Make In India in Defence - The Way Ahead
The increased FDI in Defence from 26% to 49%, along with an enhanced budget allocation of 9.87%, is a significant stride forward by the Government in realizing the vision of the 'Make in India' initiative for the Defence sector. Only US$4.94 Mn of the total FDI (US$ 234,928 Mn) across all sectors since 2000 has come to Defence. The commercial interest in the sector evinced by French defense giant DCNS and top private Indian firms has indeed boosted the sentiment. However, the gap in achieving the target of 70% on the Self-Reliance Index needs focused efforts to ensure the development is granular and sustainable to Indian economy.ASSOCHAM recommends the following measures to revitalize and drive growth in Defence-related manufacturing:
Robust offset policy: The proposed offset policy will make it compulsory for foreign suppliers to buy a part of supplies from domestic producers, which will facilitate transfer of technology. However, lessons need to be taken from South Korea's offset policy which is an apt example in this context, where there is advance approval from foreign contractors for transfer of the proposed technologies
R&D budget - With a meager 6% of overall Defence budget and 0.85% of GDP (vis-vis 3.5% in some advanced economies), it is vital for the Government to increase R&D allocation budget to DRDO
SME participation - With SMEs contributing nearly 20% of the indigenous content for Defence equipment, it is imperative for the Government to ensure that large number of industries participate in order to enable granular growth.
While encouraging steps have been taken to revitalize manufacturing in the Defence sector, ASSOCHAM firmly believes the Government should further devise measures to ensure a research-led growth and development and of the Defence sector.
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