Is Defence the Next Big Thing?

Wed, 30 Mar Pre-Open

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Defence Minister Manohar Parrikar on Monday unveiled new clauses to the proposed Defence Procurement Policy (DPP). The policy unveiled many amendments that can take India to a different level on the defence front. Throwing up multiple opportunities, the policy has also got a thumbs up from Indian Inc.

To be applicable from 01 April, the new DPP will create a policy framework to facilitate 'Make in India' in defence manufacturing.

It will ensure that the procurement process takes place in a transparent manner. Also, the policy stresses reducing delays in procurements by eliminating repetitive procedures.

Provide top priority to a new category of procurement known as Indigenous Design, Development and Manufacturing (IDDM). Products under this category will require 40% indigenous content if the design of the product is also indigenous. If the design of the product is not indigenous the products bought will require 60% indigenous content.

It allows the Defence Acquisition Council (DAC) to take a fast-track route to acquire advanced weapon systems. This power was limited to the armed forces until now.

As per the new clauses, foreign companies will now have to transfer technology for providing maintenance infrastructure.

The policy aims to ensure transparency, create a major domestic defence industry, and give a push to the 'Make in India' initiative.

Moreover, the policy is set to open multiple gates for Indian companies to tie up with foreign companies. The Defence Minister stated, that the policy to allow private-sector defence companies as strategic partners for big ticket defence projects is likely to be cleared by the government in the next three months.

We believe that the impact of this new policy will be far reaching. It will help India become a major defence manufacturer.

Presently, India is the world's largest arms importer. If the policy is executed as proposed, it can help the domestic defence industry cater its own needs as well as exports. And this would mean a shift in the paradigm from India being an importer to being an exporter of defence equipment.

The stress on 'Make in India' initiative by the policy will also have a cascading effect on a larger scale. It will encourage innovation in the manufacturing sector. There will also be an uptick on the employment front.

As is always the case, the practicalities of this policy will be known only once it is executed. Whatever the result, companies influenced by this development are likely to see a spike in activity in the coming days. Companies that are in a comfortable position in the industry will be able to make the best of this investment opportunity. Investors can look out for investment opportunities in these companies going forward.

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