Monday, 04 Dec, 2023
India 06-Nov, 2023

Sweden’s Saab bags India’s first 100% FDI in Defence project: A look at India’s defence industry

By: Team India Tracker

Sweden’s Saab bags India’s first 100% FDI in Defence project: A look at India’s defence industry

. The value of defence production in the financial year 2022-23 has crossed the mark of Rs 1 lakh crore for the first time ever. Image Source: IANS

Currently, India's automatic route permits up to 74 percent FDI in the defence sector. Clearances beyond that can be acquired on an individual basis.

The Indian defence history is currently the talk of the town due to a historic decision taken by the Government of India. India has approved the first-ever 100 percent foreign direct investment (FDI) in the defence industry, allowing Sweden's Saab to establish a new facility for the production of rockets. According to sources, the FDI proposal—which was approved last month was worth less than Rs 500 crore. Currently, India's automatic route permits up to 74 percent FDI in the defence sector. Clearances beyond that can be acquired on an individual basis. Despite the 2015 relaxation of clearance requirements, no foreign company had yet been granted authorization for 100 percent FDI in defence.

According to the ET report, Saab FFV India has been registered and will produce the most recent Carl-Gustaf M4 system generation. Saab will be producing the Carl-Gustaf M4 outside of Sweden for the first time. It is expected that a Saab facility will be established in Haryana. The Indian armed forces use shoulder-fired rockets extensively, and other nations such as the US and Europe also utilise them to destroy enemy locations that are defended, along with their armour and soldiers.

Under the Defence Acquisition Procedure (DAP) 2020, Highest preference is provided to ‘Buy Indian (Indigenously Designed Developed and Manufactured -IDDM) under which at least 50 percent material in a defence equipment should be ‘Indian Component (IC)’ as compared to 40 percent in the Defence Procurement Procedure (DPP), 2016. In an effort to promote indigenization of the domestic defence industry, funds under Modernisation Budget (Capital Acquisition) for FY2023-24 has been earmarked in the ratio of 75:25, where 75 percent i.e. Rs 99,223.03 crore is for procurement through Domestic sources and 25 percent i.e. Rs 33,078.24 crore is for Foreign Procurement.

India has been taking sincere efforts to provide a boost to its defence industry and bring Aatmanirbharta in defence. The value of defence production in the financial year 2022-23 has crossed the mark of Rs 1 lakh crore for the first time ever. “The value currently stands Rs 1,06,800 crore and it will go further up once the data is received from the remaining private defence industries. The current value of defence production in FY 2022-23 is a rise of more than 12 percent over FY 2021-22, when the figure was ₹95,000 crore,” the defence ministry said in a statement. The ministry has been working actively to address issues and develop defence production in the nation in conjunction with defence industry and their organisations.

The inclusion of Micro, Small, and Medium Enterprises (MSMEs) and startups into the defence supply chain is one of the policy reforms the government has made, according to the ministry, to make doing business easier. According to the ministry, these policy changes have promoted active involvement from a range of businesses, including MSMEs and start-ups, in the design, development, and production of defence products. “Over the past 7-8 years, there has been a remarkable 200 percent increase in the number of defence licenses issued by the government, further stimulating the defence industrial manufacturing ecosystem in the country and creating substantial employment opportunities," the ministry added. India's defence exports, meanwhile, increased by 24 percent to an all-time high of 15,918 crore in fiscal year 2022–23 from exports worth 12,815 crore the previous year.

The defence manufacturing sector has seen some major developments, investments and support from the government in the recent past. Considering the increasing security risks India is facing, the defence manufacturing sector is expected to experience significant expansion. This will increase demand for defence technology. Incentivised by various government reforms, India is quickly ramping up its manufacturing capacity. The Government of India has been focusing on making India a ‘defence exporting nation’ rather than a ‘defence importing nation.’

Source: Department of Defence Production, Ministry of Defence

The defence production in India has increased from Rs 74,064 crore in FY2016-17 to Rs 1,06,813 crore in FY2022-23. The Defence Public Sector Undertakings (DPSUs) continue to dominate the Indian defence market as they remain the largest manufacturers of defence equipment in India. DPSUs are followed by the private companies. In recent years, the government has also encouraged the private players to play an active role in defence manufacturing and production and make India Aatmanirbhar in defence sector.

Though India has emerged as the world’s largest importer of arms from 2018-22, its indigenous defence production and measures taken to boost the defence exports cannot be ignored. The Ministry of Defence has also been rapidly increasing its footprint in the indigenous manufacturing of the advanced artillery systems. This was not only visible through the use of indigenous 105 mm howitzer at the Republic Day celebrations in 2023 but also through the use of Advanced Towed Artillery Gun System (ATAGS) at the Independence Day Celebrations at the Red Fort in 2022. As part of the Indian Army's artillery modernisation programme, the DRDO has taken over the development of the new generation of weapons. Also, in order to promote indigenous design and development of defence equipment ‘Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)}’ category in the Defence Acquisition Procedure (DAP) 2020 has been accorded top most priority for procurement of capital equipment.

Source: Department of Defence Production, Ministry of Defence

There was a decline in the defence production in 2018-19 and 2019-20. One of the major reasons was the covid-19 pandemic which resulted in the nationwide lockdown for a long period of time and also the disruption in supply chains. But the government once again ramped up its efforts to increase the defence production in India as this is evident from the figures of 2020-21.

Weapon Simulators, Tear Gas Launchers, Torpedo Loading Mechanisms, Alarm Monitoring & Control, Night Vision Monocular & Binocular, Light Weight Torpedo & Fire Control Systems, Armored Protection Vehicles, Weapons Locating Radar, HF Radio, Coastal Surveillance Radar, etc. are some of the major defence equipment exported over the past five years. At present, the exports are being made to more than 85 countries all over the world. Names of the countries cannot be divulged due to strategic reasons.

Government has taken various steps to improve Indian defence products and make them competitive globally. To achieve "Aatmanirbharta in Defence," the government has placed a focus on the indigenization of several defence products. The locally produced indigenous goods become globally cost competitive, and it also makes it easier for MSMEs to be integrated into the global supply chain. Regularly and without charge, the DRDO transfers new technologies to the industries. Industries have been provided free excess to DRDO patents. DRDO conducts Niche Technology Demonstrations by engaging industries. This provides a dual benefit by assisting industries with user inputs for product improvement and for self-testing and evaluation of their products in field conditions.

Apart from a gradual increase in the number of countries importing Indian defence equipment, the numbers of India’s defence exporters have also increased. In 2016-17, there were 19 Indian defence equipment exporters. The number hit an all-time high of 76 in 2020-21. The rise in number of exporters can be attributed to the effective steps taken by the government in the implementation of the doctrine of Aatmanirbhar in the defense sector and by increasing the FDI in defense sector to 76 percent in 2020.

In an effort to provide a boost to the defense sector and increase the infusion of FDI, the government in September 2020 revised the regulations and permitted FDI under the automatic route up to 74 percent and 100 percent through the government route in any area, where it is likely to provide access to contemporary technologies. The Defence ministry has projected defence production worth $25 Billion by 2025. The iDEX (innovation for defence excellence) was launched in order to foster innovation and technology development in Defence by engaging Industries including MSMEs, start-ups, Individual Innovators, R&D institutes and Academia.