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April 2019 Cutting Edge: Aerospace and Defence Glossary | Select news items | Regulatory | Direct Tax | Indirect Tax | Contact us Editorial The Government has allocated an all-time high of Defence (MoD). Moreover, provisions such as budget of more than INR3 lakh crores (US$ 43.4 to detailed calculation of Late Delivery (LD) and defining meet the requirements of modernisation programmes the date of delivery in Standard Contract Documents initiated on defence platforms. The Interim Defence will increase the transparency of the process. Inclusion Budget for 2019-20 has seen an increase of 6.87% of Defence Public Sector Undertaking (DPSUs) and over last year’s Budget and accounts for 9.3% of the private sector along with the Ordnance Factory the total Budget allocation. It constitutes 1.44 % of Board (OFB) for cases relating to Buyer Nominated India’s GDP, and seems inadequate in view of the dire Equipment (BNE) is a step taken toward providing a security-related hazards being faced in India and its level playing field to all participants in the domestic neighbourhood. However, we are happy to note that defence ecosystem. A significant amendment made Dear readers, unlike in previous years, when the capital allocated to in December 2018 was the provision made for the defence sector was not fully utilised, the Interim benchmarking by a costing committee. According Greetings for the fourth quarter of 2018-19! Budget 2019 revealed that the entire capital allocation to the provision, concurrent benchmarking would of almost INR94,000 crores (US$ 14.7) for last year be carried out by a Costing Committee headed I am delighted and proud to present the 40th edition was actually spent on making requisite acquisitions. by the Advisor (Cost) and the representatives of of Cutting Edge, PwC India’s Aerospace and Defence This was our pre-Budget expectation. We do see an the Service Head Quarters (SHQ) Directorates on (A&D) newsletter. The quarterly publication was increase in capital expenditure by 10% in 2019-20, but receipt of the SHQ’s Trial Report. The benchmarking started over 10 years ago and there was no other with the Indian Armed Forces taking multiple initiatives recommendations will be an input for the Commercial such newsletter at that time. Over these years, we to modernise its various functions and military units, Negotiation Committee (CNC) and is expected to result have highlighted important regulatory issues, offered the amount seems inadequate. in increased transparency in pricing negotiations. suggestions to policy-makers, some of which were accepted, and participated in the growth of this The Defence Ministry has made certain amendments In order to expand into the global Unidentified Aerial nascent sector. This is a complex and sensitive sector; to the Defence Procurement Procedure 2016 through Vehicle (UAV) ecosystem, the new Drone Ecosystem the issues are complicated and stakeholders many. notice (MoD ID No.1 (13)D(Acq)/16-Vol.III), dated 7 Policy Roadmap1 was released by the Directorate However, national defence and security are paramount. March 2019, to make the procedure more flexible General of Civil Aviation (DGCA) for optimum utilisation Much has been reformed and liberalised, but there is and transparent to facilitate procurement of the of drones. The roadmap mainly focuses on Beyond still much to be done. operationally urgent requirements of the armed forces. Visual Line of Sight Operations (BVLSO). The draft note Amendments such as inclusion of taxes in evaluation seeks to create an ecosystem for drone operations The last quarter has seen several important events and of commercial bids, allowing Letter of Credit (LC) in the commercial marketplace with wide-ranging developments in the market in the defence and aviation through multiple banks and provisional acceptance applications such as in delivery of human organs sectors with the release of the Interim Defence Budget, of vendors’ letters to their governments for export and medical specimens, and supervision of food and amendments made in the Defence Procurement licenses will provide flexibility to vendors and sellers construction sites. The roadmap seeks to align CAR Procedure 2016, the release of UAV Version 2.0 and the and improve ease of doing business with the Ministry 1.0 with global Unmanned Aircraft Systems (UAS) success of Aero India 2019. 1. Source: https://www.globalaviationsummit.in/documents/DRONE-ECOSYSTEM-POLICY-ROADMAP.pdf 2 PwC Cutting Edge: Aerospace and Defence Glossary | Select news items | Regulatory | Direct Tax | Indirect Tax | Contact us standards. Recommendations in the roadmap include PSUs (HAL, BEL and BEML) entering agreements for expansion of operational airspace (embedding of high- export and import orders with major foreign players tech algorithms for safety, security and privacy of the including Hughes, Elbit Systems and Lockheed Martin. ecosystem), establishment of infrastructural capabilities The air show also showcased the expansion of India’s to segregate the ecosystem from civil aviation and a aerospace with the incorporation of UAVs at the first proposal for 100% FDI in the industry. ever Drone Olympics. Over 120 applications were received for the competition, from which 57 were Aero India, Asia’s largest air show. was held in India selected to compete for cash prizes worth INR38 lakhs. in February 2019. It showcased India’s prowess in air defence and provided a platform for private We trust that you will find this edition of Cutting Edge aviation companies, defence sector companies and useful. Your feedback, trust and support are immensely the Government to forge new alliances and contracts. encouraging for us. I would like to thank you all for your The event witnessed the participation by 549 continued support and trust in PwC. companies (270 Indian and 279 foreign) exploring key opportunities in the Indian market due to increasing On a personal note, after spending more than 11 years government expenditure on modernisation projects, with PwC, I will be retiring on 31 March this year. I have India’s expanding defence ecosystem and its defence great satisfaction and pride in acknowledging that services planning to acquire diverse aircraft as well as we have built the largest A&D practice at PwC, in the the need for life-cycle and obsolescence-management country, which has grown more than ten times in the technologies. The event was very successful, with 500 past nine years and is now poised to move to the next B2B meetings and 50 MoUs being signed between level. local as well as foreign OEMs, PSUs and government Sincerely, bodies. Apart from private companies signing business deals, the other highlights of the event included the Dhiraj Mathur National Skill Development Corporation (NSDC) of India Partner and Leader - Aerospace and Defence entering an agreement with Singapore’s polytechnic PwC India institutes to skill India’s defence sector, and A&D 3 PwC Cutting Edge: Aerospace and Defence Glossary | | SelectSelect newsnews itemsitems | | RegulatoryRegulatory | | DirectDirect TaxTax | | IndirectIndirect TaxTax | | ContactContact usus Glossary A&D Aerospace and Defence IOC Initial operational clearance ADA Aeronautical Development Agency ITR Integrated test range AESA Active Electronically Scanned Array KBK Kalahandi-Bolangir-Koraput AIATSL Air India Air Transport Services Limited LCA Light combat aircraft AoN Acceptance of Necessity MoCA Ministry of Civil Aviation ATF Aviation turbine fuel MoD Ministry of Defence BADP Border Area Development Programme MPATGM Man Portable Anti-Tank Guided Missile BARC Bhabha Atomic Research Centre MSC Mountain Strike Corps BEL Bharat Electronics Ltd MSSA Management Support Services Agreement DAC Defence Acquisition Council OEM Original equipment manufacturer DDR&D Defence Research and Development PSU Public sector units DRDO Defence Research and Development Organisation QRSAM Quick Reaction Surface-to-Air Missile DTAA Double Taxation Avoidance Agreement RCS Regional Connectivity Scheme EPF Employee Provident Fund RDCA Research and Development Co-operation Agreement ERP Enterprise resource planning RFP Request for proposal ESI Employees’ State Insurance SANT Spike anti-tank FOC Final Operational Clearance SME Small and medium enterprise GOCO Government-Owned Contractor-Operated SP Strategic partnership GRSE Garden Reach Shipbuilders and Engineers TSA Technical service agreement HAL Hindustan Aeronautics Limited UAV Unidentified aerial vehicle IAF Indian Air Force UDAN Ude Desh Ka Aam Nagrik 4 PwC Cutting Edge: Aerospace and Defence Glossary | Select news items | Regulatory | Direct Tax | Indirect Tax | Contact us Select news items India inks deal to obtain uranium Paramilitary forces to get sleeping bags to from Uzbekistan fight cold India has signed a deal with Uzbekistan for long-term supply of uranium from All troops of the paramilitary forces will finally get sleeping bags, which will not the resource-rich Central Asian country to power its domestic atomic reactors. only make their loads lighter by around half a kilogramme, but also give them The deal was signed on 18 February 2019, during Uzbek President Shavkat better protection from the cold, reported government officials. These sleeping Mirziyoyev’s visit to the Vibrant Gujarat business summit in Gandhinagar, his bags have been a long-standing requirement for the paramilitary forces, second trip to India since October 2018. After Kazakhstan, Uzbekistan will especially the Indo-Tibetan Border Police (ITBP), which is deployed in