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Status Paper : ELCINA

ELCINA has compiled a status paper providing a policy update for release during the SES 2016. In the previous edition of SES, ELCINA has provided its delegates and members with an overview of the Strategic Electronics Sector in the country and a detailed policy analysis. This paper is intended to provide an update on the policies to keep our delegates and members update on the progress made in the Defence Sector.

Holistic view

Government of India has taken a holistic view of the Defence Sector and approached reforms in a methodical and integrated manner. While on the one hand the GoI has addressed regulatory aspects from the DIPP side, on the other the MoD has taken concrete steps to enhance ease of doing Business in Defence Sector.

Some of the major reforms affected in the Defence Sector are summarised below :-

  1. Industrial Licencing. In one go, the GoI has eased out the requirement of licencing by removing more than 60% of the products/sub-systems/components and accessories from the compulsory list of licencing. Presently, in the context of Defence Sector, only following items under the ITC HS classification are under compulsory licencing. Items not included in the list would not require IL for defence purposes. It has also been clarified by the MoD that Dual Use Items, having military as well as civilian applications, other than specifically mentioned in the list, would not require IL. This is a great boon for the domestic industry that has been hither-to-fore has been harassed for obtaining IL in the sector. The specific list requiring IL are as under (these are various sections under the ITC HS Code):-
    1. ITC HS 87.10 :: Tanks and other AFV
    2. ITC HS 88 : Defence Aircrafts, space craft and parts thereof :: from 8801 to 8805 : the complete chapter
    3. ITC HS 8906.10 : Warships all kinds
    4. ITC HS 93 : Arms and Ammunition and allied items of defence equipment; parts and accessories thereof :: 93.01 to 93.07
    5. Reference : Press Note 3(2104 Series)
  2. Military products. The above also provides a general clarity for a product to be classified as a Defence Product.
  3. Review of FDI In Defence : Vide PN 7(2014 Series) the GoI has undertaken a complete review of the FDI policy in 2014, thus easing out the decades old restrictive FDI policy in the sector. The Defence Industry was till then subjected to a IL under the IDR Act 1951 and subjected to a 26% FDI cap under the government route and above 26% on a case to case basis the CCS was to be approached wherever it was likely to result in access to Modern and State of Art technology in the country, besides other conditions. Vide the above PN, in 2014, the GoI enhanced the FDI limit to 49% under the government route and beyond that ipso facto under the CCS. Reference FDI circular 2015.
  4. Radical Changes in the FDI Policy regime. The Union Government has radically liberalised the FDI regime on 20 June 2016 with the objective of providing major impetus to employment and job creation in India. This is the second major reform after the previous one in Nov 2015. The GoI has opened up the Defence Sector under the Automatic route upto an investment of 49% and beyond 49% under the government approval route. While the consolidated FDI circular was effective from June 07th 2016, on the 20th of June the FDI policy was further liberalised by dropping the need of “State-of-the-art technology” for FDI above 49% under the government approval route. Under the present policy there is no necessity for approaching the CCS, since the government approval route by itself can approve FDI proposals upto 100%. In addition the GoI has also made applicable the instant FDI limit to manufacturing of Small Arms and Ammunitions under the Arms Act 1959. This indeed is a significant step.
  5. A multitude of radical changes have been made to enable exports of defence products from the country. Following are the major policy initiatives in the regards (these are also elucidated in the update, separately):-
    1. Exports Strategy. Also called as Strategy for Defence Exports
    2. SOP for Exports
    3. Notification No 115(RE-2013)/2009-2014 dated 13 march 2015. This is regarding export of Military stores and the restrictions associated with each of these. Thus the list of military stores that require NOC from DDP have been notified.
    4. Obtaining NOC online
  6. Reduction of Imports. The GoI, has taken a giant initiative in mandating the OFB and DPSUs to increase their outsourcing from domestic industry, the meagre 2 to 3% outsourcing has been flagged with concern. In this regards the web sites of OFB and DPSUs have included list of items for indigenisation, which by itself is a massive list. This provides an immense opportunity for the Indian industry for participation in defence contracts, especially the smaller industries. A sample list is also produced in tis report and for a detailed list it is advised to visit the website of each of the DPSUs/OFB.
  7. Registration by DGQA. MoD has come out with regulations and procedure for registration by DGA, which was suspended a decade ago. This allows for a single point registration and enables expeditious procurement.
  8. Revised DPP 2016. The DPP 2013 has been revised in a pragmatic manner with enabling provisions for domestic industry and the small and medium enterprises. This is a landmark DPP with many innovative and industry friendly provisions to align the defence procurement with the Make in India initiative. This is being analysed threadbare for its major provisions.
  9. Exercise to revise DPM. This is work in progress and is in advanced stage of completion.
  10. Strategic Partnership. Work in progress after intensive consultations with stake holders.

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