Last Updated on February 2, 2022 by Pradeep Gupta

Budget 22-23--New Initiatives to Boost Defence Production capabilities

Budget 22-23 :- New Initiatives to strengthen/boost our Defence Production Capabilities.

In order to boost our domestic Defence Production capabilities various measures etc are announced regularly on and off the Budget period. Several steps like Positive and Negative lists etc have been taken to give much required fillip to local industry.
Budget 22-23 provides for two additional measures viz reserving 68% of Capital Procurement Budget for local industry and opening Defence R&D for domestic Industry, Start-ups and academia by earmarking 25% of Defence R&D budget for same in collaboration with DRDO thru SPV.
In the MoD Demand for Grants Demand No21 (Capital Outlay on Def Services), adding the relevant Central sector schemes/Projects indicates that total Capital acquisition for Army , AirForce and Navy is Rs 1,23,121 Cr in BE 22-23 up from Rs 1,11,811 Cr in BE 21-22. Thus there is increase of Rs 18,872 Cr worth orders for local Industry as per BE 22-23 over what was available to local industry as per BE 21-22 ( ie 58% of Capital Acq Budget). It is certainly going to motivate large number of MSMEs to work hard to get these orders. These items could be in form of finished weapons or increased percentage of local sourcing etc. This move in Budget 22-23 will impel the Services, DPSUs and Pvt Sector to indigenise fast to comply with this provision. It will definitely give push to local production capabilities.
A word of caution- Defence Production is a slow moving sector as it takes time to create infrastructure to manufacture, establish production lines, prove the product etc. Therefore it will require concerted efforts of all the stakeholders ie User, Producer etc .
Further the indigenisation of particular part or weapon may not go long way as whenever the specific weapon is phased out or there is no ( or reduced) requirement (even temporarily) or there are design changes introduced, the local Industry will be left in lurch in the first go if it is not able to adapt to changes(which is quite tough for MSME as it requires resources etc).
In view of foregoing it is important we find ways to offset the negative impact on the MSMEs in case orders deplete in due course. This move will go long way to retain the MSMEs which have been developed for Defence Production as these are valuable assets in our Def Prodn eco system.
It is here we in SAPI have emphasised to go for comprehensive development of our own conceptualised, designed, developed and proven products. This will provide flexibility to the designers and developers to hand hold the industry to change to newer products in case design upgradations are done or some newer versions are made. ( SAPI will be focussing on this aspect in greater details in its webinars etc in due course ).

The other initiative is earmarking of 25% Def R&D budget for outside DRDO organisations (including Pvt Sector, Academia etc). The guidelines and details of the scheme are not available yet on the website. The extracts of FMs speech are reproduced as below-
“ Private industry will be encouraged to take up design and development of military platforms and equipment in collaboration with DRDO and other organisations through SPV model. “.
As this is a new initiative without any precedents in Defence Sector (this collaborative method of R&D is in place in ISRO for very long and has given effective results. It is one of the factor which has contributed to overall success of ISRO ) we have to do lot of ground work to get on board appropriate Organisation to collaborate with DRDO and form SPV. Prima facie we forsee it as a good move and welcome same.
Any innovation is saddled with risk. Therefore issue of ROI on the investment made for innovation/R&D should be appropriately considered. Risk must be factored.
SAPI has been promoting absorption of TOT obtained from Foreign OEMs. Once the TOT absorption process is complete or nearing completion, the concerned Entity ( be it a Pvt sector or Public Sector ) may start working on upgrading the original system or planning for Next Gen of the original eqpt etc. In this effort the collaborative R&D with DRDO will be very supportive and will develop synergy of vast pool of Def R&D Knowledge and resources with the experience and Knowledge gathered from ToT. Also this initiative will facilitate development of R&D core competencies outside DRDO thus enlarging the resource pool for Def R&D. In US Private Sector ( including Academia etc) is hugely involved in R&D. This initiative provides us ray of hope to broaden Def R&D base besides adding variety to it. We are quite optimistic on it.
We await detailed guidelines for this scheme to so it clears our queries on IP ownership, funding pattern etc .

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2 comments on “Budget 22-23--New Initiatives to Boost Defence Production capabilities”

  1. An excellent and comprehensive over view of issue. I believe we need to synergise our short term and long term goals a little better to push a broader culture of innovation with integrity and purpose.

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