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Eye on defence
     December 2012




                                               Dear readers,

                                                                       I would like to take this opportunity to wish all of you a Merry Christmas
                                                                       and a very happy New Year.

                                                                       India is the largest importer of arms in the world, which is due to
                                                                       our volatile neighborhood. Therefore, the Ministry of Defence (MoD)
                                                                       and the Government of India have always stressed upon the need to
                                                                       become self reliant to meet our defence needs. Under the Defence
                                                                       Procurement Procedure (DPP), the “MAKE” procedure is one of the
                                               important ways by which this agenda of indigenization is being pushed forward. In this issue of
                                               Eye on Defence, we have tried to throw some light on this topic and also tell you about some of
                                               the “MAKE” programs that provide exciting opportunities for the domestic defence industry to
                                               play an important role in nation building.

Contents                                       The DPP is an evolving document and the latest edition of DPP 2013 is expected in the first
                                               couple of months of 2013. Throughout its evolution, the DPP has taken steps to harmonize
•	    Introduction	                       1    with the extant regulations of the Government of India. One of the areas where this
                                               harmonization is really needed is to define a “defence” product. Due to multiplicity of lists,
•	    The Wassenaar Arrangement 	
                                               there is considerable ambiguity regarding the products on which an Industrial License (IL) is
      and its relevance in the 	
                                               mandatory and products on which the 26% FDI limit applies. It should be noted that whereas
      Indian context	                     2
                                               DPP 2006 made it mandatory for the Indian Offset Partner (IOP) to have an IL, this condition
•	    Impact of “Make” procedure 	             was removed in DPP 2008 and further relaxed in DPP 2011. The “Wassenaar Arrangement”
      on Indian defence 	                      and its lists are likely to present itself as a suitable solution to this problem and we analyze this
      industrial capability	              7    aspect.
•	    MSME development: vital for an           The private sector was permitted to enter defence production in 2001 and we have seen some
      inclusive defence industrial base	 12    remarkable achievement by large Indian conglomerates, thereafter. However, the same cannot
                                               be said about the micro, small and medium enterprises (MSMEs), which form the majority of
•	    Request for Information (RFIs)	    15
                                               the industrial base of this country. The Revised Defence Offset Guidelines-2012 has taken a
•	    Request for Proposals (RFPs)	      16    bold step of introducing multipliers for providing a boost to the prospects of the MSME’s. In this
                                               issue, we try to highlight some of the other steps that could further help their cause.
•	    List of Industrial Licenses (ILs) 	
      filed for the month of September         Among the regular sections, we have industrial license applicants, new projects and
      2012 - October 2012	                19   investments, joint ventures and alliances, country-level deals and the latest buzz in the
                                               industry.
•	    New projects/investments/	
      contracts	                         20    I hope you find the last issue of this year useful. It has been our constant endeavor to
                                               make this publication increasingly relevant to you and will appreciate your comments and
•	    Joint ventures and alliances	      23
                                               suggestions in this regard.  
•	    Country-level deals and 	
      initiatives	                       25
                                               	
•	    Industry buzz	                     27
                                               K. Ganesh Raj	
•	    Sources	                           32    Partner and Leader	
                                               Aerospace and Defence Practice
The Wassenaar Arrangement and
its relevance in the Indian context
How did it come into being?
After the end of the Cold War, members of the former
Coordinating Committee for Multilateral Export Controls
(COCOM) export control regime recognized that COCOM’s
focus on restricting exports to the former Soviet Union and
Eastern bloc was no longer an appropriate basis for export
control. There was a need to establish a new arrangement
to deal with risks posed to regional and international
security and stability due to the spread of conventional
weapons and dual-use goods and technologies.
Accordingly, at a High Level Meeting (HLM) on 16
November 1993 in The Hague, representatives of 17
COCOM member states agreed to terminate COCOM and
establish a new multilateral arrangement, temporarily
known as the “New Forum.” This decision was confirmed
at another HLM in Wassenaar, Netherlands, held on
29–30 March 1994. COCOM ceased to exist on 31 March
1994. Participating states agreed to continue the use of
COCOM control lists as a basis for global export controls
on a national level until a new arrangement could be
established. Agreement to establish the “Wassenaar
Arrangement” was reached at the HLM held on 19
December 1995. The first Plenary Meeting of the now-
operational Wassenaar Arrangement was held on 12–13
December 1996 in Vienna.


What is it and what does it hope to achieve?
The Wassenaar Arrangement (WA) is the first multilateral,
voluntary export controls regime for conventional arms
and dual-use goods and technologies. It categorizes all
arms and dual-use items under two lists — Munitions List
under eight categories (derived from the UN Register of
Conventional Arms), and Sensitive Dual Use Goods and
Technologies list. The WA countries maintain effective
export controls for the items on the agreed lists. This is
achieved through voluntary exchange of information at
annual conferences by the WA members.
The objective of WA is to contribute to regional and
international security by controlling the transfer of
weapons and sensitive technologies to destabilizing
elements. It seeks to achieve this through the following:


Eye on defence | 2
•	        Promoting transparency and increased responsibility           Control lists
          in transfers of conventional arms and dual-use
          goods and technologies, and therefore, preventing             In order to place an item on the lists, member states take
          destabilizing accumulations                                   into account the following criteria:

•	        Preventing the acquisition of conventional arms and           •	    Availability outside participating states
          dual-use goods and technologies by terrorist groups           •	    Ability to effectively control the export of the goods
          and organizations as well as by individual terrorists
                                                                        •	    Ability to make a clear and objective specification of
•	        Enhancing co-operation to prevent the acquisition of                the item
          armaments and sensitive dual-use items for military
                                                                        •	    Controlled by another regime, such as the Australia
          end-uses if the situation in a region or the behavior
                                                                              Group, Nuclear Suppliers Group or Missile Technology
          of a state is, or becomes, a cause for serious concern
                                                                              Control Regime
          to the participating states
                                                                        Participating states practice export control on all items
                                                                        set forth in the Munitions List and the List of Dual-Use
Member states                                                           Goods and Technologies with the objective of preventing
Membership in the WA is universal and non-                              unauthorized transfers or re-transfers of those items.
discriminatory for countries meeting the established
                                                                        1.	 Munitions List: The Munitions List has 22 categories,
criteria:
                                                                            which are not labeled. Conventional arms appearing
•	        Produce/export arms or associated dual-use goods                  in this list fall under eight broad weapon categories
          and technologies                                                  — battle tanks, armored combat vehicles (ACVs),
                                                                            large-caliber artillery, military aircraft/unmanned
•	        Implement national policies that do not permit the
                                                                            aerial vehicles, military and attack helicopters,
          sale of arms or sensitive dual-use items to countries
                                                                            warships, missiles or missile systems, and small arms
          whose behavior is a cause for concern
                                                                            and light weapons. (The ACV, aircraft, and helicopter
•	        Adhere to international non-proliferation norms and               categories include models designed to perform
          guidelines                                                        reconnaissance or conduct command of troop’s
                                                                            missions).
•	        Implement fully effective export controls
                                                                        2.	 Dual Use List: List of Dual Use Goods and
Members of the WA are obligated to maintain rigorous
                                                                            Technologies has a Basic List, which are further
national export control systems. The latest list of 41
                                                                            divided into two annexes — 1) Sensitive List and 2)
countries that are part of the WA is:	
                                                                            Very Sensitive List


     •	    Argentina                 •	   Finland                  •	        Malta                    •	   Slovakia
     •	    Australia                 •	   France                   •	        Mexico                   •	   Slovenia
     •	    Austria                   •	   Germany                  •	        Netherlands              •	   South Africa
     •	    Belgium                   •	   Greece Hungary           •	        New Zealand              •	   Spain
     •	    Bulgaria                  •	   Ireland                  •	        Norway                   •	   Sweden
     •	    Canada                    •	   Italy	                   •	        Poland                   •	   Switzerland
     •	    Croatia                   •	   Japan                    •	        Portugal                 •	   Turkey
     •	    Czech Republic            •	   Latvia                   •	        Republic of Korea        •	   Ukraine
     •	    Denmark                   •	   Lithuania                •	        Romania                  •	   United Kingdom
     •	    Estonia                   •	   Luxembourg               •	        Russian Federation       •	   United States




Eye on defence | 3
•	   The Basic List is composed of ten categories         •	   Basic List of Dual Use Goods and technologies: Semi-
           based on increasing levels of sophistication. The         annual notifications of licenses issued, transfer of
           categories are — special material and related             items and denials for items in the Basic List of dual-
           equipment; materials processing; electronics;             use goods and technologies
           telecommunications and information security;
                                                                •	   Sensitive and Very Sensitive List of Dual Use Goods
           sensors and lasers; navigation and avionics;
                                                                     and Technologies: Semi-annual notifications of
           marine; aerospace and propulsion.
                                                                     licenses issued and transfer of items for items in
      •	   Sensitive List: Items on Annex 1 of the WA’s list         the Sensitive or Very Sensitive Lists. Members are
           of dual-use goods and technologies represent              required to report any denials of transfers or licenses
           critical items that are keys for the development          of items in these lists within 30–60 days.
           of military applications. It includes material
                                                                •	   Any member who undercuts such denials (i.e., export
           for stealth technology, equipment that can be
                                                                     the denied item to the same end-user) within three
           used for submarine detection, advanced radar,
                                                                     years of the denial is supposed to report the issuance
           and jet engine technologies.
                                                                     of the export license within 30–60 days.
      •	   Very Sensitive List: Items on Annex 2 of the WA’s
           list of dual-use goods and technologies represent
           the most critical items for use in military          Critical points
           applications. Participating atates are expected to   In the context of export control and clear categorization
           exert extreme vigilance for items included in the    of arms and dual-use goods and technologies, the
           very sensitive list.                                 following points are to be noted:
                                                                •	   WA is just a body for exchanging and collecting
Administration                                                       information. It is not a treaty. Hence, there is no
                                                                     legal, binding aspect to it.
The WA Plenary is the decision-making and governing
body of the WA. It is composed of representatives of            •	   All decisions at the WA are made by consensus,
all participating states who normally meet once a year,              even for induction of new members. Thus, a single
usually in December at Vienna, where the WA has                      country can block any proposal. Often, there is no
established its headquarters and a small secretariat.                consensus regarding the scope of WA, the countries
The Chairman of the Plenary is appointed annually on a               that are “states of concern” or the constituents of a
rotational basis among participating states. The Plenary             “destabilizing” transfer.
has established a General Working Group and an Experts’         •	   The Arrangement does not have an observer
Group, which meet periodically. Official language of the             category. Information exchanged in the Arrangement
WA is English.                                                       remains confidential to the participating nations and
Information exchanged in the WA can include any matter               is treated as privileged diplomatic communication.
that individual participating states wish to bring to the       •	   The decision to transfer or deny an item is the
attention of other members, such as emerging trends                  sole responsibility of each participating state, and
in weapons programs, projects of concern and the                     the Arrangement does not impede bona-fide civil
accumulation of particular weapon systems.                           transactions.
The WA’s specific information exchange requirements             •	   All measures undertaken with respect to the
involve:                                                             Arrangement are according to national discretion.
•	   Munitions List: Semi-annual notifications of arms          •	   The Arrangement considers exports to non-members
     transfers, licenses issued and denied to all non-               only, and is not directed against any state or group of
     participating states, covering eight categories                 states.
     of Conventional Arms (including model and type
     information)

Eye on defence | 4
•	   The Arrangement does not interfere with the rights         of nations. This places increased onus on India to commit
     of states to acquire legitimate means with which           to a global regime of defence and nuclear cooperation,
     to defend themselves pursuant to Article 51 of the         promoting transparency and responsibility in exports of
     Charter of the United Nations.                             sensitive items.
•	   There is a periodic review of information and control      The WA has 41 participating countries — and accounts for
     lists to account for technological advancement.            more than 90% of global production of defence goods.
                                                                Therefore, becoming a part of these regimes will help India
•	   Apart from the above, WA regularly endorses
                                                                fully and effectively integrate itself into the global defence
     voluntary ”best practices” to dispose off surplus
                                                                industry, increase its ability to bypass strict licensing
     military equipment and approves non-binding criteria
                                                                requirements that have prevented it from procuring
     to guide exports of small arms and light weapons. It
                                                                sophisticated defence equipment and technologies in the
     also effects agreements to exercise increased control
                                                                past. It will also enable India to gain full benefits of free
     on arms brokers and commitments to better regulate
                                                                commerce in the goods covered by these regimes.
     exports of dual-use goods purchased by recipients
     subject to arms embargos if the item is intended for a
     military end use.                                          Defining “defence”
                                                                Globally, defence goods and services are defined clearly
The Indian context                                              as part of comprehensive lists and, thus, what constitutes
                                                                “defence” is easily identifiable — enabling a clear definition
As part of its export control regime for sensitive items,
                                                                of the defence industry. However, in India, there is no such
India enacts The Foreign Trade Development and
                                                                list that specifies what constitutes a defence product. The
Regulation Act (FTDR) of 1992; the Atomic Energy Act
                                                                matter of defining the defence nature of their product has
of 1962; the Customs Act of 1962; and the Weapons of
                                                                intrigued both foreign and OEMs.
Mass Destruction (WMD) Act of 2005.
                                                                To define a defence product, they have to refer to at least
Besides these laws, India had notified, under the
                                                                four different lists, depending on the purpose of defining
Foreign Trade Act in 1995, a detailed list of “dual-use”
                                                                their product:
items called SMET (Special Material, Equipment and
Technology). This list was revised in 1999, 2005 and            1.	 Indian Trade Classification Harmonized System
2007, and is now called the SCOMET (Special Chemicals,              (ITC HS) Code: It is maintained by the Ministry of
Organisms, Material, Equipment and Technology) list. In             Commerce’s Director General of Foreign Trade (DGFT)
2008, India’s SCOMET controls were harmonized with                  for the purpose of India’s external trade. The list is
the NSG (Nuclear Suppliers Group) and MTCR (Missile                 not defence-specific. It caters to items of defence,
Technology Control Regime).                                         dual-use and even products that can be considered to
                                                                    be commercially off-the-shelf in nature. For instance,
Exports control for items related to aerospace and
                                                                    under the HS Code 88 (aircraft, spacecraft and parts
defence is governed by the SCOMET list in India, which
                                                                    thereof) there are sub-categories such as “gliders,”
outlines the procedure, process and factors relating to
                                                                    “balloons” and “under-carriages and parts thereof,”
the licensing of controlled items.
                                                                    which are commercially available products or, at best,
                                                                    dual-use items.
Increasing cooperation                                          2.	 National Industrial Classification (NIC) Codes of the
India has been pushing for a membership in the worlds’              Ministry of Statistics and Programme Implementation:
four major export control regimes — the Nuclear                     According to the requirements of the Department of
Suppliers Group (NSG), Australia Group (AG), WA and the             Industrial Participation and Production, companies
Missile Technology Control Regime (MTCR). India’s claim             wanting to apply for an industrial license are required
to these regimes is based on the stringent export control           to provide the “item code” from the National Industrial
safeguards that it has instituted in recent years. Opening          Classification (NIC) Code list of 1987, which has
up of India’s civil nuclear cooperation program with other          only two codes — 359.4 (manufacture of arms and
nuclear regimes also signals India’s joining of an elite club       armaments) and 308.2 for (ammunition) — for the


Eye on defence | 5
entire defence manufacturing sector. It does not specify    This lack of clarity on what constitutes defence goods
     what constitutes arms, armaments, dual-use items or         and services can lead to some very serious difficulties.
     components that go into arms and ammunition.
                                                                 For foreign OEMs, the lack of a clear definition has led
3.	 Product List: This list is as articulated in the MoD’s       to many of them offering, as part of offsets, goods and
    Defence Procurement Procedure (DPP) for the                  services, which are not part of any of the international
    discharge of offset obligations by foreign vendors.          definition of such goods. As a result, there was a
    Although this list provides some details of items in         possibility of India ending up with goods and services
    27 categories under three broad headings — defence           that cannot be seriously considered as advancing the
    products, products for internal security and civil           Indian defence industrial base. According to the CAG
    aerospace products, it does not define dual-use              report of 2012–13 on defence offsets, since 2005 India
    products or deal with component-level products and           has signed 16 offset contracts with various vendors for
    raw material for defence production.	                        INR184.45 billion.
    	
    To discharge offset obligation, an Indian company
    needs to become an Indian Offset Partner (IOP). To
    become an IOP, the defence manufacturer needs                   Conclusion
    to provide an item code from the NIC (1987) in the              It is therefore essential for India to adopt a strict
    application. Ideally, the “product list” should be in line      definition of the defence industry, goods, services
    with the NIC Code to enable the IOP and OEM to finalize         and technologies — preferably along the lines of WA.
    products for offset discharge with ease. However, this is       This is likely to be done in one of the following ways:
    not what actually happens.
                                                                    •	   Adopting the WA Munitions List, Basic List,
4.	 Special Chemicals, Organisms, Material, Equipment                    Sensitive and Very Sensitive List as standard
    and Technology (SCOMET) List: The SCOMET list is                     lists of reference for the defence industry in
    maintained by the Ministry of Commerce’s, DGFT.                      India.
    Although defence goods and technologies are covered
                                                                    •	   Defining an indigenous list that clearly lays out
    in Category 3 (material, material-processing equipment
                                                                         defence goods, services, technologies, dual-use
    including technologies); Category 5 (aerospace
                                                                         items and raw material for the defence industry.
    systems, equipment including production and test
    equipment, related technology and specially designed            This is expected to help India to get maximum
    components and accessories thereof); and Category               benefits from the offset policy. It is also expected
    7 (electronics, computers and information technology            to simplify the process of licensing for Indian
    including information security). It does not have a             manufacturers, and clearly help define the Indian
    separate dedicated section for them. It also does not           offset partners for offset projects with OEMs,
    does not coincide with any of the lists mentioned               resulting in better governance of such projects.
    above.

Eye on defence | 6
Impact of “Make” procedure on
  Indian defence industrial capability
  The defence industry in India has been dominated by the                                            Emergence of private sector in Indian
  government-owned and managed Defence Public Sector
                                                                                                     defence industry
  Undertakings (DPSUs), Ordnance Factory Board (OFB)
  and Defence Research and Development Organization                                                  With the aim to achieve self-reliance in defence
  (DRDO) labs. Private sector units, which comprise                                                  production, certain project categories were promulgated
  around 5,200 small and medium enterprises (SMEs), are                                              under defence procurement procedures (DPP) to
  supplying around 20%–25% of raw material, components,                                              encourage indigenous development.
  and sub-assemblies to the defence sector. The chart and                                            •	    “Buy & Make”: This involves purchase from a foreign
  table given below depicts the total imports done by the                                                  vendor followed by licensed production/indigenous
  country and the total output generated by the DPSUs                                                      manufacture in the country. Private sector/public
  and OFB since 2004–2011. It is pertinent to mention                                                      sector can also participate in licensed production in
  here that OFB and DPSUs source around 30% of their                                                       this category.
  inputs from the private sector.


Imports vs. domestic turnover                                                                         Years        Imports       OFB           DPSU
                      6                                                                                            (US$ billion) Turnover      Turnover
                                                                                                                                 (US$ billion) (US$ billion)
                      5
                                                                                                      2004-05 2.14                 1.24             2.25
                      4
                                                                                                      2005-06 1.05                 1.38             2.61
Amount in $ billion




                      3
                                                                                                      2006-07 1.33                 1.24             3.17
                      2                                                                               2007-08 2.21                 1.39             3.35
                      1                                                                               2008-09 1.80                 1.45             4.08
                      0                                                                               2009-10 2.20                 1.74             5.18
                             2004-05


                                        2005-06


                                                  2006-07


                                                             2007-08


                                                                       2008-09


                                                                                 2009-10


                                                                                           2010-11




                                                                                                      2010-11 2.85                 2.24             5.20
                                                                                                     Notes:
                          Imports      OFB Turnover         DPSU Turnover                            1.	   The import only include the complete equipment directly
Source: Compiled by Q-Tech Synergy                                                                         procured by MOD and does not include the subsystems
                                                                                                           imported by DPSU/OFB.

                                                                                                     2.	   The figures indicate the turnover of OFB/DPSU and not
                                                                                                           necessarily supplied to Defence.


                                                                                                     •	    “Buy & Make (Indian)”: The RFP will be issued only to
                                                                                                           Indian vendors, who are assessed to have requisite
                                                                                                           technical and financial capabilities to undertake such
                                                                                                           projects.
                                                                                                     •	    “Buy” (Indian): This implies out-right purchase of
                                                                                                           existing products from an Indian vendor.
                                                                                                     •	    “Make”: This will mean indigenous design and
                                                                                                           production of a high tech and complex system.

Eye on defence | 7
The “Make” category, in the acquisition process, is akin                    35

to the acquisition procedure followed in major weapon-                      30
producing countries and formulated to ensure design,                        25




                                                               In numbers
research, development and production of indigenous                          20
defence equipment through optimal utilization of                            15
the potential of the Indian industry. The underlying                        10
principle to formulate a separate procedure for the                         5
‘’Make’’ category of procurements is to enhance the
                                                                            0
indigenization component in acquisitions. To genuinely                           2005   2006   2007    2008     2009   2010   2011   2012
promote indigenous research and development in the                                                                                    (Till
                                                                                                                                     Nov)
defence sector, DPP provided for cost sharing, in the                            JV      MoU
ratio of MoD (80%) and industry (20%). Projects covered         Source: Compiled by Q-Tech Synergy
under the “Make” decision are expected to include high
technology complex systems to be designed, developed              Major projects
and produced indigenously. The aim of the procedure is
                                                                  Some of the indigenous defence programs, wherein the
to undertake indigenous research, design, development
                                                                  private sector has contributed in a significant way in
and production by the Indian defence industry. These
                                                                  collaboration with DPSUs and also individually, include
projects are to be undertaken by select Indian companies
                                                                  Pinaka MBRLs, some of the fielded upgrades, Rohini/
from the Indian industry/defence PSUs/OFB/consortia on
                                                                  Revati Radar Program, Dhanush system, and various
a level playing field. This procedure will also be adopted
                                                                  other ongoing programs such as MAFI Program, VLF/
for all upgrades categorized as “Make.”
                                                                  VHF, ATV and various shipbuilding projects. The
                                                                  introduction of “Make” (Indian) option in 2009 has
Indian private industry: capability                               provided an opening in the defence industry, which
                                                                  earlier was the exclusive preserve of DPSUs/OFs, to
India’s manufacturing private sector has proved its mettle
                                                                  the private sector. The promulgation of the Defence
and international competitiveness in the past decade, and
                                                                  Production Policy in 2011 further emphasizes the
some companies such as TATA, L&T, Mahindra, Kirloskar,
                                                                  Government of India’s (GoI’s) endeavor to build a robust
etc., have already been working in high technology space
                                                                  indigenous defence industrial base by proactively
and missile manufacturing for decades. It has strengths
                                                                  encouraging increased involvement of the Indian private
in design, engineering, finance and marketing. About 75–
                                                                  sector in design, development and manufacture of
80 private sector companies have till date received 179
                                                                  defence equipment.
industrial licenses for production of a variety of defence
systems and sub-systems. There are large and small
industries that have, over the years, built capabilities and
capacities, through partnership with public sector entities                                        Battle Field
                                                                                               Management System -
such as DRDO and also with foreign companies. Many                                                   $2.5 bn
large industry houses have either built new facilities
or carved out capacities within their own design and
manufacturing capacities for the defence sector.
After the defence sector opened up, considering its                                                Make indian
significant commercial potential, a number of joint                                                 projects
ventures (JVs) and Memoranda of Understanding (MoUs)                                                  ($17bn)
have been forged between foreign and Indian partners.
JVs are the best route for the “Make” programs and also
for discharge of offsets in the “Buy” or “Buy and Make”                                                                    Tactical
options. Since 2005 more than 250 JVs/MoUs related                           FICV - $12.5 bn                            Communication
                                                                                                                        System - $2 bn
to defence in various sectors have been forged by Indian
companies.



Eye on defence | 8
MoD has classified some major projects under the “Make”        While it is prerequisite for the private players in defence
category. Currently, three large defence contracts,            to develop capability in design and system upgrade by
comprising tactical communications system (TCS),               investing in Industry R&D and Human Resources, attempt
Future Infantry Combat Vehicle (FICV) and the Battlefield      should be made toward developing innovative technology
Management System (BMS) projects for the Indian Army,          and manufacturing methods to increase cost efficiency,
worth a combined INR750 billion, best epitomize this           besides ensuring healthy competition. Technology
new approach. Set to be awarded by the MoD in the near         developed or gained from any development/”Make”
future, all three projects will be designed, developed         project must be leveraged further. It is expected that
and built in India. The private sector will jostle for these   the private sector will play an active role in indigenous
contracts along with the public sector. Companies such as      defence programs and contribute to the Indian defence
Tata Motors, Tata Power, Mahindra and Mahindra, Ashok          industrial capability by catching up with the public sector
Leyland, L&T, Wipro and Infosys are all part of a consortia    in the domestic defence market share as depicted in the
bidding for these contracts. Another project in the            figure below.
pipeline under this category is 1,300 light bullet-proof
vehicles worth INR7.2 billion (US$144 million).                 Domestic market share public vs. private

                                                                                      60
Way ahead
                                                                Amount in $ billion




                                                                                      50
                                                                                      40
India has emerged as the world’s biggest importer                                     30
of defence equipment according to a recent report,                                    20
accounting for 10% of global arms imports between 2007                                10
                                                                                       0
and 2011. Moreover, during the next 10–15 years, India
                                                                                            2012-13


                                                                                                      2014-15


                                                                                                                2016-17


                                                                                                                          2018-19


                                                                                                                                      2020-21


                                                                                                                                                2022-23


                                                                                                                                                          2024-25


                                                                                                                                                                    2026-27




will need to replace a considerable proportion of its major
systems and also adopt new technology to keep pace
with the defence technologies. Accordingly, the defence                                    Domestic  Production                     Public Sector Value
spending is expected to grow at the rate of 7% to 8%                                       Private Sector Value
annually over the next few years offering opportunities
to domestic and foreign suppliers. Thus, the focus of the      Source: Compiled by Q-Tech Synergy
GoI is clearly to increase the level of indigenization and
reduce dependency on foreign companies significantly.


Eye on defence | 9
Market share (domestic/private/public in US$ billion)
                       2012-13      2014-15      2016-17       2018-19     2020-21      2022-23      2024-25      2026-27
 Domestic 	              5.30         7.25         10.20        14.72        21.63        30.10       39.74        50.08
 Production
 Public Sector           3.71         4.78         6.33         8.54         11.68        15.05       19.87        25.04
 Value
 Private Sector          1.59         2.46         3.88         6.18          9.95        15.05       19.87        25.04
 Value
In case the GoI is looking forward to developing a strong        •	   Taxation provisions to be rationalized for Indian
indigenous industrial base via “Make” programs, it                    vendors
needs to meet justified expectations through policy
initiatives. Most importantly, the basic need is to create a     •	   IPR of technology to be held jointly by the Indian
competitive environment by providing a level playing field            company and GoI or only the Government.
to the competitors. The MoD could help by implementing           •	   Permanent body to replace integrated project
some of the changes, mentioned below, in the next                     management teams (IPMT) where continuity and
revision of the DPP, which is expected soon:                          domain expertise likely to be questionable
•	   Make requirements of the defence (LTIPP) available          •	   FDI limit and permission to export in the context of
     to the industry                                                  the projects under the “Make” and “Buy and Make”
•	   Do away nomination of DPSU on preferential basis                 category

•	   Selection criteria for projects to be specified             •	   Creation of a forum for interaction between GoI
                                                                      and industry to address issues that could become
•	   Methodology of deciding indigenous contents and                  impediments
     time frame
                                                                 •	   A uniform value addition principle to be applied for
•	   SME’s role in “supply chain” needs to be promoted                both manufacturing and services sectors, so as to
•	   Protection from exchange rate variation to be                    provide equal opportunity to companies in these
     available to Indian vendors                                      sectors and avoid potential manipulation by foreign
                                                                      vendors
•	   Parity in payment terms for Indian and foreign
     vendors




Eye on defence | 10
Conclusion
      The indigenization initiative via the “Make” program has
      potential to reduce dependence on imports from foreign OEMs
      to the desired level. Figure 5 below depicts the conservative
      estimated scenario in about 15 years, which can be achieved for
      imports vs. indigenous production, i.e., a 50:50 ratio rather than
      the often repeated ratio of 30:70.

       Imports vs. domestic opportunities
                             2012-13     2014-15     2016-17     2018-19    2020-21   2022-23   2024-25   2026-27
       Imports                  12.38       16.13       20.72       26.17     32.45     38.31     43.05     50.08
       Indigenous
       production
                                  5.30        7.25      10.20       14.72     21.63     30.10     39.74     50.08
       (domestic
       opportunity)




      The added but often-overlooked benefit of reducing reliance on
      defence imports is the positive impact on the Indian economy.
      In its 2005 report on defence acquisition, the Vijay Kelkar
      Committee quoted that a mere 25% reduction on foreign
      dependence will lessen foreign exchange outgo by approximately
      INR85 billion, also creating about 120,000 new jobs, and
      accelerating manufacturing GDP growth by 8%. There is an
      inherent benefit in the “Make” procedure — the defence budget’s
      capital expenditure gets utilized in the national economy and
      helps in generating skilled employment, subsequently spin off
      will be there to be seen.




Eye on defence | 11
MSME development: vital for an
inclusive defence industrial base
The defence procurement procedures (DPP) have                 categories. This is good news for India Inc. It also places
undergone changes with far-reaching consequences.             an added responsibility on India Inc. in terms of forming
Only one big overhaul remains to be executed for              partnerships and alliances. The various consortia formed
the industry to make rapid progress. The defence-             in various parts of the world — especially the successful
offset guidelines that have been announced recently           ones such as EADS, Finmeccanica, Safran, UTC — is
are completely new in their outlook as the MoD has            likely to set the path for introspection. If there is an
tried to incorporate the best global practices. We now        opportunity for some of our companies to form such
have a sound set of offset guidelines, which are well-        powerful alliances, it can be a game changer. The coming
documented, have been formulated in an exceptionally          together of complementary capabilities is a force in itself.
professional manner and have been put up in the public
                                                              Besides repatriating a portion of the foreign exchange
domain. The policy has been put up on the government
                                                              back into the country, defence offset as a tool was
websites (www.mod.nic.in) and is accessible to everyone.
                                                              introduced to, “Create a Defence Industrial Base.” A
This is a rare occurrence since not many countries
                                                              widespread and sound base cannot alone be formed
have their policies up on open websites like us. The
                                                              through the growth of large conglomerates. This can
MoD and the industry associations follow up each of
                                                              happen only if we are able to take the larger segment of
these announcements with a number of seminars and
                                                              the industry on board with us in this journey of progress.
conferences to generate goodwill and broad-based
                                                              One cannot over-emphasize the importance of the small
awakening. Thus, the policy is proliferating among the
                                                              scale sector to create a robust defence industrial base.
domestic industry, the OEMs and the academia quite
                                                              Only when progress is distributed and capability, along
well.
                                                              with inclusive growth, is prevalent everywhere can the
Defence accounts for 2.5 % of the GDP and around              nation have a decent industrial capability. Therefore, “the
15% of the Central Government’s expenditure. Our              man and machine story” is very important.
defence budget has the third-highest growth rate (9.3%)
                                                              In this context, there is positive news regarding the small
after Russia and China. According to the 13th Finance
                                                              and medium enterprises. There is a good amount of
Commission Report, the total defence capital budget
                                                              synergy between the policies of various ministries when
allocation during the 12th Plan is likely to be INR4,455
                                                              it concerns the small industries sector. While we all are
billion. The capital acquisitions budget ranges between
                                                              aware of the multiplier incentive provided to the small
75% and 85% of the total capital expenditure, and is likely
                                                              segment by the MoD, there are extant regulations such
to be around INR3,564 billion. The “India Inc.” growth
                                                              as the MSMED Act of 2006 and the Public Procurement
story is for real and the current level of expenditure
                                                              Policy that are in sync. The Public Procurement Policy
support for the armed forces is expected to be sustained
                                                              is currently on an advisory note stage and is likely to
by successive governments. Therefore, in mathematical
                                                              become mandatory in a couple of years. The procedures
terms, this is a progress in continuum. The volatile
                                                              to source from the small segment must be put into place
situation of our neighboring countries is also a reason
                                                              as soon as possible.
for the accelerating defence expenditure. Where do the
micro, small and medium enterprises (MSMEs) figure in         The multiplier effect for MSMEs, as an Indian Offset
this growth story?                                            Partner (IOP), provided in the DPP is very significant.
                                                              Now, it is a question of how this can be put to good use,
Streamlining procurements in the MoD is a work-in-
                                                              both by foreign OEMs and Indian MSMEs. This calls for
progress, and as things stand today, the MoD is seeking
                                                              a discussion, and organizations such as National Small
increased participation from the local industry. The
                                                              Industries Corporation (NSIC) can play a significant role
“Buy and Make (Indian)” category and the “Make”
                                                              in this growth story. The government can only provide
category is expected to be the focus during the planning
                                                              enablers and it is up to the industry to capitalize on these
process, resulting in more enquiries in these two


Eye on defence | 12
and “dress-up” to avail the desired benefits. The benefits          interest rates. Funding support with management
of various policies must flow to the MSMEs directly and             assistance can also be a very good idea. The MSMEs
we must see this growth happening in the next two                   can then concentrate on what they do best and while
years itself. These MSMEs are our backbone and we                   the funding organization comes up with management
must strengthen them so that we can stand erect as an               techniques for vibrant progress.
industry.
                                                                    The interesting story of the iPhone is relevant here.
It is truly said, “If India lives in villages; the industry lives   Some time back the TIME magazine reported that, of
in MSMEs.”                                                          the US$379 that the iPhone costs, US$70 goes into
                                                                    raw material; US$9 goes into manufacturing (which,
There are often talks of hand-holding of the MSMEs
                                                                    incidentally, takes place in China); and US$300 resides
to help them graduate to the next level. Hand-holding
                                                                    in the US where the IP is owned. There are, therefore,
does not mean spoon-feeding; it is merely providing
                                                                    no short cuts for design and development. Investments
enablers. The policy initiatives must be put to good use
                                                                    in research and development (R&D), and design and
to help them progress and gain access to the benefits.
                                                                    development are essential if we are to make progress in
The GoI requires more from the MSMEs than what the
                                                                    real terms. The offset guidelines, by themselves, provide
MSMEs may require from the GoI. The government is




                                                                    for investment in R&D as a valid method of discharge
aware of this situation and, thus, there are enablers at
                                                                    of offset obligations. However, this, somehow, has not
various policy levels. We must be able to explore options
                                                                    seen the light of the day. Now, in the recently issued
for funding them at rates that are affordable by the
                                                                    guidelines, R&D has been clubbed with services. This
small units. This low rate might be generated through
                                                                    offers great scope for investment in R&D of eligible
innovative ideas, such as raw material assistance, credit
guarantees and foreign line of credit with reduced




Eye on defence | 13
products as a valid method of discharge of offset               An additional route for the discharge of offset by FDI
obligations. Niche technologies reside in MSMEs as they         investment through venture capital funds in the MSME
are able to create and sustain technology. They also hold       sector needs to be explored. While the new defence
the technology close to their chest. Development of the         offset policy makes it attractive for the foreign OEM by
MSME sector is the key to building a robust industrial          assigning a multiplier of 1.5 for every unit of capital
base.                                                           invested in the MSME sector, it still does not provide
Defence Public Sector Units (DPSUs) are bound by the            a solution to the viability gap in funding that exists in
Public Procurement Policy and need to proactively source        the MSME sector. Due to high risk and long gestation
up to 20% of their annual procurement from MSMEs.               periods, assets are not created to secure debt from
There are also around 358 items reserved for the MSME           banks for various scaling up activities related to plant
sector, which should be rigorously followed. There is,          and equipment, talent acquisition, R&D, working capital
however, a need for revising the list to make it relevant       and other operations. As a result, many companies
for the currently evolving scenario.                            with core competencies in the defence sector are or
                                                                are expected to be unable to absorb the offset work
Collaboration between MSMEs is the key to success. The          that the OEM is willing to discharge to the MSMEs.
small segment industries hold the key to development            Introduction of venture capital funds as an avenue for
since they hold niche capabilities. The call of the day is to   offset discharge is expected to help create a suitable
establish strong linkages between MSMEs domestically            financial platform through which OEMs can discharge
with the tier II/III companies abroad to achieve increased      their offset obligation. This is anticipated to not only help
synergies. While the offset guidelines have allowed the         the OEM in faster discharge of their offset obligations
tier I companies to discharge offset on behalf of the           but also provide the much-needed viability gap funding
OEMs, this is not very strictly restricted to the tier I        that continues to plague the MSME sector. This calls for
companies alone. A tier I company such as Pratt and             serious consideration, as this is a viable route to take
Whitney, GE or Snecma will also have its own tier I and         MSMEs to the next level.
tier II. Therefore, the offset authorities must be able to
see this fundamental linkage and, make a policy inclusive
for holistic growth.
Eye on defence | 14
Request for Information (RFIs)

October 2012 – December 2012
 Date of issue        RFI details                   Response date   Issued by                Service
 3 Dec 2012           Passive Surveillance and      31 Dec 2012     DASR (EW)                Indian Army
                      ELINT system
 7 Nov 2012           Modular Bridge mounted on 10 Dec2012          Comb Engrs – 5/CE Dte	 Indian Army
                      High Mobility Vehicle                         Engineer-in-Chief’s
                                                                    Branch, Integrated HQ
                                                                    of MoD (Army)
 18 Oct 2012          Practice Ammunition for       18 Nov 2012     DGMF Sena Bhawan	        Indian Army
                      T72,T90 (125mm) and                           IHQ HQ of MOD(Army)
                      Arjun (120mm) Tank
 17 Oct 2012          Project ASCON Phase-4         5 Dec 2012      Dte Gen of Signals       Indian Army
                      (Army Static Switched
                      Communication Network)
 27 Sep 2012          155MM / 105MM Blank           30 Oct 2012     Directorate General      Indian Army
                      Ammunition                                    of Artillery (Arty-5),
                                                                    General Staff Branch
 12 Nov 2012          Quotations for Procurement 20 Dec 2012        Directorate of           Indian Navy
                      of 02 Nos 09 KL Air Craft                     Procurement
                      Refuellers along with initial
                      spares
 20 Sep 2012          High speed expendable         30 Nov 2012     Directorate of Staff     Indian Navy
                      aerial target                                 Requirements
                                                                    Integrated
                                                                    Headquarters of MoD
                                                                    (Navy)
 27 Nov 2012          ION of Partner for Aircraft   10 Dec 2012     Vehicle Factory          ---
                      Refueller                                     Jabalpur
 26 Sep 2012          Expression of Interest:       12 Oct 2012     Prov Branch Dte.Gen.,    CRPF
                      QRs/Specification for Mine                    CRPF, New Delhi
                      Protected Vehicle (MPV)




Eye on defence | 15
Request for Proposal (RFPs)

October 2012 – December 2012
 Date of issue        RFI details                     Response date   Issued by                Remarks
 4 Dec 2012           Harness for Bullet Proof        25 Dec 2012     Ord Branch, HQ           For IA	
                      Jacket                                          Northern Command         Qty: 7810 Nos.
                                                                      Udhampur (J&K)
 4 Dec 2012           Ballistic Helmet with Inbuilt   9 Jan 2013      GOC-in-C, Northern       For IA 	
                      MIC/ Headphone                                  Command                  Qty: 24 Nos.
 1 Dec 2012           Digital Night Vision Devices    26 Dec 2012     GSO 1 Avn                For IA 	
                                                                                               Qty: 6 Nos.
 29 Nov 2012          Air Borne Tactical Vest         17 Dec 2012     HQ Central Command	      For IA	
                                                                      ST Branch                Qty: 250 units
 28 Nov 2012          Fabrication of Mockup for    22 Dec 2012        Simulator                For IA
                      Devp of Tank Troops Tactical                    Development Division
                      Training Simulator (T4S)
 27 Nov 2012          Tactical Vest                   27 Dec 2012     GOC-in-C                 For IA 	
                                                                                               Qty: 4000 Nos.
 10 Nov 2012          Mounting of GPS (for Arjun      3 Dec 2012      Comdt COD Agra           For IA 	
                      Tank)                                                                    Qty: 7 Nos.
 31 Oct 2012          Bullet Proof Shield             17 Nov 2012     GOC-in-C, HQ Northern For IA 	
                                                                      Command               Qty: 50 Nos.
 19 Oct 2012          Spares for Rifle 7.62 mm        17 Dec 2012     DDG PPO                  For IA
                      58P/58V(Ex-Czech)
 12 Oct 2012          Fiber Reinforced Plastic        19 Oct 2012     Headquarters Western     For IA 	
                      (FRP) Boats                                     Command                  Qty: 10 Nos.
 1 Oct 2012           Bomb ML 120 MM Mortar           26 Nov 2012     DDG PPO , AMGO(SSA) For IA 	
                      Smoke PWP Ammunition                            MGO/PPO-5           Qty: 9605 Nos.
                      with FUZE DA NO-162 MK 9
                      (M-1)/DA 4A or equivalent
 5 Dec 2012           Portable Colour Doppler         24 Dec 2012     Directorate General of   For IAF
                      cum USG Machine                                 Medical Services (Air)
 4 Dec 2012           Light Driving Simulator 1.5     14 Feb 2013     Directorate of           For IAF
                      Configuration with 6 DoF                        Procurement
                                                                      Indigenous Purchase
                                                                      Wing
 25 Nov 2012          Optical Device for IL-76        24 Jan 2012     Directorate of           For IAF
                                                                      Procurement,
                                                                      Indigenous Purchase
                                                                      Wing




Eye on defence | 16
Date of issue        RFI details                   Response date   Issued by                 Remarks
 16 Nov 2012          Brake Parachutes for Hawk     5 Feb 2012      Dte of Armt & Safety   For IAF	
                      MK-132                                        Eqpt, Air Headquarters Qty: 218 Units
 1 Nov 2012           Communication Equipments      16 Nov 2012     HQ WAC IAF Subroto        For IAF
                                                                    Park
 25 Oct 2012          Heliflex Antenna for GP 328   14 Nov 2012     LP Cell, 9 BRD, AF        For IAF	
                                                                    Pune                      Qty: 200 Nos.
 22 Oct 2012          Low Cost Security             26 Nov 2012     SO Provost HQ MC,         For IAF
                      Equipments                                    IAF- Nagpur
 18 Oct 2012          Simulator Training for        8 Nov 2012      Directorate of OPS        For IAF
                      Boeing 737-200 Aircraft                       (IEW) Air HQs (Vayu
                                                                    Bhawan)
 16 Oct 2012          Night Vision Goggles          11 Nov 2012     Controller of             For IN	
                                                                    Procurement 	             Qty: 70 Nos.
                                                                    Material Organisation 	
                                                                    (Mumbai)
 26 Sep 2012          Passive Night Vision          20 Nov 2012     DG, CRPF                  For CRPF 	
                      Monocular                                     (Procurement Cell         Qty: 3804 Nos.
                                                                    of Provisioning
                                                                    Directorate)
 26 Sep 2012          Passive Night Vision          21 Nov 2012     Directorate General,   For CRPF	
                      Binocular & Kit Prov                          CRPF Provisioning Dte. Binocular: 3241 	
                                                                    (Procurement Cell)     Nos. and Kit: 22 Nos
 22 Sep 2012          Mobile Signal Booster Dual    6 Nov 2012      Commandant 2 Signal       For CRPF	
                      Band 2 Sig                                    Bn, CRPF, Hyderabad       Qty: 15 Nos.
 15 Nov 2012          Hand Held Thermal Imager	     20 Nov 2012     Directorate General,      For BSF 	
                      (Biocular)                                    Border Security Force     Qty: 355 Nos.
 12 Oct 2012          Life Saving Eqpts, Life       30 Oct 2012     AC/WW For Inspector       For BSF 	
                      Jackets and Life Buoys                        General FTR HQ BSF        Qty: 286 Nos.
                                                                    SB
 26 Sep 2012          New Trimble (GPS) for MI-17 30 Oct 2012       DG BSF, Air Wing          For BSF 	
                      IV Helicopter                                                           Qty: 04 Nos.
 29 Oct 2012          RDX-TNT 60-40 Type-A and      18 Dec 2012     Ordnance Factory          Issued by OFB	
                      Type-B                                        Badmal                    Qty: Type-A is 205 MT
                                                                                              and Type-B is 275 MT
 20 Oct 2012          Automatic Case Gauging        18 Dec 2012     Indian Ordnance           Issued by OFB	
                      Machine for 5.56 mm                           Factories Varangaon       Qty: 04 Nos.
                      Cartridge Case




Eye on defence | 17
Date of issue        RFI details                 Response date   Issued by             Remarks
 20 Oct 2012          Automatic Case Gauging      18 Dec 2012     Indian Ordnance       Issued by OFB	
                      Machine for 7.62 mm A-7                     Factory Varangaon     Qty: 01 No.
                      Cartridge Case
 17 Oct 2012          Proximity FUZE for FB 40    30 Nov 2012     Ordnance Factory      Issued by OFB	
                      (Filled) for 40MM PFFC                      Khamaria, Jabalpur    Qty: 69700 Nos.
                      Ammn
 17 Oct 2012          Supply Erection             11 Dec 2012     Ordnance Factory,     Issued by OFB
                      Commissioning of Lead                       Varangaon
                      Swaging Press for 5.56 mm
                      Ammunition
 17 Oct 2012          Supply Erection             11 Dec 2012     Ordnance Factory,     Issued by OFB
                      Commissioning of Lead                       Varangaon
                      Swaging Press for A-7
                      Ammunition
 3 Oct 2012           Supply Erection               27 Nov 2012   Ordnance Factory      Issued by OFB
                      Commissioning of Automatic                  Varangaon,
                      Primer Filling Plant for 5.56               Maharashtra
                      mm Ammunition
 3 Oct 2012           Supply Erection            27 Nov 2012      Ordnance Factory      Issued by OFB
                      Commissioning of Automatic                  Varangaon,
                      Primer Filling Plant for                    Maharashtra
                      7.62mm Ammunition with
                      conversion kit for 5.56 mm
                      ammunition
 20 Nov 2012          Deep search mine/metal      12 Dec 2012     DG CISF               For CISF	
                      detector                                                          Qty: 21 Nos.
 9 Dec 2012           Long range electro optic    9 Feb 2013      ADRDE*Aerial          Issued by DRDO
                      payload                                     Delivery Research
                                                                  & Development
                                                                  Establishment
 4 Dec 2012           FRP speed boat              8 Jan 2013      ITR*Integrated Test   Issued by DRDO
                                                                  Range Lab




Eye on defence | 18
List of industrial licenses (ILs) filed from
September 2012 - October 2012
 Application no. Name of the applicant                                                                               Item of manufacture
 and date
 65 	                       Micropack Ltd.                                                                           Manufacture of printed circuits for defence and aerospace                                              
 03/09/2012                
 66	                                                   Rangsons Defence Solutions Pvt. Ltd.            Design/development/manufacture   /service of electronic
 11/09/2012                                                                                            systems and communication systems including parts and
                                                                                                       accessories for RF and MW; optic and surveillance systems;
                                                                                                       interconnects; metal and composites used in defence and
                                                                                                       aerospace application
 67	                                                         HBL Power Systems Ltd.                                  Air conditioners and parts thereof                                                      
 14/09/2012                                                 
 68 	                             Bharat Forge Ltd.                                                                  Telecommunications— manufacture and upgrade of combat
 14/09/2012                                                                                                          surveillance systems            
 69	                               Nallabolu Industries Pvt. Ltd.                                                                              Slurry/emulsion                                               
 17/09/2012  
 70	                               Spectrum Antenna & Avionics                                                       Airborne antennas, avionics systems Radomes 	
 21/09/2012                        Systems Pvt. Ltd.                                                                 antennas parts                           
 71	                               Pipavav Defence And Offshore                                                      Development and manufacture of C4I systems including
 26/09/2012                        Engineering Co. Ltd.                                                              CMS, BMS, IPMS and IBS, Electro-optical systems,
                                                                                                                     underwater systems including sonars, and avionic
 73	                Realtime Techsolutions Pvt. Ltd.               Blocks/segments of combat simulators, command control
 03/10/2012                                                        centers management systems, platform management-
                                                                   systems and complete ATES, simulators, command control
                                                                   centers      
 74	                                                    Sakthi Aerospace Pvt. Ltd.                                   Parts and accessories N.E.C. for special purpose non-
 04/10/2012                                                                                                          electrical machinery/equipment NEC- parts of rifle, gun and
                                                                                                                     carbine                                                              
 75	                               Atul Ltd.                                                                         Phosgene Carbonyl Chloride, Carbonyl Di-Chloride, Carbon
 04/10/2012                                                                                                          Oxy-Chloride              
 76	                               Sandeep Metalcraft Pvt.Ltd.                                                       Sub-assemblies of arms and ammunition weapon parts,
 04/10/2012                                                                                                          safe and arm mechanism, timers, cartridge SAA parts                        
 77	                               Applied Electro Magnetics Pvt. Ltd.                                               Specially designed software for Command Communication,
 17/10/2012                                                                                                          Control, Computer and Intelligence (C4I) applications,
                                                                                                                     VOIP- based voice communication equipment and control
                                                                                                                     system            
 78	                          Vinir Engineering Pvt. Ltd.                                                            Open die forging, closed die forging, CNC machined
 30/10/2012                                                                                                          components and assemblies for defence industries      




Eye on defence | 19
New projects/investments/contracts

         Name of       Project details                                                                       Value*
         entity
         Indian Army   •	   The Very Short Range Air Defence System (VSHORADS) contract for nearly INR323.1 billion
                            1,000 launcher systems and more than 6,000 missiles has progressed into
         ►
                            a crucial phase. The current phase will involve quality assurance tests at
         ►                  Bengaluru and a checking of the electronics systems on the three remaining
                            contenders in Ladakh.
                       •	   There is a three-way competition between the French MBDA Mistral,
                            Sweden’s SAAB RBS 70 NG and Russia’s KBM new generation Igla-S.
                       •	   In the current phase, there will also be discussions on transfer of technology
                            to the default license manufacturing partner, Bharat Dynamics Ltd.
     Indian Air        •	   India signed a deal with Russia for 40 Su-30MKI fighter aircraft, which will     INR188.5 billion
     Force                  be upgraded to the Super Sukhoi configuration.
     ►                 •	   The first delivery is expected in 2014–15 and with the addition of these 40
                            aircraft the total number of Sukhoi will reach 270.
     ►
                       •	   The delay in the signing of the contract with France’s Dassault for 126
                            Rafale fighther jets has also necessitated the need to procure Super
                            Sukhois.
     Indian Air        •	   The GoI has shortlisted Boeing, with its Chinook helicopter, to procure 15       INR129.24 billion
                                                                                                             ►
     Force                  heavy-lift choppers for IAF.
     ►                 •	   The cost of the contact is estimated to be worth INR 53.85 billion (US$1
                            billion).
     ►
                       •	   India also plans to buy 22 AH-64D Block III Apache helicopters from Boeing
                            at an estimated cost of INR75.39 billion (US$1.4 billion).
 Indian Air            •	   The Union Cabinet approved a plan to produce 200 air versions of the             INR80 billion
 Force and                  Brahmos cruise missile and to procure 10,000 Invar missiles from Russia
 Indian Army                for the T-90 tanks of the Army.
 ►                     •	   Under the proposal, 10,000 Invar missiles will be procured by Russian
                            manufacturers and another 15,000 missiles will be license manufactured by
                            the Bharat Dynamics Limited (BDL) under the transfer of technology.
     Bharat            •	   BDL plans to set up a missile production unit at Ibrahimpatnam in Andhra         INR25 billion
     Dynamics               Pradesh.
     Limited
                       •	   This is likely to generate direct and indirect employment for around 700
     ►                      and 2,000 people, respectively.




Eye on defence | 20
Name of            Project details                                                                      Value*
         entity
         Indian Armed       •	   India will purchase 10 thousand each of Konrurs-M guided anti-tank missiles INR12 billion (for
         Forces                  and the Invar guided anti-tank missiles from Russia.                         anti-tank missiles
                                                                                                              from Russia)
         ►                  •	   In addition to the 10 thousand Invar guided antitank missiles delivered from
                                 Russia, another 15 thousand will be manufactured in India by BDL.
 Indian Army                •	   The Cabinet Committee on Security cleared the proposal to procure 10,000 INR12 billion
                                 Konkurs-M anti-tank guided missiles for the Army from Russia.
 ►
                            •	   The Konkurs-M weapon systems will augment the anti-tank arsenal in the
                                 Army.
             Defence        •	   The DRDO has identified a new missile launch site at Machalipatnam in           INR10 billion
             Research and        Andhra Pradesh for which it has asked the Government of Andhra Pradesh
             Development         for 260 acres of land.
             Organisation
             (DRDO)
     Defence                •	   The DRDO has launched an ambitious project to develop India’s own field     INR3–4 billion
     Research and                gun (a 155-mm field gun) in association with the ordnance factories and the
     Development                 private players.
     Organisation
     Indian Navy            •	   The US Navy placed an order for the lightweight air-launched Mk-54              INR2.4 billion 	
                                 torpedoes from the US-based Raytheon for the Indian Navy.                       (for the Indian
     ►
                                                                                                                 and Australian
                            •	   The torpedoes will be deployed on the eight P-8I long-range maritime
     ►                                                                                                           navies)
                                 aircraft being built by Boeing.
                            •	   The Mk-54 can be deployed from a surface ship, helicopter or fixed wing
                                 aircraft to track, classify and attack underwater targets.
             Boeing         •	   The US government has awarded Boeing a contract to build “Beddown                INR1.1 billion
                                 Infrastructure Facilities” for the C-17 heavy lift transport aircraft ordered by
             ►
                                 the Indian Air Force (IAF) at Hindon Air Force Station, near New Delhi.
                            •	   Beddown infrastructure is a type of facility that is specific to a particular
                                 aircraft type at a particular base. This is the first phase of construction
                                 expected to be executed by 2013.
     Hindustan              •	   HAL opened its strategic electronics factory at Kasaragod in Kerala to          INR660 million
     Aeronautics                 produce advanced avionics systems for aircraft and helicopters.                 (Phase-I)
     Limited (HAL)




Eye on defence | 21
Name of      Project details                                                                         Value*
         entity
         CRPF         •	   The GoI has floated a multi-country tender to procure around 4,000                 NA
                           specialized “human detecting” night vision devices apart from more than
         ►
                           3,000 binoculars for use in the dark for naxal operations.
                      •	   The mandatory requirement of these night vision gadgets, according to the
                           tender, is to "detect and recognize human beings within 125–200 metres in
                           star lit conditions without moonlight".
 Indian Air           •	   The IAF has contracted for 230 Sukhoi Su-30MKI fighter jets from Russia,           NA
 Force                     of which 140 will be manufactured at HAL in India by 2013–14.
 ►                    •	   These new jets will replace the phasing out of MiG-21s and MiG-27s.
 ►                    •	   In addition, India has finalized another contract for 42 more Su-30MKI
                           fighters, to be built under licence from Russia at HAL's Nashik facility, taking
 ►
                           the total number of Su-30s in service to 272. This has made India the
                           world's largest operator of the Su-30 type.
                      •	   Furthermore India is in talks with Russia to upgrade its fleet of Sukhoi
                           Su-30s with new radar and avionics, beginning with the first 50 Sukhois
                           inducted in 1997.
     Tata Steel       •	   Tata Steel has inaugurated its second aerospace service center in Xi’an in         NA
                           China, boosting its aerospace operations in the country.
     ►
                      •	   The company opened its first service center in Suzhou in 2009.
     ►
                      •	   The new facility is approximately 600 miles south west of Beijing, the region
                           that accounts for 40% of the total aerospace manufacturing capacity in
                           China.
     Indian Army      •	   In 2013, India will receive the first tank digital control systems developed in    NA
                           cooperation with two Russian companies — Uralvagonzavod and Sozvezdie.
     ►
                      •	   These digital tanks enable the commanders to command units on the
                           battlefield in real time mode connecting all armored vehicles into a unified
                           information network.
     Indian Coast     •	   Northrop Grumman Corporation will supply advanced shipboard navigation             NA
     Guard                 systems for 20 fast patrol vessels for the Indian Coast Guard.
     ►                •	   The shipset will be delivered starting late 2012 till 2015.




*The values of the deals have been converted to Indian Rupees using Oanda currency conversion tool
1US$ = INR53.85 (Average of the value from 1 October 2012 to 12 December 2012)


Eye on defence | 22
Joint ventures and alliances

     Name of            Nature of transaction                                                                 Value*
     entities
 Indian Air             •	   India has signed a joint venture (JV) with Russia under which the latter will    INR60 billion
 Force, HAL,                 supply 200 high-precision supersonic cruise missile BrahMos to the IAF.
 BrahMos
                        •	   On the back of this deal, India has set up another manufacturing and system
 Aerospace
                             integration plant in Thiruvananthapuram for missile production.
 ►
                        •	   The integration of the air version of the missile will be done by HAL and the
 ►                           missiles will be retrofitted on the Russian-built Sukhoi Su-30 MKI fighter
                             jets.
     United Aircraft    •	   An Indo-Russian project, to jointly design a transport aircraft for militaries   INR32.31
     Corporation             of both the countries, was kicked off in Moscow on 3 December.                   billion (US$600
     and HAL                                                                                                  million)
                        •	   In October, India entered an agreement with the Russian company for the
     ►                       preliminary design phase (PDP) contract for Multirole Transport Aircraft.
                             Ten months after the PDP contract, the detail design phase (DDP) contract
     ►
                             will be signed to complete the design and development of MTA.
     ►
                        •	   The project is being executed by 30 engineers from India's state-run
                             aerospace company HAL and its Russian counterpart the United Aircraft
                             Corporation (UAC).
         SAAB AB        •	   SAAB AB, a Swedish aerospace and defence company, signed an MOU                  INR2.01 billion
         and Pipavav         concerning a strategic investment in Pipavav Defence and Offshore
         Defence and         Engineering Limited (Pipavav). With this deal, SAAB has acquired a good
         Offshore            platform for growth in the Indian market.
         Engineering
                        •	   After the investment, SAAB has approximately a 3.5% shareholding in
         Limited
                             Pipavav.
         Quest Global   •	   India-based engineering services provider “QuEST Global” has set up a JV         INR550 million
         and SAAB AB         with Swedish defence and security company SAAB AB to establish an aero-
                             structure assembly venture.
         ►
                        •	   QuEST will hold a 74% stake in the new company, which will be based in
         ►
                             Belgaum (Karnataka).
                        •	   The unit will commence its operations in mid-2013 and manufacture
                             specific parts and assemble substantial sections of commercial aircraft such
                             as Boeing 787 Dreamliner and Airbus A320 and A380.
         Pipavav        •	   Pipav has incorporated a JV with the DPSU, Mazagon Dock.                         NA
         Defence and
                        •	   The 50:50 JV named “Mazagon Dock Pipavav Defence” will construct
         Offshore
                             surface warships for the Indian Navy.
         Engineering
         Limited and
         Mazagon Dock



Eye on defence | 23
Name of          Nature of transaction                                                                      Value*
     entities
 Defiance       •	          India-based Defiance Technologies Ltd., a Hinduja Group company providing NA
 Technologies               engineering, manufacturing and enterprise services and solutions for
 and Ausy Group             various industries has signed an MoU with Ausy Group of France (which
                            specializes in high technology and engineering) to set up a JV to address
 ►
                            defence offset requirements in India.
 ►
                       •	   Defiance will hold a majority stake in the joint venture.
                       •	   The JV will meet Ausy’s customers’ commitment for the sourcing obligation
                            as mandated by defence offset policy norms of India and allow Ausy to be
                            listed in the offset defence supplier list.
     Axis              •	   Axis Aerospace and Technologies Ltd. is looking for acquisitions to expand
     Aerospace and          its offering in engineering services for civil, commercial and defence offset
     Technologies           markets.
     Ltd.
         ►             •	   The company has set up a dedicated offshore development center with
                            its subsidiary (CADES) to develop fuselage for Airbus. Its new facility
                            at Kirloskar Business Park will provide solutions, including product
                            development and manufacturing processes for aerospace, defence,
                            automotive and heavy engineering industries.
         ►             •	   It also plans to set up a 75-acre supply chain cluster in the upcoming               NA
                            aerospace park near the Bengaluru international airport at Devanahalli,
                            around 40 km from the city center, to provide manufacturing and allied
                            support facilities to global aerospace and defence firms.
     Kaman             •	   Kaman Aerospace Group, Inc., a subsidiary of Kaman Corporation and                   NA
     Aerospace              Kineco Pvt. Ltd. signed a definitive agreement to form a manufacturing JV
     Group and              in India. The new company will be named Kineco Kaman Composites India
     Kineco Private         Pvt. Ltd.
     Ltd.
                       •	   The venture is based in Goa and will manufacture advanced composite
     ►                      structures for aerospace, imaging/medical and other industries.
     Mahindra          •	   M&M renewed talks to buy US-based aircraft maker, Hawker Beechcraft.                 NA
     and Mahindra           The company had earlier lost its bid to the Chinese firm Superior Aviation
     (M&M)                  Beijing Co.
     ►                 •	   Beechcraft is likely to invite bids again for a sale process as its talks with the
                            Chinese firm is likely to have failed.




*The values of the deals have been converted to Indian Rupees using Oanda currency conversion tool
1US$ = INR53.85 and 1SEK = INR8.07 (Average of the value from 1 October 2012 to 12 December 2012)


Eye on defence | 24
Country-level deals and initiatives

 Country              Nature of transaction                                  Additional details
 United               •	   The India Navy along with its US counterpart      •	   The US Navy’s Undersea Rescue Command
 States                    held Indo-US submarine rescue exercise                 shipped a submarine rescue system – a
                           “INDIAEX-2012.” The navies practiced the               deep-submergence rescue vessel (DSRV) or
                           rescue of trapped submarines under the sea.            a submarine rescue chamber (SRC) to the
                                                                                  exercise area off Mumbai.
                                                                             •	   The DSRV or SRC will dive deep underwater to
                                                                                  “mate’’ with “disabled’’ submarines to rescue
                                                                                  sailors in intricate maneuvers rarely practiced
                                                                                  by Indian sailors.
 Russia               •	   The twelfth meeting of the India-Russia           •	   The Commission reviewed and discussed the
                           inter-governmental Commission on Military              status of some of the major issues in military
                           Technical Cooperation was held in New Delhi.           technical cooperation.
                                                                             •	   The Commission also endorsed the protocols
                                                                                  of the meetings of the Working Group on
                                                                                  Shipbuilding, Aviation and Land Systems,
                                                                                  (WG SALS) and the Working Group on Military
                                                                                  Technical Cooperation (WG-MTC), which were
                                                                                  held in New Delhi on 27–28 August 2012 and
                                                                                  30–31 August 2012, respectively.
 Spain                •	   India and Spain signed an MoU under which         •	   The two sides agreed to exchange defence-
                           they will encourage collaboration between              related experience and information, and
 ►
                           their defence industries and exchange of               encourage visits of personnel and collaboration
                           personnel.                                             in the defence industry and similar areas of
                                                                                  cooperation.
                      •	   The MoU was signed by the Indian Defence
                           Minister, AK Antony, and his Spanish              •	   The MoU on defence was among the five pacts
                           counterpart Pedro Morenés Eulate.                      signed after comprehensive talks between
                                                                                  the Prime Minister, Manmohan Singh, and the
                                                                                  visiting King Juan Carlos I on bilateral, regional
                                                                                  and international issues.
 Indonesia            •	   India and Indonesia decided to significantly      •	   The two sides exchanged views on issues
                           enhance their defence cooperation in the               relating to regional and global security,
                           first ministerial level biennial defence dialog        bilateral exercises involving services, training,
                           between Defence Minister, Mr. AK Antony,               co-production of defence equipment and
                           and his Indonesian counterpart, Mr Purnomo             ammunitions and visits at high levels.
                           Yusgiantoro.►
                                                                             •	   The two sides also exchanged views on the
                                                                                  emerging scenario in Afghanistan and West
                                                                                  Asia.




Eye on defence | 25
Eye on Defense- Dec 2012
Eye on Defense- Dec 2012
Eye on Defense- Dec 2012
Eye on Defense- Dec 2012
Eye on Defense- Dec 2012
Eye on Defense- Dec 2012
Eye on Defense- Dec 2012
Eye on Defense- Dec 2012
Eye on Defense- Dec 2012
Eye on Defense- Dec 2012

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Eye on Defense- Dec 2012

  • 1. Eye on defence December 2012 Dear readers, I would like to take this opportunity to wish all of you a Merry Christmas and a very happy New Year. India is the largest importer of arms in the world, which is due to our volatile neighborhood. Therefore, the Ministry of Defence (MoD) and the Government of India have always stressed upon the need to become self reliant to meet our defence needs. Under the Defence Procurement Procedure (DPP), the “MAKE” procedure is one of the important ways by which this agenda of indigenization is being pushed forward. In this issue of Eye on Defence, we have tried to throw some light on this topic and also tell you about some of the “MAKE” programs that provide exciting opportunities for the domestic defence industry to play an important role in nation building. Contents The DPP is an evolving document and the latest edition of DPP 2013 is expected in the first couple of months of 2013. Throughout its evolution, the DPP has taken steps to harmonize • Introduction 1 with the extant regulations of the Government of India. One of the areas where this harmonization is really needed is to define a “defence” product. Due to multiplicity of lists, • The Wassenaar Arrangement there is considerable ambiguity regarding the products on which an Industrial License (IL) is and its relevance in the mandatory and products on which the 26% FDI limit applies. It should be noted that whereas Indian context 2 DPP 2006 made it mandatory for the Indian Offset Partner (IOP) to have an IL, this condition • Impact of “Make” procedure was removed in DPP 2008 and further relaxed in DPP 2011. The “Wassenaar Arrangement” on Indian defence and its lists are likely to present itself as a suitable solution to this problem and we analyze this industrial capability 7 aspect. • MSME development: vital for an The private sector was permitted to enter defence production in 2001 and we have seen some inclusive defence industrial base 12 remarkable achievement by large Indian conglomerates, thereafter. However, the same cannot be said about the micro, small and medium enterprises (MSMEs), which form the majority of • Request for Information (RFIs) 15 the industrial base of this country. The Revised Defence Offset Guidelines-2012 has taken a • Request for Proposals (RFPs) 16 bold step of introducing multipliers for providing a boost to the prospects of the MSME’s. In this issue, we try to highlight some of the other steps that could further help their cause. • List of Industrial Licenses (ILs) filed for the month of September Among the regular sections, we have industrial license applicants, new projects and 2012 - October 2012 19 investments, joint ventures and alliances, country-level deals and the latest buzz in the industry. • New projects/investments/ contracts 20 I hope you find the last issue of this year useful. It has been our constant endeavor to make this publication increasingly relevant to you and will appreciate your comments and • Joint ventures and alliances 23 suggestions in this regard. • Country-level deals and initiatives 25 • Industry buzz 27 K. Ganesh Raj • Sources 32 Partner and Leader Aerospace and Defence Practice
  • 2. The Wassenaar Arrangement and its relevance in the Indian context How did it come into being? After the end of the Cold War, members of the former Coordinating Committee for Multilateral Export Controls (COCOM) export control regime recognized that COCOM’s focus on restricting exports to the former Soviet Union and Eastern bloc was no longer an appropriate basis for export control. There was a need to establish a new arrangement to deal with risks posed to regional and international security and stability due to the spread of conventional weapons and dual-use goods and technologies. Accordingly, at a High Level Meeting (HLM) on 16 November 1993 in The Hague, representatives of 17 COCOM member states agreed to terminate COCOM and establish a new multilateral arrangement, temporarily known as the “New Forum.” This decision was confirmed at another HLM in Wassenaar, Netherlands, held on 29–30 March 1994. COCOM ceased to exist on 31 March 1994. Participating states agreed to continue the use of COCOM control lists as a basis for global export controls on a national level until a new arrangement could be established. Agreement to establish the “Wassenaar Arrangement” was reached at the HLM held on 19 December 1995. The first Plenary Meeting of the now- operational Wassenaar Arrangement was held on 12–13 December 1996 in Vienna. What is it and what does it hope to achieve? The Wassenaar Arrangement (WA) is the first multilateral, voluntary export controls regime for conventional arms and dual-use goods and technologies. It categorizes all arms and dual-use items under two lists — Munitions List under eight categories (derived from the UN Register of Conventional Arms), and Sensitive Dual Use Goods and Technologies list. The WA countries maintain effective export controls for the items on the agreed lists. This is achieved through voluntary exchange of information at annual conferences by the WA members. The objective of WA is to contribute to regional and international security by controlling the transfer of weapons and sensitive technologies to destabilizing elements. It seeks to achieve this through the following: Eye on defence | 2
  • 3. Promoting transparency and increased responsibility Control lists in transfers of conventional arms and dual-use goods and technologies, and therefore, preventing In order to place an item on the lists, member states take destabilizing accumulations into account the following criteria: • Preventing the acquisition of conventional arms and • Availability outside participating states dual-use goods and technologies by terrorist groups • Ability to effectively control the export of the goods and organizations as well as by individual terrorists • Ability to make a clear and objective specification of • Enhancing co-operation to prevent the acquisition of the item armaments and sensitive dual-use items for military • Controlled by another regime, such as the Australia end-uses if the situation in a region or the behavior Group, Nuclear Suppliers Group or Missile Technology of a state is, or becomes, a cause for serious concern Control Regime to the participating states Participating states practice export control on all items set forth in the Munitions List and the List of Dual-Use Member states Goods and Technologies with the objective of preventing Membership in the WA is universal and non- unauthorized transfers or re-transfers of those items. discriminatory for countries meeting the established 1. Munitions List: The Munitions List has 22 categories, criteria: which are not labeled. Conventional arms appearing • Produce/export arms or associated dual-use goods in this list fall under eight broad weapon categories and technologies — battle tanks, armored combat vehicles (ACVs), large-caliber artillery, military aircraft/unmanned • Implement national policies that do not permit the aerial vehicles, military and attack helicopters, sale of arms or sensitive dual-use items to countries warships, missiles or missile systems, and small arms whose behavior is a cause for concern and light weapons. (The ACV, aircraft, and helicopter • Adhere to international non-proliferation norms and categories include models designed to perform guidelines reconnaissance or conduct command of troop’s missions). • Implement fully effective export controls 2. Dual Use List: List of Dual Use Goods and Members of the WA are obligated to maintain rigorous Technologies has a Basic List, which are further national export control systems. The latest list of 41 divided into two annexes — 1) Sensitive List and 2) countries that are part of the WA is: Very Sensitive List • Argentina • Finland • Malta • Slovakia • Australia • France • Mexico • Slovenia • Austria • Germany • Netherlands • South Africa • Belgium • Greece Hungary • New Zealand • Spain • Bulgaria • Ireland • Norway • Sweden • Canada • Italy • Poland • Switzerland • Croatia • Japan • Portugal • Turkey • Czech Republic • Latvia • Republic of Korea • Ukraine • Denmark • Lithuania • Romania • United Kingdom • Estonia • Luxembourg • Russian Federation • United States Eye on defence | 3
  • 4. The Basic List is composed of ten categories • Basic List of Dual Use Goods and technologies: Semi- based on increasing levels of sophistication. The annual notifications of licenses issued, transfer of categories are — special material and related items and denials for items in the Basic List of dual- equipment; materials processing; electronics; use goods and technologies telecommunications and information security; • Sensitive and Very Sensitive List of Dual Use Goods sensors and lasers; navigation and avionics; and Technologies: Semi-annual notifications of marine; aerospace and propulsion. licenses issued and transfer of items for items in • Sensitive List: Items on Annex 1 of the WA’s list the Sensitive or Very Sensitive Lists. Members are of dual-use goods and technologies represent required to report any denials of transfers or licenses critical items that are keys for the development of items in these lists within 30–60 days. of military applications. It includes material • Any member who undercuts such denials (i.e., export for stealth technology, equipment that can be the denied item to the same end-user) within three used for submarine detection, advanced radar, years of the denial is supposed to report the issuance and jet engine technologies. of the export license within 30–60 days. • Very Sensitive List: Items on Annex 2 of the WA’s list of dual-use goods and technologies represent the most critical items for use in military Critical points applications. Participating atates are expected to In the context of export control and clear categorization exert extreme vigilance for items included in the of arms and dual-use goods and technologies, the very sensitive list. following points are to be noted: • WA is just a body for exchanging and collecting Administration information. It is not a treaty. Hence, there is no legal, binding aspect to it. The WA Plenary is the decision-making and governing body of the WA. It is composed of representatives of • All decisions at the WA are made by consensus, all participating states who normally meet once a year, even for induction of new members. Thus, a single usually in December at Vienna, where the WA has country can block any proposal. Often, there is no established its headquarters and a small secretariat. consensus regarding the scope of WA, the countries The Chairman of the Plenary is appointed annually on a that are “states of concern” or the constituents of a rotational basis among participating states. The Plenary “destabilizing” transfer. has established a General Working Group and an Experts’ • The Arrangement does not have an observer Group, which meet periodically. Official language of the category. Information exchanged in the Arrangement WA is English. remains confidential to the participating nations and Information exchanged in the WA can include any matter is treated as privileged diplomatic communication. that individual participating states wish to bring to the • The decision to transfer or deny an item is the attention of other members, such as emerging trends sole responsibility of each participating state, and in weapons programs, projects of concern and the the Arrangement does not impede bona-fide civil accumulation of particular weapon systems. transactions. The WA’s specific information exchange requirements • All measures undertaken with respect to the involve: Arrangement are according to national discretion. • Munitions List: Semi-annual notifications of arms • The Arrangement considers exports to non-members transfers, licenses issued and denied to all non- only, and is not directed against any state or group of participating states, covering eight categories states. of Conventional Arms (including model and type information) Eye on defence | 4
  • 5. The Arrangement does not interfere with the rights of nations. This places increased onus on India to commit of states to acquire legitimate means with which to a global regime of defence and nuclear cooperation, to defend themselves pursuant to Article 51 of the promoting transparency and responsibility in exports of Charter of the United Nations. sensitive items. • There is a periodic review of information and control The WA has 41 participating countries — and accounts for lists to account for technological advancement. more than 90% of global production of defence goods. Therefore, becoming a part of these regimes will help India • Apart from the above, WA regularly endorses fully and effectively integrate itself into the global defence voluntary ”best practices” to dispose off surplus industry, increase its ability to bypass strict licensing military equipment and approves non-binding criteria requirements that have prevented it from procuring to guide exports of small arms and light weapons. It sophisticated defence equipment and technologies in the also effects agreements to exercise increased control past. It will also enable India to gain full benefits of free on arms brokers and commitments to better regulate commerce in the goods covered by these regimes. exports of dual-use goods purchased by recipients subject to arms embargos if the item is intended for a military end use. Defining “defence” Globally, defence goods and services are defined clearly The Indian context as part of comprehensive lists and, thus, what constitutes “defence” is easily identifiable — enabling a clear definition As part of its export control regime for sensitive items, of the defence industry. However, in India, there is no such India enacts The Foreign Trade Development and list that specifies what constitutes a defence product. The Regulation Act (FTDR) of 1992; the Atomic Energy Act matter of defining the defence nature of their product has of 1962; the Customs Act of 1962; and the Weapons of intrigued both foreign and OEMs. Mass Destruction (WMD) Act of 2005. To define a defence product, they have to refer to at least Besides these laws, India had notified, under the four different lists, depending on the purpose of defining Foreign Trade Act in 1995, a detailed list of “dual-use” their product: items called SMET (Special Material, Equipment and Technology). This list was revised in 1999, 2005 and 1. Indian Trade Classification Harmonized System 2007, and is now called the SCOMET (Special Chemicals, (ITC HS) Code: It is maintained by the Ministry of Organisms, Material, Equipment and Technology) list. In Commerce’s Director General of Foreign Trade (DGFT) 2008, India’s SCOMET controls were harmonized with for the purpose of India’s external trade. The list is the NSG (Nuclear Suppliers Group) and MTCR (Missile not defence-specific. It caters to items of defence, Technology Control Regime). dual-use and even products that can be considered to be commercially off-the-shelf in nature. For instance, Exports control for items related to aerospace and under the HS Code 88 (aircraft, spacecraft and parts defence is governed by the SCOMET list in India, which thereof) there are sub-categories such as “gliders,” outlines the procedure, process and factors relating to “balloons” and “under-carriages and parts thereof,” the licensing of controlled items. which are commercially available products or, at best, dual-use items. Increasing cooperation 2. National Industrial Classification (NIC) Codes of the India has been pushing for a membership in the worlds’ Ministry of Statistics and Programme Implementation: four major export control regimes — the Nuclear According to the requirements of the Department of Suppliers Group (NSG), Australia Group (AG), WA and the Industrial Participation and Production, companies Missile Technology Control Regime (MTCR). India’s claim wanting to apply for an industrial license are required to these regimes is based on the stringent export control to provide the “item code” from the National Industrial safeguards that it has instituted in recent years. Opening Classification (NIC) Code list of 1987, which has up of India’s civil nuclear cooperation program with other only two codes — 359.4 (manufacture of arms and nuclear regimes also signals India’s joining of an elite club armaments) and 308.2 for (ammunition) — for the Eye on defence | 5
  • 6. entire defence manufacturing sector. It does not specify This lack of clarity on what constitutes defence goods what constitutes arms, armaments, dual-use items or and services can lead to some very serious difficulties. components that go into arms and ammunition. For foreign OEMs, the lack of a clear definition has led 3. Product List: This list is as articulated in the MoD’s to many of them offering, as part of offsets, goods and Defence Procurement Procedure (DPP) for the services, which are not part of any of the international discharge of offset obligations by foreign vendors. definition of such goods. As a result, there was a Although this list provides some details of items in possibility of India ending up with goods and services 27 categories under three broad headings — defence that cannot be seriously considered as advancing the products, products for internal security and civil Indian defence industrial base. According to the CAG aerospace products, it does not define dual-use report of 2012–13 on defence offsets, since 2005 India products or deal with component-level products and has signed 16 offset contracts with various vendors for raw material for defence production. INR184.45 billion. To discharge offset obligation, an Indian company needs to become an Indian Offset Partner (IOP). To become an IOP, the defence manufacturer needs Conclusion to provide an item code from the NIC (1987) in the It is therefore essential for India to adopt a strict application. Ideally, the “product list” should be in line definition of the defence industry, goods, services with the NIC Code to enable the IOP and OEM to finalize and technologies — preferably along the lines of WA. products for offset discharge with ease. However, this is This is likely to be done in one of the following ways: not what actually happens. • Adopting the WA Munitions List, Basic List, 4. Special Chemicals, Organisms, Material, Equipment Sensitive and Very Sensitive List as standard and Technology (SCOMET) List: The SCOMET list is lists of reference for the defence industry in maintained by the Ministry of Commerce’s, DGFT. India. Although defence goods and technologies are covered • Defining an indigenous list that clearly lays out in Category 3 (material, material-processing equipment defence goods, services, technologies, dual-use including technologies); Category 5 (aerospace items and raw material for the defence industry. systems, equipment including production and test equipment, related technology and specially designed This is expected to help India to get maximum components and accessories thereof); and Category benefits from the offset policy. It is also expected 7 (electronics, computers and information technology to simplify the process of licensing for Indian including information security). It does not have a manufacturers, and clearly help define the Indian separate dedicated section for them. It also does not offset partners for offset projects with OEMs, does not coincide with any of the lists mentioned resulting in better governance of such projects. above. Eye on defence | 6
  • 7. Impact of “Make” procedure on Indian defence industrial capability The defence industry in India has been dominated by the Emergence of private sector in Indian government-owned and managed Defence Public Sector defence industry Undertakings (DPSUs), Ordnance Factory Board (OFB) and Defence Research and Development Organization With the aim to achieve self-reliance in defence (DRDO) labs. Private sector units, which comprise production, certain project categories were promulgated around 5,200 small and medium enterprises (SMEs), are under defence procurement procedures (DPP) to supplying around 20%–25% of raw material, components, encourage indigenous development. and sub-assemblies to the defence sector. The chart and • “Buy & Make”: This involves purchase from a foreign table given below depicts the total imports done by the vendor followed by licensed production/indigenous country and the total output generated by the DPSUs manufacture in the country. Private sector/public and OFB since 2004–2011. It is pertinent to mention sector can also participate in licensed production in here that OFB and DPSUs source around 30% of their this category. inputs from the private sector. Imports vs. domestic turnover Years Imports OFB DPSU 6 (US$ billion) Turnover Turnover (US$ billion) (US$ billion) 5 2004-05 2.14 1.24 2.25 4 2005-06 1.05 1.38 2.61 Amount in $ billion 3 2006-07 1.33 1.24 3.17 2 2007-08 2.21 1.39 3.35 1 2008-09 1.80 1.45 4.08 0 2009-10 2.20 1.74 5.18 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2010-11 2.85 2.24 5.20 Notes: Imports OFB Turnover DPSU Turnover 1. The import only include the complete equipment directly Source: Compiled by Q-Tech Synergy procured by MOD and does not include the subsystems imported by DPSU/OFB. 2. The figures indicate the turnover of OFB/DPSU and not necessarily supplied to Defence. • “Buy & Make (Indian)”: The RFP will be issued only to Indian vendors, who are assessed to have requisite technical and financial capabilities to undertake such projects. • “Buy” (Indian): This implies out-right purchase of existing products from an Indian vendor. • “Make”: This will mean indigenous design and production of a high tech and complex system. Eye on defence | 7
  • 8. The “Make” category, in the acquisition process, is akin 35 to the acquisition procedure followed in major weapon- 30 producing countries and formulated to ensure design, 25 In numbers research, development and production of indigenous 20 defence equipment through optimal utilization of 15 the potential of the Indian industry. The underlying 10 principle to formulate a separate procedure for the 5 ‘’Make’’ category of procurements is to enhance the 0 indigenization component in acquisitions. To genuinely 2005 2006 2007 2008 2009 2010 2011 2012 promote indigenous research and development in the (Till Nov) defence sector, DPP provided for cost sharing, in the JV MoU ratio of MoD (80%) and industry (20%). Projects covered Source: Compiled by Q-Tech Synergy under the “Make” decision are expected to include high technology complex systems to be designed, developed Major projects and produced indigenously. The aim of the procedure is Some of the indigenous defence programs, wherein the to undertake indigenous research, design, development private sector has contributed in a significant way in and production by the Indian defence industry. These collaboration with DPSUs and also individually, include projects are to be undertaken by select Indian companies Pinaka MBRLs, some of the fielded upgrades, Rohini/ from the Indian industry/defence PSUs/OFB/consortia on Revati Radar Program, Dhanush system, and various a level playing field. This procedure will also be adopted other ongoing programs such as MAFI Program, VLF/ for all upgrades categorized as “Make.” VHF, ATV and various shipbuilding projects. The introduction of “Make” (Indian) option in 2009 has Indian private industry: capability provided an opening in the defence industry, which earlier was the exclusive preserve of DPSUs/OFs, to India’s manufacturing private sector has proved its mettle the private sector. The promulgation of the Defence and international competitiveness in the past decade, and Production Policy in 2011 further emphasizes the some companies such as TATA, L&T, Mahindra, Kirloskar, Government of India’s (GoI’s) endeavor to build a robust etc., have already been working in high technology space indigenous defence industrial base by proactively and missile manufacturing for decades. It has strengths encouraging increased involvement of the Indian private in design, engineering, finance and marketing. About 75– sector in design, development and manufacture of 80 private sector companies have till date received 179 defence equipment. industrial licenses for production of a variety of defence systems and sub-systems. There are large and small industries that have, over the years, built capabilities and capacities, through partnership with public sector entities Battle Field Management System - such as DRDO and also with foreign companies. Many $2.5 bn large industry houses have either built new facilities or carved out capacities within their own design and manufacturing capacities for the defence sector. After the defence sector opened up, considering its Make indian significant commercial potential, a number of joint projects ventures (JVs) and Memoranda of Understanding (MoUs) ($17bn) have been forged between foreign and Indian partners. JVs are the best route for the “Make” programs and also for discharge of offsets in the “Buy” or “Buy and Make” Tactical options. Since 2005 more than 250 JVs/MoUs related FICV - $12.5 bn Communication System - $2 bn to defence in various sectors have been forged by Indian companies. Eye on defence | 8
  • 9. MoD has classified some major projects under the “Make” While it is prerequisite for the private players in defence category. Currently, three large defence contracts, to develop capability in design and system upgrade by comprising tactical communications system (TCS), investing in Industry R&D and Human Resources, attempt Future Infantry Combat Vehicle (FICV) and the Battlefield should be made toward developing innovative technology Management System (BMS) projects for the Indian Army, and manufacturing methods to increase cost efficiency, worth a combined INR750 billion, best epitomize this besides ensuring healthy competition. Technology new approach. Set to be awarded by the MoD in the near developed or gained from any development/”Make” future, all three projects will be designed, developed project must be leveraged further. It is expected that and built in India. The private sector will jostle for these the private sector will play an active role in indigenous contracts along with the public sector. Companies such as defence programs and contribute to the Indian defence Tata Motors, Tata Power, Mahindra and Mahindra, Ashok industrial capability by catching up with the public sector Leyland, L&T, Wipro and Infosys are all part of a consortia in the domestic defence market share as depicted in the bidding for these contracts. Another project in the figure below. pipeline under this category is 1,300 light bullet-proof vehicles worth INR7.2 billion (US$144 million). Domestic market share public vs. private 60 Way ahead Amount in $ billion 50 40 India has emerged as the world’s biggest importer 30 of defence equipment according to a recent report, 20 accounting for 10% of global arms imports between 2007 10 0 and 2011. Moreover, during the next 10–15 years, India 2012-13 2014-15 2016-17 2018-19 2020-21 2022-23 2024-25 2026-27 will need to replace a considerable proportion of its major systems and also adopt new technology to keep pace with the defence technologies. Accordingly, the defence Domestic Production Public Sector Value spending is expected to grow at the rate of 7% to 8% Private Sector Value annually over the next few years offering opportunities to domestic and foreign suppliers. Thus, the focus of the Source: Compiled by Q-Tech Synergy GoI is clearly to increase the level of indigenization and reduce dependency on foreign companies significantly. Eye on defence | 9
  • 10. Market share (domestic/private/public in US$ billion) 2012-13 2014-15 2016-17 2018-19 2020-21 2022-23 2024-25 2026-27 Domestic 5.30 7.25 10.20 14.72 21.63 30.10 39.74 50.08 Production Public Sector 3.71 4.78 6.33 8.54 11.68 15.05 19.87 25.04 Value Private Sector 1.59 2.46 3.88 6.18 9.95 15.05 19.87 25.04 Value In case the GoI is looking forward to developing a strong • Taxation provisions to be rationalized for Indian indigenous industrial base via “Make” programs, it vendors needs to meet justified expectations through policy initiatives. Most importantly, the basic need is to create a • IPR of technology to be held jointly by the Indian competitive environment by providing a level playing field company and GoI or only the Government. to the competitors. The MoD could help by implementing • Permanent body to replace integrated project some of the changes, mentioned below, in the next management teams (IPMT) where continuity and revision of the DPP, which is expected soon: domain expertise likely to be questionable • Make requirements of the defence (LTIPP) available • FDI limit and permission to export in the context of to the industry the projects under the “Make” and “Buy and Make” • Do away nomination of DPSU on preferential basis category • Selection criteria for projects to be specified • Creation of a forum for interaction between GoI and industry to address issues that could become • Methodology of deciding indigenous contents and impediments time frame • A uniform value addition principle to be applied for • SME’s role in “supply chain” needs to be promoted both manufacturing and services sectors, so as to • Protection from exchange rate variation to be provide equal opportunity to companies in these available to Indian vendors sectors and avoid potential manipulation by foreign vendors • Parity in payment terms for Indian and foreign vendors Eye on defence | 10
  • 11. Conclusion The indigenization initiative via the “Make” program has potential to reduce dependence on imports from foreign OEMs to the desired level. Figure 5 below depicts the conservative estimated scenario in about 15 years, which can be achieved for imports vs. indigenous production, i.e., a 50:50 ratio rather than the often repeated ratio of 30:70. Imports vs. domestic opportunities 2012-13 2014-15 2016-17 2018-19 2020-21 2022-23 2024-25 2026-27 Imports 12.38 16.13 20.72 26.17 32.45 38.31 43.05 50.08 Indigenous production 5.30 7.25 10.20 14.72 21.63 30.10 39.74 50.08 (domestic opportunity) The added but often-overlooked benefit of reducing reliance on defence imports is the positive impact on the Indian economy. In its 2005 report on defence acquisition, the Vijay Kelkar Committee quoted that a mere 25% reduction on foreign dependence will lessen foreign exchange outgo by approximately INR85 billion, also creating about 120,000 new jobs, and accelerating manufacturing GDP growth by 8%. There is an inherent benefit in the “Make” procedure — the defence budget’s capital expenditure gets utilized in the national economy and helps in generating skilled employment, subsequently spin off will be there to be seen. Eye on defence | 11
  • 12. MSME development: vital for an inclusive defence industrial base The defence procurement procedures (DPP) have categories. This is good news for India Inc. It also places undergone changes with far-reaching consequences. an added responsibility on India Inc. in terms of forming Only one big overhaul remains to be executed for partnerships and alliances. The various consortia formed the industry to make rapid progress. The defence- in various parts of the world — especially the successful offset guidelines that have been announced recently ones such as EADS, Finmeccanica, Safran, UTC — is are completely new in their outlook as the MoD has likely to set the path for introspection. If there is an tried to incorporate the best global practices. We now opportunity for some of our companies to form such have a sound set of offset guidelines, which are well- powerful alliances, it can be a game changer. The coming documented, have been formulated in an exceptionally together of complementary capabilities is a force in itself. professional manner and have been put up in the public Besides repatriating a portion of the foreign exchange domain. The policy has been put up on the government back into the country, defence offset as a tool was websites (www.mod.nic.in) and is accessible to everyone. introduced to, “Create a Defence Industrial Base.” A This is a rare occurrence since not many countries widespread and sound base cannot alone be formed have their policies up on open websites like us. The through the growth of large conglomerates. This can MoD and the industry associations follow up each of happen only if we are able to take the larger segment of these announcements with a number of seminars and the industry on board with us in this journey of progress. conferences to generate goodwill and broad-based One cannot over-emphasize the importance of the small awakening. Thus, the policy is proliferating among the scale sector to create a robust defence industrial base. domestic industry, the OEMs and the academia quite Only when progress is distributed and capability, along well. with inclusive growth, is prevalent everywhere can the Defence accounts for 2.5 % of the GDP and around nation have a decent industrial capability. Therefore, “the 15% of the Central Government’s expenditure. Our man and machine story” is very important. defence budget has the third-highest growth rate (9.3%) In this context, there is positive news regarding the small after Russia and China. According to the 13th Finance and medium enterprises. There is a good amount of Commission Report, the total defence capital budget synergy between the policies of various ministries when allocation during the 12th Plan is likely to be INR4,455 it concerns the small industries sector. While we all are billion. The capital acquisitions budget ranges between aware of the multiplier incentive provided to the small 75% and 85% of the total capital expenditure, and is likely segment by the MoD, there are extant regulations such to be around INR3,564 billion. The “India Inc.” growth as the MSMED Act of 2006 and the Public Procurement story is for real and the current level of expenditure Policy that are in sync. The Public Procurement Policy support for the armed forces is expected to be sustained is currently on an advisory note stage and is likely to by successive governments. Therefore, in mathematical become mandatory in a couple of years. The procedures terms, this is a progress in continuum. The volatile to source from the small segment must be put into place situation of our neighboring countries is also a reason as soon as possible. for the accelerating defence expenditure. Where do the micro, small and medium enterprises (MSMEs) figure in The multiplier effect for MSMEs, as an Indian Offset this growth story? Partner (IOP), provided in the DPP is very significant. Now, it is a question of how this can be put to good use, Streamlining procurements in the MoD is a work-in- both by foreign OEMs and Indian MSMEs. This calls for progress, and as things stand today, the MoD is seeking a discussion, and organizations such as National Small increased participation from the local industry. The Industries Corporation (NSIC) can play a significant role “Buy and Make (Indian)” category and the “Make” in this growth story. The government can only provide category is expected to be the focus during the planning enablers and it is up to the industry to capitalize on these process, resulting in more enquiries in these two Eye on defence | 12
  • 13. and “dress-up” to avail the desired benefits. The benefits interest rates. Funding support with management of various policies must flow to the MSMEs directly and assistance can also be a very good idea. The MSMEs we must see this growth happening in the next two can then concentrate on what they do best and while years itself. These MSMEs are our backbone and we the funding organization comes up with management must strengthen them so that we can stand erect as an techniques for vibrant progress. industry. The interesting story of the iPhone is relevant here. It is truly said, “If India lives in villages; the industry lives Some time back the TIME magazine reported that, of in MSMEs.” the US$379 that the iPhone costs, US$70 goes into raw material; US$9 goes into manufacturing (which, There are often talks of hand-holding of the MSMEs incidentally, takes place in China); and US$300 resides to help them graduate to the next level. Hand-holding in the US where the IP is owned. There are, therefore, does not mean spoon-feeding; it is merely providing no short cuts for design and development. Investments enablers. The policy initiatives must be put to good use in research and development (R&D), and design and to help them progress and gain access to the benefits. development are essential if we are to make progress in The GoI requires more from the MSMEs than what the real terms. The offset guidelines, by themselves, provide MSMEs may require from the GoI. The government is for investment in R&D as a valid method of discharge aware of this situation and, thus, there are enablers at of offset obligations. However, this, somehow, has not various policy levels. We must be able to explore options seen the light of the day. Now, in the recently issued for funding them at rates that are affordable by the guidelines, R&D has been clubbed with services. This small units. This low rate might be generated through offers great scope for investment in R&D of eligible innovative ideas, such as raw material assistance, credit guarantees and foreign line of credit with reduced Eye on defence | 13
  • 14. products as a valid method of discharge of offset An additional route for the discharge of offset by FDI obligations. Niche technologies reside in MSMEs as they investment through venture capital funds in the MSME are able to create and sustain technology. They also hold sector needs to be explored. While the new defence the technology close to their chest. Development of the offset policy makes it attractive for the foreign OEM by MSME sector is the key to building a robust industrial assigning a multiplier of 1.5 for every unit of capital base. invested in the MSME sector, it still does not provide Defence Public Sector Units (DPSUs) are bound by the a solution to the viability gap in funding that exists in Public Procurement Policy and need to proactively source the MSME sector. Due to high risk and long gestation up to 20% of their annual procurement from MSMEs. periods, assets are not created to secure debt from There are also around 358 items reserved for the MSME banks for various scaling up activities related to plant sector, which should be rigorously followed. There is, and equipment, talent acquisition, R&D, working capital however, a need for revising the list to make it relevant and other operations. As a result, many companies for the currently evolving scenario. with core competencies in the defence sector are or are expected to be unable to absorb the offset work Collaboration between MSMEs is the key to success. The that the OEM is willing to discharge to the MSMEs. small segment industries hold the key to development Introduction of venture capital funds as an avenue for since they hold niche capabilities. The call of the day is to offset discharge is expected to help create a suitable establish strong linkages between MSMEs domestically financial platform through which OEMs can discharge with the tier II/III companies abroad to achieve increased their offset obligation. This is anticipated to not only help synergies. While the offset guidelines have allowed the the OEM in faster discharge of their offset obligations tier I companies to discharge offset on behalf of the but also provide the much-needed viability gap funding OEMs, this is not very strictly restricted to the tier I that continues to plague the MSME sector. This calls for companies alone. A tier I company such as Pratt and serious consideration, as this is a viable route to take Whitney, GE or Snecma will also have its own tier I and MSMEs to the next level. tier II. Therefore, the offset authorities must be able to see this fundamental linkage and, make a policy inclusive for holistic growth. Eye on defence | 14
  • 15. Request for Information (RFIs) October 2012 – December 2012 Date of issue RFI details Response date Issued by Service 3 Dec 2012 Passive Surveillance and 31 Dec 2012 DASR (EW) Indian Army ELINT system 7 Nov 2012 Modular Bridge mounted on 10 Dec2012 Comb Engrs – 5/CE Dte Indian Army High Mobility Vehicle Engineer-in-Chief’s Branch, Integrated HQ of MoD (Army) 18 Oct 2012 Practice Ammunition for 18 Nov 2012 DGMF Sena Bhawan Indian Army T72,T90 (125mm) and IHQ HQ of MOD(Army) Arjun (120mm) Tank 17 Oct 2012 Project ASCON Phase-4 5 Dec 2012 Dte Gen of Signals Indian Army (Army Static Switched Communication Network) 27 Sep 2012 155MM / 105MM Blank 30 Oct 2012 Directorate General Indian Army Ammunition of Artillery (Arty-5), General Staff Branch 12 Nov 2012 Quotations for Procurement 20 Dec 2012 Directorate of Indian Navy of 02 Nos 09 KL Air Craft Procurement Refuellers along with initial spares 20 Sep 2012 High speed expendable 30 Nov 2012 Directorate of Staff Indian Navy aerial target Requirements Integrated Headquarters of MoD (Navy) 27 Nov 2012 ION of Partner for Aircraft 10 Dec 2012 Vehicle Factory --- Refueller Jabalpur 26 Sep 2012 Expression of Interest: 12 Oct 2012 Prov Branch Dte.Gen., CRPF QRs/Specification for Mine CRPF, New Delhi Protected Vehicle (MPV) Eye on defence | 15
  • 16. Request for Proposal (RFPs) October 2012 – December 2012 Date of issue RFI details Response date Issued by Remarks 4 Dec 2012 Harness for Bullet Proof 25 Dec 2012 Ord Branch, HQ For IA Jacket Northern Command Qty: 7810 Nos. Udhampur (J&K) 4 Dec 2012 Ballistic Helmet with Inbuilt 9 Jan 2013 GOC-in-C, Northern For IA MIC/ Headphone Command Qty: 24 Nos. 1 Dec 2012 Digital Night Vision Devices 26 Dec 2012 GSO 1 Avn For IA Qty: 6 Nos. 29 Nov 2012 Air Borne Tactical Vest 17 Dec 2012 HQ Central Command For IA ST Branch Qty: 250 units 28 Nov 2012 Fabrication of Mockup for 22 Dec 2012 Simulator For IA Devp of Tank Troops Tactical Development Division Training Simulator (T4S) 27 Nov 2012 Tactical Vest 27 Dec 2012 GOC-in-C For IA Qty: 4000 Nos. 10 Nov 2012 Mounting of GPS (for Arjun 3 Dec 2012 Comdt COD Agra For IA Tank) Qty: 7 Nos. 31 Oct 2012 Bullet Proof Shield 17 Nov 2012 GOC-in-C, HQ Northern For IA Command Qty: 50 Nos. 19 Oct 2012 Spares for Rifle 7.62 mm 17 Dec 2012 DDG PPO For IA 58P/58V(Ex-Czech) 12 Oct 2012 Fiber Reinforced Plastic 19 Oct 2012 Headquarters Western For IA (FRP) Boats Command Qty: 10 Nos. 1 Oct 2012 Bomb ML 120 MM Mortar 26 Nov 2012 DDG PPO , AMGO(SSA) For IA Smoke PWP Ammunition MGO/PPO-5 Qty: 9605 Nos. with FUZE DA NO-162 MK 9 (M-1)/DA 4A or equivalent 5 Dec 2012 Portable Colour Doppler 24 Dec 2012 Directorate General of For IAF cum USG Machine Medical Services (Air) 4 Dec 2012 Light Driving Simulator 1.5 14 Feb 2013 Directorate of For IAF Configuration with 6 DoF Procurement Indigenous Purchase Wing 25 Nov 2012 Optical Device for IL-76 24 Jan 2012 Directorate of For IAF Procurement, Indigenous Purchase Wing Eye on defence | 16
  • 17. Date of issue RFI details Response date Issued by Remarks 16 Nov 2012 Brake Parachutes for Hawk 5 Feb 2012 Dte of Armt & Safety For IAF MK-132 Eqpt, Air Headquarters Qty: 218 Units 1 Nov 2012 Communication Equipments 16 Nov 2012 HQ WAC IAF Subroto For IAF Park 25 Oct 2012 Heliflex Antenna for GP 328 14 Nov 2012 LP Cell, 9 BRD, AF For IAF Pune Qty: 200 Nos. 22 Oct 2012 Low Cost Security 26 Nov 2012 SO Provost HQ MC, For IAF Equipments IAF- Nagpur 18 Oct 2012 Simulator Training for 8 Nov 2012 Directorate of OPS For IAF Boeing 737-200 Aircraft (IEW) Air HQs (Vayu Bhawan) 16 Oct 2012 Night Vision Goggles 11 Nov 2012 Controller of For IN Procurement Qty: 70 Nos. Material Organisation (Mumbai) 26 Sep 2012 Passive Night Vision 20 Nov 2012 DG, CRPF For CRPF Monocular (Procurement Cell Qty: 3804 Nos. of Provisioning Directorate) 26 Sep 2012 Passive Night Vision 21 Nov 2012 Directorate General, For CRPF Binocular & Kit Prov CRPF Provisioning Dte. Binocular: 3241 (Procurement Cell) Nos. and Kit: 22 Nos 22 Sep 2012 Mobile Signal Booster Dual 6 Nov 2012 Commandant 2 Signal For CRPF Band 2 Sig Bn, CRPF, Hyderabad Qty: 15 Nos. 15 Nov 2012 Hand Held Thermal Imager 20 Nov 2012 Directorate General, For BSF (Biocular) Border Security Force Qty: 355 Nos. 12 Oct 2012 Life Saving Eqpts, Life 30 Oct 2012 AC/WW For Inspector For BSF Jackets and Life Buoys General FTR HQ BSF Qty: 286 Nos. SB 26 Sep 2012 New Trimble (GPS) for MI-17 30 Oct 2012 DG BSF, Air Wing For BSF IV Helicopter Qty: 04 Nos. 29 Oct 2012 RDX-TNT 60-40 Type-A and 18 Dec 2012 Ordnance Factory Issued by OFB Type-B Badmal Qty: Type-A is 205 MT and Type-B is 275 MT 20 Oct 2012 Automatic Case Gauging 18 Dec 2012 Indian Ordnance Issued by OFB Machine for 5.56 mm Factories Varangaon Qty: 04 Nos. Cartridge Case Eye on defence | 17
  • 18. Date of issue RFI details Response date Issued by Remarks 20 Oct 2012 Automatic Case Gauging 18 Dec 2012 Indian Ordnance Issued by OFB Machine for 7.62 mm A-7 Factory Varangaon Qty: 01 No. Cartridge Case 17 Oct 2012 Proximity FUZE for FB 40 30 Nov 2012 Ordnance Factory Issued by OFB (Filled) for 40MM PFFC Khamaria, Jabalpur Qty: 69700 Nos. Ammn 17 Oct 2012 Supply Erection 11 Dec 2012 Ordnance Factory, Issued by OFB Commissioning of Lead Varangaon Swaging Press for 5.56 mm Ammunition 17 Oct 2012 Supply Erection 11 Dec 2012 Ordnance Factory, Issued by OFB Commissioning of Lead Varangaon Swaging Press for A-7 Ammunition 3 Oct 2012 Supply Erection 27 Nov 2012 Ordnance Factory Issued by OFB Commissioning of Automatic Varangaon, Primer Filling Plant for 5.56 Maharashtra mm Ammunition 3 Oct 2012 Supply Erection 27 Nov 2012 Ordnance Factory Issued by OFB Commissioning of Automatic Varangaon, Primer Filling Plant for Maharashtra 7.62mm Ammunition with conversion kit for 5.56 mm ammunition 20 Nov 2012 Deep search mine/metal 12 Dec 2012 DG CISF For CISF detector Qty: 21 Nos. 9 Dec 2012 Long range electro optic 9 Feb 2013 ADRDE*Aerial Issued by DRDO payload Delivery Research & Development Establishment 4 Dec 2012 FRP speed boat 8 Jan 2013 ITR*Integrated Test Issued by DRDO Range Lab Eye on defence | 18
  • 19. List of industrial licenses (ILs) filed from September 2012 - October 2012 Application no. Name of the applicant Item of manufacture and date 65 Micropack Ltd. Manufacture of printed circuits for defence and aerospace 03/09/2012 66 Rangsons Defence Solutions Pvt. Ltd. Design/development/manufacture /service of electronic 11/09/2012 systems and communication systems including parts and accessories for RF and MW; optic and surveillance systems; interconnects; metal and composites used in defence and aerospace application 67 HBL Power Systems Ltd. Air conditioners and parts thereof 14/09/2012 68 Bharat Forge Ltd. Telecommunications— manufacture and upgrade of combat 14/09/2012 surveillance systems 69 Nallabolu Industries Pvt. Ltd. Slurry/emulsion 17/09/2012 70 Spectrum Antenna & Avionics Airborne antennas, avionics systems Radomes 21/09/2012 Systems Pvt. Ltd. antennas parts 71 Pipavav Defence And Offshore Development and manufacture of C4I systems including 26/09/2012 Engineering Co. Ltd. CMS, BMS, IPMS and IBS, Electro-optical systems, underwater systems including sonars, and avionic 73 Realtime Techsolutions Pvt. Ltd. Blocks/segments of combat simulators, command control 03/10/2012 centers management systems, platform management- systems and complete ATES, simulators, command control centers 74 Sakthi Aerospace Pvt. Ltd. Parts and accessories N.E.C. for special purpose non- 04/10/2012 electrical machinery/equipment NEC- parts of rifle, gun and carbine 75 Atul Ltd. Phosgene Carbonyl Chloride, Carbonyl Di-Chloride, Carbon 04/10/2012 Oxy-Chloride 76 Sandeep Metalcraft Pvt.Ltd. Sub-assemblies of arms and ammunition weapon parts, 04/10/2012 safe and arm mechanism, timers, cartridge SAA parts 77 Applied Electro Magnetics Pvt. Ltd. Specially designed software for Command Communication, 17/10/2012 Control, Computer and Intelligence (C4I) applications, VOIP- based voice communication equipment and control system 78 Vinir Engineering Pvt. Ltd. Open die forging, closed die forging, CNC machined 30/10/2012 components and assemblies for defence industries Eye on defence | 19
  • 20. New projects/investments/contracts Name of Project details Value* entity Indian Army • The Very Short Range Air Defence System (VSHORADS) contract for nearly INR323.1 billion 1,000 launcher systems and more than 6,000 missiles has progressed into ► a crucial phase. The current phase will involve quality assurance tests at ► Bengaluru and a checking of the electronics systems on the three remaining contenders in Ladakh. • There is a three-way competition between the French MBDA Mistral, Sweden’s SAAB RBS 70 NG and Russia’s KBM new generation Igla-S. • In the current phase, there will also be discussions on transfer of technology to the default license manufacturing partner, Bharat Dynamics Ltd. Indian Air • India signed a deal with Russia for 40 Su-30MKI fighter aircraft, which will INR188.5 billion Force be upgraded to the Super Sukhoi configuration. ► • The first delivery is expected in 2014–15 and with the addition of these 40 aircraft the total number of Sukhoi will reach 270. ► • The delay in the signing of the contract with France’s Dassault for 126 Rafale fighther jets has also necessitated the need to procure Super Sukhois. Indian Air • The GoI has shortlisted Boeing, with its Chinook helicopter, to procure 15 INR129.24 billion ► Force heavy-lift choppers for IAF. ► • The cost of the contact is estimated to be worth INR 53.85 billion (US$1 billion). ► • India also plans to buy 22 AH-64D Block III Apache helicopters from Boeing at an estimated cost of INR75.39 billion (US$1.4 billion). Indian Air • The Union Cabinet approved a plan to produce 200 air versions of the INR80 billion Force and Brahmos cruise missile and to procure 10,000 Invar missiles from Russia Indian Army for the T-90 tanks of the Army. ► • Under the proposal, 10,000 Invar missiles will be procured by Russian manufacturers and another 15,000 missiles will be license manufactured by the Bharat Dynamics Limited (BDL) under the transfer of technology. Bharat • BDL plans to set up a missile production unit at Ibrahimpatnam in Andhra INR25 billion Dynamics Pradesh. Limited • This is likely to generate direct and indirect employment for around 700 ► and 2,000 people, respectively. Eye on defence | 20
  • 21. Name of Project details Value* entity Indian Armed • India will purchase 10 thousand each of Konrurs-M guided anti-tank missiles INR12 billion (for Forces and the Invar guided anti-tank missiles from Russia. anti-tank missiles from Russia) ► • In addition to the 10 thousand Invar guided antitank missiles delivered from Russia, another 15 thousand will be manufactured in India by BDL. Indian Army • The Cabinet Committee on Security cleared the proposal to procure 10,000 INR12 billion Konkurs-M anti-tank guided missiles for the Army from Russia. ► • The Konkurs-M weapon systems will augment the anti-tank arsenal in the Army. Defence • The DRDO has identified a new missile launch site at Machalipatnam in INR10 billion Research and Andhra Pradesh for which it has asked the Government of Andhra Pradesh Development for 260 acres of land. Organisation (DRDO) Defence • The DRDO has launched an ambitious project to develop India’s own field INR3–4 billion Research and gun (a 155-mm field gun) in association with the ordnance factories and the Development private players. Organisation Indian Navy • The US Navy placed an order for the lightweight air-launched Mk-54 INR2.4 billion torpedoes from the US-based Raytheon for the Indian Navy. (for the Indian ► and Australian • The torpedoes will be deployed on the eight P-8I long-range maritime ► navies) aircraft being built by Boeing. • The Mk-54 can be deployed from a surface ship, helicopter or fixed wing aircraft to track, classify and attack underwater targets. Boeing • The US government has awarded Boeing a contract to build “Beddown INR1.1 billion Infrastructure Facilities” for the C-17 heavy lift transport aircraft ordered by ► the Indian Air Force (IAF) at Hindon Air Force Station, near New Delhi. • Beddown infrastructure is a type of facility that is specific to a particular aircraft type at a particular base. This is the first phase of construction expected to be executed by 2013. Hindustan • HAL opened its strategic electronics factory at Kasaragod in Kerala to INR660 million Aeronautics produce advanced avionics systems for aircraft and helicopters. (Phase-I) Limited (HAL) Eye on defence | 21
  • 22. Name of Project details Value* entity CRPF • The GoI has floated a multi-country tender to procure around 4,000 NA specialized “human detecting” night vision devices apart from more than ► 3,000 binoculars for use in the dark for naxal operations. • The mandatory requirement of these night vision gadgets, according to the tender, is to "detect and recognize human beings within 125–200 metres in star lit conditions without moonlight". Indian Air • The IAF has contracted for 230 Sukhoi Su-30MKI fighter jets from Russia, NA Force of which 140 will be manufactured at HAL in India by 2013–14. ► • These new jets will replace the phasing out of MiG-21s and MiG-27s. ► • In addition, India has finalized another contract for 42 more Su-30MKI fighters, to be built under licence from Russia at HAL's Nashik facility, taking ► the total number of Su-30s in service to 272. This has made India the world's largest operator of the Su-30 type. • Furthermore India is in talks with Russia to upgrade its fleet of Sukhoi Su-30s with new radar and avionics, beginning with the first 50 Sukhois inducted in 1997. Tata Steel • Tata Steel has inaugurated its second aerospace service center in Xi’an in NA China, boosting its aerospace operations in the country. ► • The company opened its first service center in Suzhou in 2009. ► • The new facility is approximately 600 miles south west of Beijing, the region that accounts for 40% of the total aerospace manufacturing capacity in China. Indian Army • In 2013, India will receive the first tank digital control systems developed in NA cooperation with two Russian companies — Uralvagonzavod and Sozvezdie. ► • These digital tanks enable the commanders to command units on the battlefield in real time mode connecting all armored vehicles into a unified information network. Indian Coast • Northrop Grumman Corporation will supply advanced shipboard navigation NA Guard systems for 20 fast patrol vessels for the Indian Coast Guard. ► • The shipset will be delivered starting late 2012 till 2015. *The values of the deals have been converted to Indian Rupees using Oanda currency conversion tool 1US$ = INR53.85 (Average of the value from 1 October 2012 to 12 December 2012) Eye on defence | 22
  • 23. Joint ventures and alliances Name of Nature of transaction Value* entities Indian Air • India has signed a joint venture (JV) with Russia under which the latter will INR60 billion Force, HAL, supply 200 high-precision supersonic cruise missile BrahMos to the IAF. BrahMos • On the back of this deal, India has set up another manufacturing and system Aerospace integration plant in Thiruvananthapuram for missile production. ► • The integration of the air version of the missile will be done by HAL and the ► missiles will be retrofitted on the Russian-built Sukhoi Su-30 MKI fighter jets. United Aircraft • An Indo-Russian project, to jointly design a transport aircraft for militaries INR32.31 Corporation of both the countries, was kicked off in Moscow on 3 December. billion (US$600 and HAL million) • In October, India entered an agreement with the Russian company for the ► preliminary design phase (PDP) contract for Multirole Transport Aircraft. Ten months after the PDP contract, the detail design phase (DDP) contract ► will be signed to complete the design and development of MTA. ► • The project is being executed by 30 engineers from India's state-run aerospace company HAL and its Russian counterpart the United Aircraft Corporation (UAC). SAAB AB • SAAB AB, a Swedish aerospace and defence company, signed an MOU INR2.01 billion and Pipavav concerning a strategic investment in Pipavav Defence and Offshore Defence and Engineering Limited (Pipavav). With this deal, SAAB has acquired a good Offshore platform for growth in the Indian market. Engineering • After the investment, SAAB has approximately a 3.5% shareholding in Limited Pipavav. Quest Global • India-based engineering services provider “QuEST Global” has set up a JV INR550 million and SAAB AB with Swedish defence and security company SAAB AB to establish an aero- structure assembly venture. ► • QuEST will hold a 74% stake in the new company, which will be based in ► Belgaum (Karnataka). • The unit will commence its operations in mid-2013 and manufacture specific parts and assemble substantial sections of commercial aircraft such as Boeing 787 Dreamliner and Airbus A320 and A380. Pipavav • Pipav has incorporated a JV with the DPSU, Mazagon Dock. NA Defence and • The 50:50 JV named “Mazagon Dock Pipavav Defence” will construct Offshore surface warships for the Indian Navy. Engineering Limited and Mazagon Dock Eye on defence | 23
  • 24. Name of Nature of transaction Value* entities Defiance • India-based Defiance Technologies Ltd., a Hinduja Group company providing NA Technologies engineering, manufacturing and enterprise services and solutions for and Ausy Group various industries has signed an MoU with Ausy Group of France (which specializes in high technology and engineering) to set up a JV to address ► defence offset requirements in India. ► • Defiance will hold a majority stake in the joint venture. • The JV will meet Ausy’s customers’ commitment for the sourcing obligation as mandated by defence offset policy norms of India and allow Ausy to be listed in the offset defence supplier list. Axis • Axis Aerospace and Technologies Ltd. is looking for acquisitions to expand Aerospace and its offering in engineering services for civil, commercial and defence offset Technologies markets. Ltd. ► • The company has set up a dedicated offshore development center with its subsidiary (CADES) to develop fuselage for Airbus. Its new facility at Kirloskar Business Park will provide solutions, including product development and manufacturing processes for aerospace, defence, automotive and heavy engineering industries. ► • It also plans to set up a 75-acre supply chain cluster in the upcoming NA aerospace park near the Bengaluru international airport at Devanahalli, around 40 km from the city center, to provide manufacturing and allied support facilities to global aerospace and defence firms. Kaman • Kaman Aerospace Group, Inc., a subsidiary of Kaman Corporation and NA Aerospace Kineco Pvt. Ltd. signed a definitive agreement to form a manufacturing JV Group and in India. The new company will be named Kineco Kaman Composites India Kineco Private Pvt. Ltd. Ltd. • The venture is based in Goa and will manufacture advanced composite ► structures for aerospace, imaging/medical and other industries. Mahindra • M&M renewed talks to buy US-based aircraft maker, Hawker Beechcraft. NA and Mahindra The company had earlier lost its bid to the Chinese firm Superior Aviation (M&M) Beijing Co. ► • Beechcraft is likely to invite bids again for a sale process as its talks with the Chinese firm is likely to have failed. *The values of the deals have been converted to Indian Rupees using Oanda currency conversion tool 1US$ = INR53.85 and 1SEK = INR8.07 (Average of the value from 1 October 2012 to 12 December 2012) Eye on defence | 24
  • 25. Country-level deals and initiatives Country Nature of transaction Additional details United • The India Navy along with its US counterpart • The US Navy’s Undersea Rescue Command States held Indo-US submarine rescue exercise shipped a submarine rescue system – a “INDIAEX-2012.” The navies practiced the deep-submergence rescue vessel (DSRV) or rescue of trapped submarines under the sea. a submarine rescue chamber (SRC) to the exercise area off Mumbai. • The DSRV or SRC will dive deep underwater to “mate’’ with “disabled’’ submarines to rescue sailors in intricate maneuvers rarely practiced by Indian sailors. Russia • The twelfth meeting of the India-Russia • The Commission reviewed and discussed the inter-governmental Commission on Military status of some of the major issues in military Technical Cooperation was held in New Delhi. technical cooperation. • The Commission also endorsed the protocols of the meetings of the Working Group on Shipbuilding, Aviation and Land Systems, (WG SALS) and the Working Group on Military Technical Cooperation (WG-MTC), which were held in New Delhi on 27–28 August 2012 and 30–31 August 2012, respectively. Spain • India and Spain signed an MoU under which • The two sides agreed to exchange defence- they will encourage collaboration between related experience and information, and ► their defence industries and exchange of encourage visits of personnel and collaboration personnel. in the defence industry and similar areas of cooperation. • The MoU was signed by the Indian Defence Minister, AK Antony, and his Spanish • The MoU on defence was among the five pacts counterpart Pedro Morenés Eulate. signed after comprehensive talks between the Prime Minister, Manmohan Singh, and the visiting King Juan Carlos I on bilateral, regional and international issues. Indonesia • India and Indonesia decided to significantly • The two sides exchanged views on issues enhance their defence cooperation in the relating to regional and global security, first ministerial level biennial defence dialog bilateral exercises involving services, training, between Defence Minister, Mr. AK Antony, co-production of defence equipment and and his Indonesian counterpart, Mr Purnomo ammunitions and visits at high levels. Yusgiantoro.► • The two sides also exchanged views on the emerging scenario in Afghanistan and West Asia. Eye on defence | 25