Page 80 - Nuvama | IC Report 2023

• MANUFACTURING • NEW ENERGY • URBANISATION • CONSUMPTION PREMIUMISATION • EQUITY SAVINGS CULT

Why defence manufacturing is set to explode
Since 2014, the Indian government has been trying to boost domestic defence production. This is
clearly visible in the policy actions. It started with prioritising (but not mandating) local purchase
in 2014 to restricting foreign sourcing to the negative list of items only in 2020. For everything else,
procurement must be indigenous. This has been accompanied by continued lowering of approval times.
Thus, domestic manufacturing is now likely to see a much higher impetus—maybe even propulsion.

Exhibit 16: 2013 2020
Defence
Procurement Amendments
Procedure
(DPP) warrants
indigenous push • Indigenous content clarified • All modernisation requirements
and made more stringent to be indigineously sourced
• Guideline stipulates • Defence imports the exception
-30% indigenous content requiring approval
on overall cost basis
• FDI limits increased
• Approval timeline reduced
from 2 years to 1 Testing procedures rationalised
and significant reduction
in approval time

Regulatory push: Accompanied by large initiatives

To improve research and production of defence equipment in India, the government is enabling a
supportive ecosystem of defence corridors. This is complemented by focus on attracting technical
know-how by easing FDI norms. To top it all, foreign companies are eligible for tax incentives to set up
domestic manufacturing operations. In essence, the regulatory push is complemented by a monetary
push to develop the requisite ecosystem. Defence manufacturing is hence set to boom!

Exhibit 17:
Key govenrment
initiatives

Defence indigenisation Foreign direct iDEX, Srijan Offset
corridors lists investment portals policy
Two corridors - Four positive FDI enhanced iDEX is to foster Foreign vendors
Uttar Pradesh lists of 411 items up to 74% innovation & to plough back at
and Tamil Nadu & three positive (automatic route) technology. least 30% in
to focus on lists of and up to 100% Srijan portal Indian defence
imports and sub-systems/ (government includes the sector to
promoting assemblies of route) imported discharge their
exports 1238 items products list offset obligation
Source: Nuvama Research

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