFPs by companies, in collaboration with one of the short-listed OEMs or in exceptional cases with two OEMs in segments with diverse platforms.
- Opening and evaluation of technical offer of the companies.
- Conduct of Field Evaluation Trials (FET) and Staff Evaluation.
- Opening of commercial offers of companies that are technically compliant with the RFP, segment wise.
- Selection of SP having the lowest bid, segment-wise, with DAC approval.
- Commencement of contractual negotiations.
- Finalization and signing of contract.
For More Details You Can Read Strategic Partnership Policy 2017- Revitalizing Defence Industrial Ecosystem Through Strategic Partnerships
Positive Developments in the Indian Defense and Aerospace Market
Defense Industrial Corridors
After opening up private investment and liberalizing foreign direct investment (FDI) in defense production, the Indian government plans to establish defense industrial corridors in the country. In the Indian Union Budget 2018-19, the finance minister has made an announcement about establishing the two Defense Industrial Corridors. The first Defense Production Corridor is planned to be established in Tamil Nadu and the second one will be set up in Uttar Pradesh state.
The first corridor called as Tamil Nadu Defense Quad will extend from Chennai, Hosur, Coimbatore, Salem and Tiruchirappalli. It will provide a great opportunity to the vibrant manufacturing sector in the State. According to the official press release, the MoD has initiated an exercise of industry interactions at all nodal points for the Quad. These interactions will involve senior officials from MoD, representatives of Hindustan Aeronautics Ltd., Bharat Electronics Ltd., Bharat Earth Movers Ltd. and Ordnance Factories, with the active participation of the local Small Scale Industries Associations and the State Government representatives.
The second defense industrial corridor was announced on the occasion of the Uttar Pradesh Investors Summit 2018. At the summit, PM Modi has said: “of one of the two defense industrial corridors mentioned in the budget, one is proposed in the Bundelkhand region of the state which will bring an investment of Rs. 20,000 crore and generate employment avenues for 2.5 lakh people.” The government has decided to extend the Uttar Pradesh’s defense corridor to Agra, Allahabad, Lucknow, Kanpur, Jhansi and Chitrakoot.
The Indigenous Defense manufacturing is one of the key focus areas of the ‘Make in India.’ A number of defense production units are active in these two states. The government’s decision to develop defense industrial corridor will boost the defense MSMEs of the UP and Chennai.
Society for Indian Defense Startups
The Ministry, in cooperation with the Federation of Indian Chambers of Commerce and Industry, or FICCI, has launched a platform called “Society for Indian Defense Start-ups,” or SIDS, as an institutional-support mechanism for development and funding of defense start-ups. The DPSUs and Defense Research and Development Organization (DRDO) labs will also collaborate with FICCI to nurture the MSMEs with the relevant expertise.
Society of Indian Defence Manufacturers (SIDM)
The Society of Indian Defence Manufacturers (SIDM) is a not-for-profit association formed to be the apex body of the Indian defence industry. SIDM plays a proactive role as an advocate, catalyst, and facilitator for the growth and capability building of the defence industry in India. SIDM aims to become a single voice for the Indian Defence manufactures.
Defense Investors Cell
A few days back, Indian MoD has launched a Defense Investor cell to promote and facilitate defense manufacturing industry. Encouraging the start-ups and SME participation in the indigenous defense manufacturing is a key priority of the Defense Ministry. On January 16, the Defense Acquisition Council, chaired by Defense Minister Nirmala Sitharaman, announced a revised and simplified “Make II” procedure, in which some special provisions are given to MSMEs.
Simplified Make II procedure
On 16 January 2018, the Defense Acquisition Council, chaired by Defense Minister Ms. Nirmala Sitharaman has cleared a simplified ‘Make-II’ procedure. The new process will help import substitution and promote innovative solutions. This simplified ‘Make-II’ procedure will amend the existing ‘Make Procedure’ in Defense Procurement Procedure (DPP)-2016.
The key features of the new ‘Make-II’ procedure include the following:
–The potential ‘Make-II’ projects will be approved by a collegiate comprising of DRDO, HQ (IDS), Department of Defense under a committee chaired by Secretary (Defense Production). Based on the in-principle approval agreed by this committee, the projects will be hosted on Ministry of Defense/Department of Defense Production’s website inviting industry to participate.
–There will be no limit to the number of industry who may respond to the EoI for development of the prototype subject to meeting the minimum qualification criteria. The design and development time of 12 to 30 weeks is granted to industry to offer the prototypes.
–After this period, a commercial RFP will be issued. Once the RFP is issued, it shall not be retracted. The industry, who wins the bid, is assured of an order.
–Service Headquarter (SHQ) will constitute a Project Facilitation Team for facilitating the process under this procedure.
–The case will be progressed even if there is single entity offering an innovative solution.
–The industry that develops the product will retain the title and ownership and all other rights in intellectual property. However, for some specified reasons like National Security, Government shall have ‘March-in’ rights.
–Normally, there shall be no negotiations by Contract Negotiation Committee (CNC) in multi-vendor contracts.
–‘Make-II’ procedure reduces the total time from in-principle approval to placing of order by 50 percent. The estimated time to finish the whole process has come down to 69 to 103 weeks.
–Projects involving developmental cost of less than three crores will be reserved for MSME.
— Eligibility criteria is relaxed for following parameters:
- Profitability
- Minimum period of registration of company
- Minimum credit rating requirement
- Minimum documentation requirements
–The industry can suggest projects, especially among those items which are currently being imported. Start-ups or individuals can also suggest proposals. Service Headquarters will also list out a series of projects which can be undertaken as ‘Make-II’ projects under the new procedure.
–There is no limit to the number of industry players who may show interest and offer prototype.
(Source: official Press Release)
The speed and scale of such policy decisions/initiatives reflect that Indian government is ready to give Indian defense startups and MSMEs a much-needed push.
2nd edition of Joint Doctrine of the Indian Armed Forces -2017 (JDIAF 2017)
Some relevant points from the ‘joint doctrine of the Indian armed forces’ are:
–Striking a balance between indigenization and foreign purchase is essential to ensure India’s military independence and modernization.
–Defense Indigenization requires a ‘whole of nation’ approach, since no industry can survive only on military orders/indents. Therefore, domestic defense manufacturing is a vital component of military modernization, sustenance and stamina.
–Indigenization not only saves valuable foreign exchange, it accrues multiple beneficial dividends such as incentivizing domestic industry (both public and private sector), promoting self reliance, enhancing national pride and creating avenues for defense exports.
–To be meaningful, indigenization is to be supported by a robust and mature R&D infrastructure, a globally competitive domestic industry and a long-term production road-map.
–Synergy between the MoD, SHQs, DRDO and the industry, both private and public sector will be essential to identify and achieve the desired results towards self reliance.
Important Links
Compendium of Problem Definition Statements Vol III (2018)
Compendium of Items for Indigenisation/Out-Sourcing by Ordinance Factories
India as an Aerospace Hub – Opportunities, Challenges and Way Forward- A Report
Future Technologies Requirements- Technology Perspective and Capability Roadmap (TPCR) -2018)
Indigenization Roadmap Indian Air Force (2016-2025)