MoD releases negative list for Defence import: A great challenge and an equally lucrative opportunity

India has been ranked as the second biggest importer of defence equipment in the world in 2019.

Delivering on the announcement made by Finance Minister Nirmala Sitharaman on May 12, the newly raised Department of Military Affairs headed by Chief of Defence Staff, General Bipin Rawat, has notified a list of 101 items which will not be allowed to be imported from the dates specified in the notification. This is expected to give a boost to the indigenization of military platforms for the Indian Armed Forces.

Also read | Indigenization in defence sector: Govt to notify weapons and platforms to be put on import ban list

The list has high-tech weapons including corvettes, sonar systems, transport aircraft, light combat helicopters (LCHs), radars, artillery guns, assault rifles, among other items for the Indian armed forces.

According to the Ministry of Defence (MoD), the list released by defence minister Rajnath Singh “Will help provide a huge opportunity to the private defence industry to manufacture the items mentioned in the negative list which will be based on either on their own designs and development capabilities. The private industry will also have an option to used the technologies developed and designed by DRDO. This will help in Atmanirbharta in the defence sector and help meet the requirements of the Indian Armed Forces.”

As has been reported earlier by the Financial Express Online earlier, the list released today has been prepared after several rounds of consultations with the three services – Army, Navy, Air Force, DRDO, and all the DPSUs, OFB as well as the private sector. The capabilities of the Indian Industry were assessed to ascertain if they can manufacture critical platforms, weapons, ammunition etc for the three services.

“Around 260 schemes of such items have been contracted by the tri-services at an approx cost of Rs 3.5 lakh crore between April 2015 and August 2020. And, with a new list of 101 embargoed items it has been estimated that contracts of almost four lakh crore is expected to be placed upon the domestic industry over a period of five to seven years. The MoD has estimated that items worth almost Rs 1,30,000 crore each will be for Army and the Air Force, and for the Navy it could be worth Rs 1,40,000 crore over the same period.”

The MoD statement has said that steps will be taken that the timelines for the production of the equipment is met and there will be a mechanism in place for hand-holding the industry by the defence services. Also, in an effort to ensure that no item in the negative list is processed for import in the future, a note will be made in the Defence Acquisition Procedure (DAP)

The MoD has also bifurcated the capital procurement budget for 2020-21 between domestic and foreign capital procurement routes. The statement released states that a separate budget head has been created which has an outlay of nearly Rs 52,000 crore for domestic capital procurement and this is for the current financial year.

Expert View

Sharing his view with Financial Express Online, Amit Cowshish, former Financial Advisor (Acquisition), Ministry of Defence, says, “The existing procurement procedure, adopted in 2016, anyway requires the Ministry of Defence (MoD) to give topmost priority to the procurement of equipment from Indian sources under Buy (Indian – Indian Designed, Developed and Manufactured), Buy (Indian), and Buy and Make (Indian) categories. Import is allowed only as a last resort.”

“The negative list goes a step further by taking away altogether the option of importing the items on the negative list after the stipulated dates which range from December 2020 to24. It remains to be seen whether the Indian industry will be able to offer these items ‘using their own design and development capabilities or adopting the technologies designed and developed by the Defence Research and Development Organisation’ as the Press Release says,” the former Financial advisor to MoD observes.

“It will indeed be a great challenge and an equally lucrative opportunity for the Indian defence industry which has long claimed that in regard to technological capabilities, it is second to none in the world but continues to be starved of orders from the MoD because of the armed forces’ putative preference for imported equipment.”

In conclusion Amit Kowshish says, “Implementing another announcement made by the finance minister, a separate budget head is being created to cater for procurement from domestic sources. With no addition to the overall capital outlay, from which this is to be carved out, it will be of little help to the armed forces which have been facing acute shortage of funds for the past several years. It may be music to the ears of the Indian industry, though.”

India’s import in 2019

India has been ranked as the second biggest importer of defence equipment in the world in 2019. However, that ranking had not included the big-ticket items and deals concluded including —S-400 Triumf air defence system; manufacturing of frigates and AK 203, the MH-60R helicopters among others.