1. 1
Pramod A V Guruprasad M A
Sr.Lecturer in Commerce Sr.Lecturerin Commerce
Seshadripuram Institute of Commerce and Management
MAKE IN INDIA: POLICIES AND PROCEDURES OF
IMPLEMENTATION IN DEFENCE SECTOR
Abstract
The emergence of tertiary sector in India with booming service industry has made India a
prominent business destination in the global market. The information technology, business
process management are the prominent attraction in the context of tertiary era. Other sectors
of economy are forgotten which is not a positive trend in the long term prospects of the
country. The initiative of the present Central Government led by Narendra Modi has come
out with the prospect of “Make In India” on 25/9/2014 in Vigyan Bhavan. The paper
emphasizes on various implications of the new programme on defence sector in our country
which would revamp the secondary sector and also bring about meaningful change in the way
the defence and armed forces are looked up.
Introduction
India is third largest armed force in the world spending 31.5% on capital acquisitions of
defence equipments with 60% imports and allocated budget of INR 2,46,727 crore in 2015-
2016 with Capital outlay for Defence in 2015-16 is INR 94,588 crore. Out of this, INR
77,704 crore has been allocated for Capital Acquisition of the Defence Services. INR 17,181
crore provided under “Other than Capital Acquisition” segment for capital expenditure of
Defence R&D Organisation (DRDO), Ordnance Factory Board, Inspection Organisation &
other agencies and Capital Works projects of the Services.
With expected investment of 250 billion in next 8 years. The encouragement to increase FDI
from 26% to 49% in defence by the present Government has come as a surprise as they were
opposing the FDI in early part of 1990 up to 2013. Owing to the tense relationship with the
neighbouring countries, it is imperative that this trend of strengthening defence would
continue for a long period of time.
2. 2
Present NDA Government led by Narendra Modi within 50 days of taking over the reigns of
the country made an announcement of the FDI increase to enjoy the triple benefits of in-
house production, employment generation and transfer of technology from other developed
countries. The decision is justified by the Government stating that the major management
control is vested with the Indians, but the response to this decision from the other countries is
still to be awaited as the major economist argue that there is no real difference between 26%
and 49% FDI cap as the foreigners would still prefer to sell to India rather than being
minority stakeholders.
The defence in the early times was viewed as the public sector enterprise products as these
products were produced with complete confidentiality and Government control and these
products were not produced with intention of profit, it was considered as the compulsory
spending in the budget with major share of public spending, in the recent budget but now the
perception of Government is changing around the globe even the defence products are
outsourced, privatized and also entertained to bring in foreign investment.
Objectives of the Study
1) Study TOWS analysis of Make In India in defence.
2) Study top exporting ad importing countries in the world.
3) Study various arms producing companies in the world.
4) Relaxation given by Central Government in developing domestic production.
ResearchMethodology
Research is based on secondary data, it is a descriptive paper where the data is analysed as
per requirements of the area of coverage.
Review of Literature
The paper emphasises on the policy undertaken by the central government. The research
papers presented by the earlier scholars concentrates on overall implications of make in India,
but the paper titled “Make In India: Policies And Procedures On implementation In Defence
Sector” emphasises relevance of this policy with regard to only one sector that is defence.
3. 3
OperationalDefinition
a) Make in India: The Make in India program includes major new initiatives designed
to facilitate investment, foster innovation, protect intellectual property, and build best-
in-class manufacturing infrastructure.
b) Arms industries: The arms industry is a global business that manufactures weapons
and military technology and equipment.
c) Foreign Direct Investment: A foreign direct investment (FDI) is a controlling
ownership in a business enterprise in one country by an entity based in another
country.
d) Equity: Equity indicates ownership of a specific industry/business.
e) Agencies involved in defence in India:
a. Ministry of Defence, Government of India
b. Department of Defence Production, Ministry of Defence
c. Department of Industrial Policy and Promotion, Ministry of Commerce & Industry,
Government of India
d. Department of Commerce, Ministry of Commerce & Industry, Government of India
e. Defence and Strategic Industries Association of India
Limitations of Study
1. The paper concentrates only on Make In India introduced in 2014 .
2. The paper does not concentrate on any other sector other than defence sector..
3. The data is based on secondary sources.
4. The statistics are related up to 2014.
4. 4
1. Study TOWS analysis of Make In India in defence.
T
H
R
E
1) Secrecy: the major threat of defence sector being an option open to foreign
nationals and privatisation is that the defence equipments available with the country
is exposed and the secrecy cannot be maintained with this regard.
2) Profit centric: The control of Government if reduced will lead to profit centric
approach as the private entities will produce products only with intention of profits.
3) Overambitious: The defence production may increase and the companies may
resort to over production in the country leading to large shelf life of products and
THREATS
• Secrecy
• Profit centric
• Overambitious
• Reduction in lock in period
OPPORTUNITIES
• Promotion of R $ D
• Quality enhancement
• Strategic alliance
• Large scale exports
WEAKNESS
• Confidentiality
• No complete ownership
• Leverage technology
• Disturbs neighbour
relationship
STRENGTHS
• Employment generation
• Quality enhancement
• Technology
• Indigenisation
T O
W S
5. 5
A
T
S
piling up of unproductive stock.
4) Reduction in lock in period: Since the lock in period is reduced as per the latest
regulation, the exchange of shares takes place frequently and too much ownership
leads to involvement in management decision.
O
P
P
O
R
T
U
N
I
T
I
E
S
1) Promotion of R & D: the emergence of foreign investments will help in flow of
currency to research and development activities of the country defence which is a
opportunity to cash on.
2) Quality enhancement: quality enhancement is assured with private participation as
they have to meet with the competition from other arms manufacturing companies
.
3) Strategic alliance: India’s current requirements on defence are catered largely by
imports. The opening of the strategic defence sector for private sector participation
will help foreign original equipment manufacturers to enter into strategic
partnerships with Indian companies.
4) Large scale exports: Bolster exports in the long term is the primary aim but in the
long run production and exports both will be made in large scale with the concept of
Make In India.
W
E
1) Delay in implementation: Major weakness with the concept of make in India is
that the promises that are made and changes in policies that are brought about has to
be implemented which is suffering from loggerheads from the Government.
6. 6
A
K
N
E
S
S
2) No complete ownership: Increase in FDI to 49% does not necessarily create
control to private people and foreign country investors as they do not enjoy
complete management control.
3) Leverage technology: Technology borrowing and lending is doulele edged weapon,
knowing new technology id bon but passing on known technology to
underdeveloped country is bane.
4) Disturbs neighbour relationship: With increasing stress on production of defence
products the neighbouring countries relationship is disturbed as they become
suspicious about the movement of our country.
S
T
R
E
N
G
T
H
S
1) Employment generation: The major strength is creation of employment as the
production in-house is bound to create employment in the long run.
2) Extensive modernization plans: The country’s extensive modernization plans, an
increased focus on homeland security and India’s growing attractiveness as a
defence sourcing hub all act as strength to the country.
3) Technology: Enhancement of technology is a strength because of extensive in
house production, technology are brought from domestic and foreign country will
upgrade technology and creates innovation.
4) Indigenisation: The government policy of promoting self-reliance, indigenization,
technology up gradation and achieving economies of scale and developing
capabilities for exports in the defence sector is strength to make note.
7. 7
2. Study top exporting and importing countries in the world.
SHARE OF EXPORTS FROM 2010-
2014
SL
NO COUNTRY
PERCENTAGE
EXPORTS
1 United States 31
2 Russia 27
3 China 5
4 Germany 5
5 France 5
6 U.K. 4
7 Spain 3
8 Italy 3
9 Ukraine 3
10 Israel 2
The above analysis clearly indicates the domination of the countries in arms industries
exports, the defence equipments to be produced in house and the strengthening of defence is
the motto of almost all the countries but the majority of the countries still fulfil themselves on
imports and the gap between the first two countries and the third country is substantially large
which gives us the idea that the other exporting countries are now joining the export segment.
RANK Supplier
Arms exports in
Million Dollars
1 United States 10194
2 Russia 5971
3 China 1978
4 France 1200
5 Germany 1110
6 United Kingdom 1083
7 Israel 1074
8 Spain 824
9 Italy 786
10 Ukraine 664
31
27
5
5
5
4
3
3 3 2
PERCENTAGEEXPORTS
United States
Russia
China
Germany
France
U.K.
Spain
Italy
8. 8
In 2014 alone when we consider alone the countries earnings have shown shifts, the Israel
performance is improving and the slight changes are evident from the list of top 10, but the
top 2 countries share 55% of total earnings. The competition and slight increase in earnings
of the countries shows that the competition is only between other 8 countries of the world.
2014
rank Recipient
Arms
imports in
Million
Dollars
1 Saudi Arabia 2629
2 India 1550
3 China 1357
4 Indonesia 1200
5 Vietnam 1058
6 Taiwan 1039
7
United Arab
Emirates 1031
8 Australia 842
9 Oman 738
10 Singapore 717
The imports of the country from other countries are listed above and it is evident that the
countries who have tensions with their neighbouring countries are the once who import more,
there is stiff competition among the countries and every year top 5 country positions
interchange based on their requirements and relationship with the exporting countries.
10194
5971
1978
1200 1110 1083 1074 824 786 664
0
2000
4000
6000
8000
10000
12000
Arms exports in Million Dollars
Arms exports in Million Dollars
2629
1550
1357
1200
1058
1039
1031
842
738
717
Arms imports in Million
Dollars
Saudi Arabia
India
China
Indonesia
Vietnam
Taiwan
United Arab
Emirates
9. 9
3. Study various arms producing companies in the world.
ARMS PRODUCING COMPANIES IN THE WORLD
Rank Company Country
Arms
sales
(US$
m.)
Total
sales
(US$
m.)
Arms
sales
as
a %
of
total
sales
Total
profit Total employment
1
Lockheed
Martin
United
States 35 490 45 500 78 2 981 115 000
2 Boeing
United
States 30 700 86 623 35 4 585 168 400
3 BAE Systems
United
Kingdom 26 820 28 406 94 275 84 600
4 Raytheon
United
States 21 950 23 706 93 2 013 63 000
5
Northrop
Grumman
United
States 20 200 24 661 82 1 952 65 300
6
General
Dynamics
United
States 18 660 31 218 60 2 357 96 000
7 EADS
European
Union 15 740 78 693 20 1 959 144 060
8
United
Technologies
Corporation
United
States 11 900 62 626 19 5 721 212 000
9 Finmeccanica Italy 10 560 21 292 50 98 63 840
10 Thales Group France 10 370 18 850 55 761 65 190
4. Relaxation given by Central Government in developing domestic
production.
1) Exclusion of parts from licensing: Defence products list for industrial licensing, has
been framed in June 2014, wherein large numbers of parts/components,
castings/forgings etc. have been excluded from the purview of industrial licensing.
2) Security manual developed: The defence security manual for the private sector
defence manufacturing units has been finalized and put in public domain by the
Department of Defence Production. The manual clarifies the security to be put in
place by the industry while undertaking sensitive defence equipments.
10. 10
3) Validity: The initial validity period of industrial licenses has been increased to three
years from the present two years and proper Guidelines for the extension of validity of
industrial licenses have been issued.
4) FII: Investments by foreign portfolio investors/FIIs (through portfolio investment)
are permitted up to 24% under automatic route.
5) Lock in period: A lock-in period of three years on equity transfer has been done-
away with in FDI for defence.
6) Removal of complete ownership: The requirement of single largest Indian
ownership of 51% of equity removed.
7) Promote R & D: The MAKE procedure, which aims to promote R&D in the industry
with support from the government and the placement of orders (if R&D effort is
successful), is also being revised to make it more attractive and unambiguous for the
private sector.
8) Defence procurement procedure (DPP): The defence procurement is governed by
the Defence Procurement Procedure (DPP). The government has now decided to
revise the DPP every year.
Conclusion
With prevailing neighbouring tensions from past 5 to 6 decades. Indian defence has been
doing well to safeguard its territories with country being peninsular country they also had to
strengthen naval base which is been planned and implemented very well.
Government of India under the present scenario of trying to establish cordial relationship
with majority of countries of the world signing various memorandum of understanding,
efforts are being made in bringing investments from maximum possible countries in the name
of make in India. The various tax incentives both at the central and state Government levels
have been introduced to attract global investments.
The country’s efforts, policies and vision are in the right direction. Efforts are evident
through MOU’s with various countries, policies are modified to bring about uniformity and
liberalisation in starting industrial undertaking. Vision is to take India to a global map.
