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Approach:

  1. Intro – overview of India’s defence industry.
  2. Mention the issues & challenges of this industry.
  3. Explain the measures taken by government.
  4. Conclusion.

India’s defence manufacturing sector has been witnessing a CAGR of 3.9% between 2016 -2020. The Government of India has set the defence production target at US$ 25 billion by 2025 (including US$ 5 billion from exports by 2025). Defense exports in India were estimated to be at US$ 1.29 billion in 2019-20. The value of defence imports stood at US$ 463 million for FY20.

Challenges faced by this sector:

  • Procedural requirements and Red Tapism: Despite constantly promoting ease of doing business in India, the time requirement and number of clearances required to start a defence manufacturing unit is below the global standards.
  • Lack of Technology Transfer : All the defence goods imported don’t involve an element of technology transfer. This continues reliance on imports and impedes domestic manufacturing.
  • Quality compromise : The equipments produced by some manufacturers fail to meet the international standards as quality is sometimes compromised for cost reduction. This reduces their export potential and perils the image of Indian manufactures at global level.
  • Poor Implementation : The budgetary allocation often remains unspent due to delay in disbursal or lesser zeal among the bureaucrats. This creates barriers for optimum utilization of the allocated funds for the development of the industry.

Steps taken to augment this sector:

  • Innovations for Defense Excellence (iDEX) : It is an initiative by the Government of India to modernize the Defense industry. It will empower a culture of technology co-creation and co-innovation in the sector and boost innovation among the start-ups.
  • Defense Corridors : The UP Industrial Defense corridor and Tamil Nadu Defense corridor would evolve as the hub for private industries, skilled manpower and R&D for manufacturing  military systems and technologies.
  • Budget 2022-23 : It has set aside nearly 70% of the capital allocation for the domestic industry. 25% of the defence R&D budget has been earmarked for the private sector, including the industry, start-ups and academia.
  • A Special Purpose Vehicle model (SPV) has also been arranged in the budget. It will “establish the role of the private industry as a partner beyond just a vendor or supplier”.
  • Positive Indigenization List: The 3rd positive indigenisation list of sub-system/ assemblies / sub-assemblies / components has been notified by the Department of Defence Production, Ministry of Defense in December 2021.
  • The list is part of the efforts to achieve self-reliance in defence manufacturing and minimize imports by Defense Public Sector Undertakings (DPSUs).
  • It contains 2,500 imported items which have already been indigenised and 351 imported items which will be indigenised in the next three years.
  • SRIJAN portal: It is a one stop shop online portal that provides access to the vendors to take up items for indigenization.
  • FDI relaxation: In 2020, the limit was increased to 74% under the automatic Currently, 100% FDI is allowed through the sovereign route.
  • Defence Production and Export Promotion Policy, 2020: The Government formulated the policy to provide impetus to self-reliance under the ‘Aatmanirbhar Bharat’ The Ministry aims to achieve a turnover of Rs. 1 lakh 75 thousand crore (US$ 25 billion), including an export of Rs. 35 thousand crore (US$ 5 billion) in the aerospace and defence goods and services by 2025.
  • Corporatization of Ordnance Factory Boards: Seven defense public sector undertakings (PSUs) were created through the restructuring of the Ordnance Factory Board (OFB). This would improve functional autonomy, efficiency, growth potential and innovation in the defense sector.

A strong domestic defense manufacturing sector is becoming a strategic necessity in the context of increasing geopolitical risks and an unstable neighbourhood. Moreover it will have added benefits of providing jobs to growing young population and lead the structural transformation of the labour market.

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