Prepared Exclusively for TEDAE (Asociación Española de Empresas Tecnológicas de Defensa, Aeronáutica y Espacio) By Security Risks Asia™ Sasia Security Risks.Com Pvt Ltd New Delhi. India. www.security-risks.com Editor: - Rahul K Bhonsle Director Sasia Security-Risks. Com Pvt Ltd

Copyright

Copyright of, “India Defence Market Report: Opportunity And Challenges Framework,” rests fully and irrevocably with TEDAE (Asociación Española de Empresas Tecnológicas de Defensa, Aeronáutica y Espacio) © 2014.

Disclaimer

The information provided in this Report has been obtained from public and private sources in the open domain. The information is believed to be reliable to the extent that is possible while viewing documents in the public domain. Accuracy of the information and analysis is not assured by TEDAE or Security Risks Asia™. Entities are advised to further investigate the information and validate the same based on their requirements and usage. The information in this Report is not a substitute for legal, investment or and other professional advice. TEDAE and Security Risks Asia™ will not be responsible for any loss arising from any action taken by anyone using this material.

Methodology

The Report is prepared mainly based on primary documents in the public domain to include government policy documents, annual and other reports, budget and financial documents, parliamentary committee reports, official government press releases, press releasezs by companies and media reports. The analysis is based on rigorous cross checking of sources with the aim to provide a perspective to the readers of the overall contours and trajectory of Indian Defence acquisitions. This is subject to change based on additional information that may be available publicly from time to time and thus should be reviewed in the light of the same.

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OVERVIEW In the early 21st Century India’s rise as an emerging and responsible power in Asia was slowly acknowledged across the World. The country of over one billion people where democracy has strong roots signified political stability driven by aspirations of the masses. While India’s defence and military capability had been formidable it was based on a strategic alliance with the former Soviet Union. The end of the Cold War saw weakening of decades old ties with the military industrial complex inherited by Russia unable to substitute the former Soviet Union. India began looking for importing weapons and equipment from across the World. This was also a time when the economy of the country grew over 8 percent giving the government sufficient leeway for spending resources for defence modernization. The growing threat paradigm with an aggressive neighbor in China and legacy of war fighting with Pakistan sustained the necessity for defence modernization. Evolution of a viable defence acquisition process was a part of this process, with continuing dependency on imports given low technology base and industrial capacity. The need for strategic autonomy has led to aspirations for creation of an indigenous base, thus the Defence Procurement Procedure incorporated interventions such as Direct Offsets. Joint ventures were encouraged with opening of defence to the private sector and greater acceptance of foreign collaboration. To encourage investment and induction of technology FDI which had been static at 26 % has been enhanced to 49 %, not satisfactory to attract major players but denotes the trajectory ahead. A recent defining moment in this pathway is the election of a majority Bharatiya Janata Party (BJP) conservative nationalist government in power in New Delhi with a well recognized administrator, Mr Narendra Modi as the Prime Minister. This has ended the coalition era which has been the bane of national polity in India for the past many decades. Mr Modi demonstrated admirable vision providing impetus to defence modernization through an expanded base for industrialization with policies such as “Make in India,” and is a keen advocate of public-private partnerships and foreign collaboration. 2014-15 may therefore be the right period to take a fresh look at entry into the Indian defence sector. With that in view the “India Defence Market Report: Opportunity And Challenges Framework,” provides an overview of the Indian defence market at large. Set in Six sections and 18 Chapters, the report provides an informative and analytical look of basic factors propelling defence modernization by India, various policies and procedures related to procurement with the main who’s who in Ministry of Defence and allied agencies responsible for the same. An in depth analysis of the Defence Production Policy 2011, Defence Procurement Procedure 2013, Offsets guidelines and so on is provided. Issues such as foreign direct investment, industrial licensing policy & joint ventures have been covered outlining the scope for entry of foreign companies in India. Budgeting and resource allocations for capital acquisitions are outlined including specific programmes that are ongoing at present by the army, navy, air force and coast guard. Future technology requirements projected by the armed forces have been covered along with an outline of technology centres of the Defence Research and Development Organisation (DRDO). Defence production agencies in the government, public and private sector have been covered with a comprehensive list and contact details of over 1200 registered defence companies in India.

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Throughout the Report notes on various nuances of policies and procedures and recommendations for Spanish companies have been covered. The Report separately provides a bank of primary source documents that will come in handy for reference

How To Use this Report?

The Report is recommended to be used in the following manner:-

To gain an overview of present structure and possible trajectory of defence acquisitions in India.

To obtain a perspective on opportunities and challenges in this sector particularly for foreign companies.

To gain an insight into the key policies and procedures in place.

Recommendations on key policy aspects for foreign companies.

Defence policy and decision making hierarchy including selected Who’s Who.

Overview of the defence industry and R &D in the government, public and private sectors.

A direction to primary sources such as government policy and procedures.

Major Abbreviations Used Throughout the Paper A AAP- Annual Acquisition Plan ANURAG-Advanced Numerical ACAS (P) – Assistant Chief of Staff Planning Research & Analysis Group ACNS (P&P) – Assistant Chief of Naval Staff AoA- Articles of Association (Planning & Production) AON- Acceptance of Necessity ACE- Armament & Combat Engineering Systems APBG- Advance Payment Bank ACVs- Air Cushion Vehicles Guarantee ADA- Aeronautical Development Authority APMS- Automated Power Management ADE- Aeronautical Development Establishment System AERO- Aeronautical Systems APU- auxiliary power unit AESA- Active Electronically Scanned Array ARDE- Armament Research & AFVs- Armed Fighting Vehicles Development Establishment Af Pak –Afghanistan Pakista ASSOCHAM – Associated Chamber of AIP- Air Independent Propulsion Commerce AIS- Automatic Identification System ASW – Anti Submarine Warfare AJTs- Advanced Jet Trainers ATT- Arms trade treaty ALH- Advanced light helicopters ATAGS- Advanced Towed Artillery ALWT- Advanced Light Weight Torpedo Gun System AMS-Akash Missile System ATGMs - Anti-tank guided missiles ANC- Andaman and Nicobar Command AWACS – Airborne Warning and Control System

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B BCD- Basic Custom Duty BJP -Bharatiya Janata Party BDL- Bharat Dynamics Limited BMC- Bi-Modular Charge B&D- Base & Depot BTA- Basic Trainer Aircraft BE – Budget Estimates BVRAAM- Beyond Visual Range Air- BEL- Bharat Electronics Ltd to-Air Missile BEML- Bharat Earth Movers Ltd C CAD- Current Account Deficit CII- Confederation of Indian Industry CAS - Chief of Air Staff CISC- Chief of Integrated Staff CABS- Centre for Air Borne Systems COAS – Chief of Army Staff CAIR- Center for Artificial Intelligence & CONS – Chief of Naval Staff Robotics COMINT- Communication Intelligence CBI- Central Bureau of Investigation CNC- Contract Negotiation Committee CBRN- Chemical, Biological, Radiological and CKD- Completely Knocked Down Nuclear CSO- Chief Security Officer CCS-Cabinet Committee on Security CNC- Contracts Negotiation CCEA- Cabinet Committee on Economic Affairs Committee CDS- Chief of Defence Staff- CNR- Combat Net Radio CEO- Chief Executive Officer CNS- Chief of Naval Staff CEP- Circular Error of Probability CSN- Coastal Surveillance Network CEMILAC- Center for Military Airworthiness & CST- Comparative Statement of Certification Tenders CFA- Competent Financial Authority COAS- Chief of Army Staff CFEES- Center for Fire, Explosive and COTS- Commercially Off the Shelf Environment Safety CVD- Countervailing Duty CGDA- Controller General of Defence Accounts CVRDE- Combat Vehicles Research & Development Estt D DA - Development agency DIP- Defence Industry Partner DAC - Defence Acquisitions Council DIPR-Defence Institute of DAC/DPB- Defence Acquisition Council Psychological Research DARE- Defence Avionics Research DIRCM- Directed Infrared Establishment Countermeasure DCF - Discounted Cash Flow DLJ-Defence Laboratory DCNS – Deputy Chief of Naval Staff DMGs- Digital Map Generators DCOAS (P&S)- Deputy Chief of Army Staff ( DMRL-Defence Metallurgical Planning and Systems) Research Laboratory Hyderabad D&D- Design & Development DMSRDE-Defence Materials & Stores DDP - Department of Defence Production Research & Development DDP&S- Deptt. of Def. Prod. & Supplies Establishment DDR&D- Department of Defence Research & DOMW – Defence Offsets Development Management Wing DEAL- Defence Electronics Application DPB – Defence Production Board Laboratory DPP 2013 - Defence Procurement DEBEL-Defence Bio-Engineering & Electro Procedure 2013 Medical Laboratory DPP- Defence Procurement Procedure DESIDOC-Defence Scientific Information & DPSU- Defence Public Sector Documentation Centre Undertakings DESC- Defence Exports Steering Committee DPSU- Defence Public Sector Unit DESW- Department of Ex- Servicemen Welfare DOD - Department of Defence DEW- Directed Energy Weapon DLRL-Defence Electronics Research DFC- Digital flight control Laboratory DFARS- Defence Federal Acquisition Regulation DOMW-Defence Offsets Management

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Supplement Wing DFRL-Defence Food Research Laboratory DPB - Defence Procurement Board DPR- Detailed Project Report DPSU - Defence Public Sector DGAQA - Directorate General of Aeronautical Undertakings Quality Assurance DRDB- Defence Research and DGFT- Director General Foreign Trade Development Board DGQA - Directorate General of Quality DRDE-Defence Research & Assurance Development Establishment DIAT-Defence Institute of Advanced Technology DRDL- Defence Research and DIBER-Defence Institute of Bio-Energy Research Development Laboratory DIHAR-Defence Institute of High Altitude DRDO - Defence Research and Research Development Organisation DIPAS-Defence Institute of Physiology & Allied DRL-Defence Research Laboratory Sciences DTRL-Defence Terrain Research DIPP - Department of Industrial Policy & Laboratory Promotion E EADS -European Aeronautics Defence and Space EoI- Expression of Interest Company ELINT- Aerostats with Electronic ECM- electronic counter measure Intelligence ECCM- electronic counter countermeasure EMP-Electro-Magnetic Pulse ECDIS- Electronic Chart Displays EOIs- Expressions of interest ECS- Electronics & Communication Systems ERA- explosive reactive armour EEZ – Exclusive Economic Zone EUC- End User Certificate EGPWS- Enhanced Ground Proximity Warning EW – Electronic Warfare Systems EWSFA- Electronic Warfare Suite for EICs-Equipment Induction Cells Fighter Aircraft F FA – Financial Adviser FIPB- Foreign Investment Promotion FADEC -Full Authority Digital Engine Control Board FMBT- Future Main Battle Tank FDI – Foreign Direct Investment FMS- Flight Management System FEMA- Foreign Exchange Management Act FMS- Foreign military sales FGFA- Fifth Generation Fighter Aircraft FOC- Final Operational Clearance FICCI- Federation of Indian Chambers of FPl- Foreign Portfolio Investor Commerce & Industry FPVs-Fast Patrol Vessels FICV- Future infantry combat vehicle FRE- Flight Rotary Engine FIIs- Foreign Institutional Investors FTP- Foreign Trade Policy FINSAS – Future Infantry Soldier As a System FVCI- Foreign Venture Capital Investors G GCS - Ground Control Station GSQRs- General Staff Qualitative GDP – Gross Domestic Product Requirements GNSS- Global Navigation satellite systems GTRE- Gas Turbine Research GRSE- Garden Reach Shipbuilders and Engineers Establishment H HADF- High Accuracy Direction Finder HMMI/OCU- Human Machine HAL- Hindustan Aeronautics Limited Mechanical Interface/ Operator HALE- High Altitude Long Endurance Console Unit HQ IDS - HQ Integrated Defence Staff HLH - Heavy Lift Helicopters HEAT- High-Speed Expendable Aerial Target HMP-Hybrid Marine Power HLH - Heavy Lift Helicopters HPM- High Pulse Magnetic HEMRL -High Energy Materials Research HSL- Hindustan Shipyard Ltd Laboratory HUDs – Head up display I IA – Indian Army INMAS-Institute of Nuclear Medicine

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IAC- Indigenous Aircraft Carrier & Allied Sciences IACCS- Integrated Air Command & Control INCOTERMS - International System Commercial Terms IAI/ELTA- Israeli Aerospace Industries IOC- Initial Operational Clearance IAF-Indian Air Force IOP- Indian Offset Partner IBs- Interceptor Boats IOR- Indian Ocean Region ICs- Interceptor Craft IP or IPR Intellectual property or IP ICGS- Indian Coast Guard Ship Rights ICV – Infantry Combat Vehicle IPMT- Integrated Project Management IDAS- Indian Defence Administrative Service Teams IED- Improvised Explosive Devices IPVs- Inshore Patrol Vessels IEM - Industrial Entrepreneur Memorandum ITR- Integrated Test Range IESA- India Electronics and Semiconductor ITM-Institute of Technology Association Management IEW- Information Electronic Warfare INS- Inertial Navigation Systems IFA- Integrated Financial Adviser INSAT –Indian National Satellite IGA- Inter-Governmental Agreement IRDE-Instruments Research & IJT- Intermediate Jet Trainer Development Establishment IL- Industrial License ISAR- Inverse SAR IN – Indian Navy ISOs- Inter-Service Organisations INAS- Indian Naval Air Squadron ISSA-Institute of Systems Studies & Analyses J JVG- Joint Venture Guidelines JVs- joint ventures K KP – Knowledge Partner L LASTEC-Laser Science & Technology Centre LMGs- Light Machine Guns LCA- Light combat aircraft LRDE-Electronics & Radar LCC - Life Cycle Concept Development Establishment LCA- Light Combat Aircraft LRSAM – Long Range SAM L1,L2 – Lowest Bidder, Second Lowest Bidder LS- Life Sciences etc LSP- Limited Series Production LCUs- landing craft utility L&T- Larsen & Toubro LPDs- Landing Platform Docks LS – Land Systems LPI- Low Probability of Intercept LTIPP- Term Integrated Perspective LINAPS- laser inertial artillery pointing systems Plan LLQRM - Low Level Quick Reaction LTPP- Long Term Perspective Plan Missiles LWS- Laser Warning Systems M MALE- Medium-altitude, long endurance MRO- Maintenance and Repair MAVs- Micro Air Vehicles Organisation MAWS- Missile Approach Warning Systems MR-SAM- medium-range surface-to- MBRL- Multi Barrel Rocket Launcher air missile MBT- Main battle tanks MSS- Missiles and Strategic Systems MC- Mission Computers MSME- Micro, Small and Medium MCPP- Maritime Capability Perspective Plan Enterprises MDL- Mazagon DocksLtd MTA- Multi-Role Transport Aircraft MEA- Ministry of External Affairs MTBO/MTBF – Mean Time Between MED & CoS- Micro Electronic Devices & Operations and Mean Time Between Computational Systems Failure MEMS- Micro Electro Mechanical System MTAL- Multi Role Transport Aircraft MFDs- Multi-Function Displays Limited MHA- Ministry of Home Affairs MTCR- Missile Technology Control

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MLH- Medium Lift Helicopters Regime MMRCA- Medium Multi Role Combat Aircraft MTRDC-Microwave Tube Research & MoA- Memorandum of Association Development Center MOCI- Ministry of Commerce & Industry Light Combat Aircraft (LCA), MOCPs- Marine Operation Police Centres MMRCA - Medium Multi-Role MOD/MoD - Ministry of Defence Combat Aircraft MOF- Ministry of Finance N NAMICA- Nag Missile Carrier NMRL-Naval Materials Research NATO- North Atlantic Treaty Organisation Laboratory NAB- Nickel Aluminum Bronze NOC -No Objection Certificates NS – Naval Systems NPOL-Naval Physical & NBC- Nuclear, Biological and Chemical Oceanographic Laboratory NCSMCS-National Committee on Strengthening NPV- Net Present Value Maritime and Coastal Security NRls- Non Resident Indians NCNC- No Cost No Commitment NRUAVs- Naval rotary UAVs NCTR- Non-Cooperative Target Recognition NS & M- Naval Systems and Materials NDA- Non-Disclosure Agreement NS- Naval Systems NGARM- New Generation Anti-Radiation NSG- Nuclear Suppliers Group Missile NSTL-Naval Science & Technological NIR DESH- National Institute for Research and Laboratory Development in Defence Shipbuilding NVD/G – Night Vision Device/Goggle NIC-National Informatics Centre O OEM- Original Equipment Manufacturer OPV- Offshore Patrol Vessel OF - Ordnance Factories OSD – Officer on Special Duty OFB – Ordnance Factory Board P PA –Production Agency PP&FD- Perspective Planning and PAK FA- Perspective Frontline Aviation Force Development Complex PPFM – Perspective Planning and PD- Preliminary Design Financial management PDD- Project Definition Document PS- Product Support PDP- Preliminary Design Phase PSOs- Principal Staff Officers PDR- Preliminary Design Review PSQRs- Preliminary Services PLA- People’s Liberation Army Qualitative Requirements PMF- Prospective Multi-Role Fighter PSUs- Public Sector Undertakings PNVD- Passive Night Vision Devices PXE- Proof & Experimental PTA- Pilotless Target Aircraft Establishment POK- Pakistan Occupied Kashmir POLs –Petroleum Oils and Lubricants

Q QA – Quality Assurance QRs-Qualitative Requirements QFIs- Qualified Foreign Investors R RCI-Research Center Imarat RRM- Raksha Rajya Mantri R &D- Research and Development RM – Raksha Mantri or Defence R&DE- Research and Development Minister Establishment ROH- Repair & Overhaul RE- Revised Estimates ROV- Remotely Operated Vehicle RF- Radio-Frequency RPVs- Remotely Piloted Vehicles RFI- Request for Information RVSM- Reduced Vertical Separation RFP- Request for Proposal Minima RIBs- Rigid Inflatable Boats RWR & DC- Rotary Wing Research RLG-Ring Laser Gyros and Design Centre

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S SAM- Short Range Surface to Air Missile SHQs- Service Headquarters SAR- Synthetic Aperture Radar SIGINT – Signal Intelligence SAR- Search and Rescue SKD- Semi Knocked Down SAG -Scientific Analysis Group SLBMs- Submarine-launched ballistic SAGW- Surface to Air Guided Weapons missiles SASE- Snow & Avalanche Study Estt SSBN - Ship Submersible Ballistic, SATS- Sea Acceptance Trials Nuclear SCAP- Services Capital Acquisition Plan SSPL-Solid State Physics Laboratory SCAPCC - Services Capital Acquisition Plan SMEs- Small and Medium Enterprises’ Categorization Committee SMB- Survey motor Boats SCAPCHC- Services Capital Acquisition Plan SME – Small and Medium Enterprises Categorization Higher Committee SOP- Standard Operating Procedure SCOMET- Special Chemicals, Organisms, SR/MR – Short Range/Medium Range Materials, Equipment and SR-SAM- Short Range-Surface to Air Technologies Missile SDR- Software Defined Radios SPVs- specific special purpose SEZs- Special Economic Zones vehicles SEZ– Special Economic Zones SQRs- Service Qualitative Regulations SHA- Share Holders’ Agreement T TAC- Technology Acquisition Committee TF- Terrain Following TACAN- TIFCS- thermal imaging fire control TBRL- Terminal Ballistics Research Laboratory systems TCAS- Traffic Collision Avoidance System TOC – Technical Oversight Committee TCS- Tactical Communications Network TOEC- Technical Offset Evaluation TD- Technology Demonstration Committee TEC- Technical Evaluation Committee TPCR- Technology Perspective and TEDAE -Asociación Española de Tecnologías de Capability Road Map Defensa, Aeronáutica y Espacio. TOT- Transfer of Technology U UAC-TA- United Aircraft Corporation - UCAVs- Unmanned Combat Air Transport Aircraft Vehicles UAVs- Unmanned Aerial Vehicles UGS - Unattended Ground Sensor UETs- User Evaluation Trials ULH- Ultra Light Howitzer UT- Union Territory V VCAS - Vice Chief of Air Staff VTOL- Vertical Take-Off and Landing VCDS- Vice Chief of Defence Staff VTS- Vessel Traffic System VCNS- Vice Chief of Naval Staff VTMS/VATMS- Vessel Traffic VCOAS- Vice Chief of Army Staff Management Systems VHETAC- Very Heavy Transport Aircraft VVIP- Very Very Important Person VRDE- Vehicle Research & Development Establishment W WIPO- World Intellectual Property Organization WWR- War Wastage Reserves WMD –Weapons Of Mass Destruction

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Common Currency Terms Used is India Rupees which has been used in the Report to familarise with the usage of the same

Rs – Indian Rupee Rs 1 Lakh –Rs 100,000 Rs 1Crore –Rs 1000,0000 or Rs 10 Million

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CONTENTS

SECTION 1 – INDIA DEFENCE MARKET – LONG AND SHORT TERM OPPORTUNITIES Chapter No Subject Remarks 1 Basic Factors Denoting Long 14 Term Defence Requirements 2 Short Term Factors 25 Contributing To Enhanced Defence Requirements SECTION 2 – ORGANISATIONS – DEFENCE ACQUISITIONS 3 Ministry of Defence 28 Appendix Who’s Who in Ministry of 37 Defence SECTION 3 – POLICIES & PROCEDURES 4 Defence Production Policy 48 2011 5 Defence Procurement 52 Procedure 2013 6 Defence Offsets Guidelines 72 7 Other Procurement Categories 85 8 Foreign Direct Investment 90 9 Defence Industrial Licensing 94 Policy & Joint Ventures, Make in India and IPR 10 Other Major Policies 105 11 Recent Policy Initiatives by 113 Government 12 Summary of Challenges and 117 Opportunities and Policy Changes SECTION 4 – CAPITAL BUDGETING AND SERVICESACQUISITION PLANS 13 Budgeting And Resource 123 Allocations 14 Major Capital Acquisitions 134 Programmes Army, Navy, Air Force, Coast Guard SECTION 5 – TECHNOLOGY AND DRDO 15 Future Technology 163 Requirement Of Indian Armed Forces 16 Defence Research And 179 Development Organisation Appendix Details of Technology 193 Centres/Laboratories SECTION 6 – DEFFENCE PRODUCTION AGENCIES

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17 Government/Public Sector 200 Zip Folder 2 OFB Factories and Products - 18 Defence Industry Private 212 Sector Zip Folder 2 Private and Public Sector Defence Companies Zip Folder 1 Primary Documents on Policy Zip Folder 2 Details of Defence Companies

PRIMARY DOCUMENTS IN ZIP FOLDER 1

1 Defence Production Policy 2011 2 Defence Procurement Procedure 2013 3 FDI Policy 2011 4 List of Items Requiring Licensing 5 Joint Venture Guidelines 6 Defence Exports Strategy 7 Defence Security Manual

DOCUMENTS IN ZIP FOLDER 2

1 OFB Factories and Products 2 Details of Defence Companies Excel Sheet and Alphabetical Word Sheet A to Z

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SECTION 1 INDIA DEFENCE MARKET – LONG AND SHORT TERM OPPORTUNITIES

Overview - Defence Market Opportunity Framework

In broad terms defence market opportunity framework depends on a number of factors as outlined in the Figure below. These include the general security environment, threats and challenges both external and internal. The national aims and objectives and political will and determination to meet these challenges by putting into place, policies and procedures and allot resources for building capacity is essential particularly in the case of developing countries as India where the dilemma of budgeting for defence versus development will remain a constant. The present capability of armed forces and their deficiencies vis a vis the envisaged requirements is a key facet of examination along with the manner in which these capabilities are acquired be it indigenous or foreign. An overview of the defence market opportunity framework from an Indian perspective in the long and short term is being carried out as per succeeding paragraphs.

THE OPPORTUNITY FRAMEWORK

Security Environment Threats and Challenges External Internal

Naonal Aims, Objecves and Polical Will Policies, Procedures Budget

Armed Forces Capabilies Deficiencies

Defence Acquision Indigenous Foreign

Figure

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CHAPTER 1 BASIC FACTORS DENOTING LONG TERM DEFENCE REQUIREMENTS

The 21st Century Asian Arms Race

21st Century has been marked by a shift of global polity, economy as well as security challenges and conflict from the West to the East that is Asia. This shift of the global balance of power from Europe to the Asia-Pacific region has brought a complex and dynamic interplay of economic, military and diplomatic factors, reflected in escalation of maritime territorial disputes, military postures and power rivalries. While Europe has transformed in the 20th Century from a scenario of power tensions to cooperative security, Asia is entering into a new arms race with balance of power predominant paradigm of security in the emerging World Order. United States Asia Pacific rebalancing earlier announced as a pivot by President Barack Obama in November 2011 is seen by many as a reaction to China’s growing aggressiveness in asserting claim as an emerging global power and an emerged regional one.

Major geo-political and geo-economic developments are thus transforming the global security scenario into one of uncertainty and volatility which have added to diffidence in the Asia Pacific. China’s increasing military profile in the immediate and extended neighborhood, as well as the development of strategic infrastructure by China in the border areas – land and maritime is a key challenge to its neighbours. India’s geo-strategic location makes it sensitive to developments beyond its immediate neighbourhood, in the Asia Pacific, West Asia, Central Asia, and in the Indian Ocean Region. Thus the 21st Century from the Indian point of view could be marked as one of competitions and contestations with arms racing if not a race likely to be the defining paradigm of military developments in the region.

India’s Security Threats and Challenges

From the conceptual point of view threats that India faces or is likely to face in the foreseeable future can be divided into seven categories as follows:-

Threats emanating from the nature of the international order: These include international arrangements that threaten security, political or economic interest and thereby constrained policy options. The international order is in a state of flux as outlined above thus resulting in a multiple challenges on a number of fault lines, geographic, territorial, socio-cultural and economic. India appears to be on the cusp of many of these. Ideological threats: These include external or domestic attempts to posit an alternate view to the basic structure of the Indian state and its core values of secularism, pluralism and peaceful coexistence of multiple identities within the framework of a Union of States. Combating ideological threats when they assume violent extremism as Left Wing Extremists also locally known as Naxalism or Maoism requires a security response. Territorial and resource disputes: These relate to territorial and water disputes with neighbours. Related to this would be the imperative of regional water management and energy-related external requirements. India has major territorial disputes with China and

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Pakistan which has taken the countries to war which with Pakistan has been more than three times so far. Thus preparation for a, “Two Front,” scenario will remain a major requirement for the Indian armed forces. Internal threats: These range from, ethnic, religious, regional and caste-based grievances, political dissatisfaction, separatist and secessionist agendas, ideological movements motivated by economic deprivation or injustice, traffic in narcotics and drugs, and terrorism in all its forms and manifestations. India’s multi cultural, society is vulnerable to these threats. Threats emanating from environmental degradation and pandemics. Natural calamities, environmental and health threats inclusive of, but not confined to, climate change, pandemics and related matters. Threats emanating from new technologies. It has been argued that the potential exists for a cyber attack to inflict relatively prompt, catastrophic levels of destruction on states with advanced infrastructures.

Border Dynamics

Based on the above threat paradigm first element of national security challenges is assessed as the country’s periphery and borders. India’s land borders extend to15, 000 km; the coastline is almost half at 7700 km with about 3 million sq km of Exclusive Economic Zone (EEZ). India has land borders with seven countries the major ones being, Bangladesh (4096 kms), China (3439 kms), Pakistan (3325 kms) and Myanmar (1643 kms) and maritime borders with five countries. India has more than 600 islands, which include the Andaman-Nicobar Group in the Bay of Bengal, and the Lakshadweep Islands in the Arabian Sea, some of these island territories are more than 1300 kms away and are close to the ASEAN countries in the East. Thus defending this large land and sea space itself is seen as a major issue for the country.

The dynamics is expanded with the challenge of boundary and territorial disputes with Pakistan and China. Even as political settlement of these disputes is in various stages of implementation, there is focus on maintaining a robust defensive posture. India is thus seen to face the entire spectrum of security challenges. This is inevitable due to the difficult neighbourhood, which holds the full range of conventional, strategic and non-traditional threats. The latter has arisen from a security vacuum that has been existing in the tribal areas of Afghanistan and Pakistan for decades which has been exploited by non state actors as the Taliban and the al Qaeda and is being increasingly looked at the Islamic State as a zone of opportunity for expansion from West Asia.

India - Astride Sea Lanes of Asia

India is also situated at the strategic crossroads of Asia and astride one of the busiest sea lanes of the world. The IOR is emerging as a source of multiple security concerns arising out of piracy, terrorism, human trafficking, WMD proliferation and competition over maritime resources. This has resulted in growing presence of extra-regional powers in the Indian Ocean, increasing the prospect of geo-strategic competition between them. As maritime security issues gain greater urgency and relevance, power rivalries in the IOR will need to be closely monitored. Thus India’s strategic stakes in this region are of critical significance to its security calculus.

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China’s Expanding Defence Profile

India is watchful of the implication of China’s increasing military profile in the immediate and extended neighbourhood, as well as development of strategic infrastructure by China in the border areas. India is also taking necessary measures to develop the requisite capabilities to counter any adverse impact on own security. China’s strategic axis with Pakistan continues to expand given an increase in the vectors that sustain it. These include sharing of nuclear energy the most recent incident being grandfathering of two nuclear reactors despite objections by the Nuclear Suppliers Group (NSG). Other instances include cooperation in development and production of Babur cruise missile and combat fighter aircraft JF 17, Advance Trainer Aircraft K-8 Karakoram, the tank Al Khalid, AWACS and frigates. A major development during 2013 was handing over operations of the Gwadar port by Pakistan to China and plans to establish an economic corridor. Pakistan’s Prime Minister Mr Nawaz Sharif proclaimed that China and Pakistan will establish an economic corridor extending from Gwadar port on the Arabian Sea across the Karakoram Pass connecting with Xinjiang Autonomous Region in China. Passage of this corridor through the Indian Territory under Pakistan’s occupation Pakistan Occupied Kashmir (POK) has been brought out by India to the Chinese leadership. Reports of Chinese soldiers in POK have also been outlined from time to time. China has also increased activity in the IOR with two submarines spotted berthed at the Sri Lankan port of Colombo in September and October 2014. Thus the dynamics of land and maritime threats from China assumes dangerous portends for India’s security.

Af Pak Regional Instability

Pull out by North Atlantic Treaty Organisation (NATO) troops from the security to the training grid in Afghanistan with very low numbers in January 2015 has raised concerns in the region. Recent Presidential elections in the country have failed to usher in political stability given a flawed second round with allegations of wide spread fraud. India has invested considerable political, diplomatic and economic resources in Afghanistan in the past decade plus. More over instability is expected to provide a fillip to anti India terrorist groups who have a base in the country thereby enhancing their potential to carry out attacks in Jammu and Kashmir and the hinterland. This has to be factored in the security matrix in the coming years.

India’s National Goals and Objectives

While India stands for peaceful resolution of problems between nation states. The national goal is to foster an external and internal environment of peace and stability, which will allow adequate space to concentrate on the multiple economic and social challenges facing the people. However pragmatism reveals a realist World of unequal power relations and an uncertain international and regional security environment. Thus optimal defence preparedness to manage any potential challenge to security and vital national interests remains a key national goal and objective of the country and has been unequivocally reiterated by the leadership from time to time.

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India’s Defence Policy

Defence policy is evolving in nature, however there are some dimensions of the same such as territorial sovereignty and integrity that are common. India’s Defence Policy guidelines as stated in the Parliament are as follows:-

Defence of National Territory over land, sea and air encompassing among others the inviolability of the country’s land borders, island territories, offshore assets and maritime trade routes. Secure an internal environment whereby the Nation State is insured against threats to its unity or progress on the basis of religion, language, ethnicity or socio-economic dissonance. Ability to exercise a degree of influence over the nations in the immediate neighbourhood to promote harmonious relationships in tune with national interests. To be able to contribute towards regional and international stability and to possess an effective out of country capability to prevent destabilization of small nations in the immediate neighbourhood that could have adverse security implications.

National, Regional and Global Dimensions of Defence Policy

Over the years defence policy is being implemented based on overall priorities laid down by governments of the day and includes the following facets which impinge on national, regional and global security:-

Territorial consolidation particularly of Island territories. India is now reasonably confident that it would be able to ensure its territorial integrity and hence this goal expansion which will also provide for security of the expanded dimension of India’s EEZ. For this purpose building capacity of armed forces including the Navy and Coast Guard are considered important.

Connecting with regional periphery in growing circles of engagement from South Asia and the Indian Ocean region to West Asia and South East Asia. Thus the circle of engagement is most proximate with South Asia while somewhat loosening up as it expands outwards even though West and South East Asia remain key areas of interest for energy and economic security. The key strategy in this sphere is politico diplomatic with the military forming the silent hard power element which is an essential addendum to exercise of influence.

Contribution to global stability by operating under the UN aegis. Participation with a multi- lateral security grouping is unlikely in the future.

Nuclear weapon accretions given that five nuclear armed states have presence in the region assume importance.

Internal security will continue to be a major component of national security policy in the years to come, due to proxy war waged by Pakistan and India’s multiplicity of, “mini

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revolutions ,” which challenge the State in varied ideological formulations from Left Wing to religious extremism.

Conduct of National Security Strategy

The conduct of national strategy is by generating effective instruments of power. Thus to defend national territory, a full spectrum of dissuasive and deterrent capability on land, air and sea is to be maintained. This capability is developed in such a way that it is effective against all types of armed conflicts, from low intensity to conventional, under a nuclear shadow. Some of the essential elements of the same are as per succeeding paragraphs:-

Deterrence and no first use are the tenets of nuclear strategy.

A potent conventional force is retained for dissuasion as well as deterrence. This is based on land, sea and air assets with proportionate emphasis shifting on the latter two. The ability of such a force to facilitate conventional deterrence against Pakistan in the short to medium term as well as China in the long term is an essential facet of capability building. India has to be ready for a two-front armed conflict to be fought under a nuclear overhang.

Internal security strategy will be of exhaustion, thereby denoting extended engagement of the guerrillas and thus need for maintaining a large standing army as well as para military forces.

Border Security assumes importance given the reality of an unstable periphery be it in the North West that is Af Pak or the East that is Myanmar and Bangladesh though the focus is primarily on the former zone and particularly in a post 2014 environment.

Cooperative engagement and defence cooperation will denote the strategy for international stability. This will be supplemented by employment of military force within international legal norms established by the United Nations.

Strategic partnerships with global and likeminded nations will be another facet of this scheme with preference for bilateral rather than multilateral engagement.

Dependence on soft power initiatives of economic and humanitarian aid, cultural education and IT may be greater than military engagement.

Technology will be the driver for development of armed forces capability. Increased public – private initiatives will be the route for major acquisitions. Greater focus on acquisition of systems and integrated platforms through indigenous build is the key area of focus at present denoted by recently announced policy of, “Make in India,” by the government in Delhi.

Emphasis on jointness between the three services will remain paramount but difficult to achieve at least in the near term due to issues of ownership and sharing of intra institutional power.

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Geographic Centrality in Asia

India is ideally placed to act as an export hub in Asia. India’s geo-strategic location makes it a hub for the Asia Pacific, West Asia, Central Asia, South East Asia and in the Indian Ocean Region. With the government having announced a Defence Exports Strategy requisite policy initiatives are being taken to facilitate exports in defence goods taking advantage of low cost of manufacturing in the country. Many defence majors today are looking at establishing a strong defence base in the country with the aim of using the same as an export hub in the overall global supply chain.

Large Armed Forces

India has the third largest armed forces in the World with a reasonably high level of capitalization. The Indian Army has 382 infantry battalions and 44 mechanised regiments. Thus for example, requirement for anti tank guided missiles for these units is said to be 40,000 with cyclical orders for training and war wastage. The Indian artillery has 230 plus regiments and the armoured or tank corps over 70 tank regiments. The Indian Navy is fielding over 140 large and small ships today which is considered inadequate with some critical assets such as submarines 50 percent deficient. The Indian Air Force requires 45 combat fighter squadrons while it has only 34. Thus the overall size of the armed forces necessitates high scaling of weapons and equipment which provides opportunities for the defence industry internal as well as foreign. Equipment Deficiencies in the Armed Forces A commonly known fact is that against an authorization of 45 combat fighter squadrons, the Indian Air Force is holding only 34 squadrons at present. The Indian Navy requirement of submarines is 24 of which only 13 are operational at present with the Kilo class fleet of 9 submarine due for another round of refurbishment. Main deficiencies of the Army are in infantry weapons, tank ammunition, 155mm howitzers and night-blindness. Other Army deficiencies include air defense systems, buying quick-reaction surface-to-air missiles, medium-range surface-to-air missiles, ultra light howitzers, military vehicles, light utility helicopters, UAVs, assault rifles, ATGMs and tactical communication radios. Army is having only 50 per cent War Wastage Reserves (WWR) and three years of training ammunition by 2015. Army is holding WWR for 40 days of intense fighting, with 21 days for ammunition with shorter shelf-life. The Army is expected to reach a full scale or 100 percent WWR only by 2019. There is 50% deficiency in ATGMs. The Army is reportedly holding on half of 80,000 ATGMs. 66,000 APFSDS rounds are required as an “immediate operational necessity”. Similarly there is a problem with ammunition for Smerch multi-barrel rocket launcher systems and Bi-Modular Charge (BMC) systems for the upgraded 130-mm artillery guns reducing range to 18 to 23 km from 38-40 km. There is an urgency and absolute necessity for making up these deficiencies in the Armed Forces providing an opportunity for defence industry. Assured Resource Allocation for Defence

Resource allocation for defence is a major constraint for developing countries. however in the case of India fundamentals of economy remain strong with a bright future in the long term. A stable government at the Centre under a development and business friendly Prime Minister Mr

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Narendra Modi has ushered new hope, some even say that the proverbial, “animal spirits,” may have been triggered.

In the short term macroeconomic stability has been achieved through strict financial discipline and control of expenditure. Thus Current Account Deficit (CAD) is 1.7 per cent of the GDP in 2013-14 as against 4.7 per cent in 2012-13, and fiscal deficit is expected to be 3.6 per cent of GDP for 2015-16 and 3 per cent for 2016-17. With this consolidation, economy can be expected to register real GDP growth in the range of 5.4 to 5.9 per cent in 2014-15. The Governor of the central bank, the Reserve Bank of India, young and celebrated economist Raghuram Rajan has added to confidence of foreign investors which complements the forward looking Prime Minister Mr Modi. Suffice to say India’s economy is likely to grow over 5.5 to 6 percent over the next few years which may provide adequate resources for defence modernization.

The share of defence budget in GDP for 2013-14 was one of the lowest in India at 1.79 percent and has dropped to 1.74 percent in 2014-15 which is one of the lowest amongst the top defence expending countries. The share of defence expenditure as part of the overall Government expenditure has remained modest at less than 12.74 percent in 2014-15 which is well below the average over the past decade or so. Thus there is adequate cushion for the government to allot more resources for defence in the coming years.

The commitment of the government for allotments for capital expenditure for defence modernization has been covered at Table below from 2005-06 to 2013-14 wherein allocations have been more than doubled. The overall distribution of the budget and varied opportunities that are created thereof in specific dimension is covered separately in subsequent section of the Paper.

Capital Expenditure on Modernisation

Figure in Crores Financial Year BE RE(Revised Actual Utilisation (Budget Estimates) Estimates) 2005-06 34375.14 33075.14 32337.87 2006-07 37458.00 34458.00 33825.8 98.17% 8.97% 4.18% 4.60% 2007-08 41922.00 37705.00 37461.67 99.35% 11.92% 9.42% 10.75% 2008-09 48007.00 41000.00 40918.48 99.80% 14.52% 8.74% 9.23% 2009-10 54824.00 47824.00 51112.36 106.88% 14.20% 16.64% 24.91% 2010-11 60000.00 60833.26 62056 102.01%

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9.44% 27.20% 21.41% 2011-12 69198.81 66143.81 67902.38 102.66% 15.33% 8.73% 9.42% 2012-13 79578.63 69578.63 70499.12 101.32% 15.00% 5.19% 3.82% 2013-14 86740.71 78872.23 -- -- 9.00% 13.36% Table

Low Status of Indigenisation & Import Dependency

In a response to a parliamentary question, the Ministry of Defence provided year-wise details of share of domestic procurement out of total defence procurement are per Table below:-

Year Total expenditure on defence Expenditure on Percentage procurement (Capital & Revenue procurement from Achieved by Army, Navy, Air Force, R&D domestic sources (Rs. and Ordnance factories) (Rs. in in Crores) Crores) 2010- 84006.67 64606.30 76.9 11 2011- 92276.91 58281.32 63.1 12 2012- 94961.81 60431.01 63.6 13 Table

As per a report in the parliament in July 2014, Department of Industrial Policy & Promotion has issued 194 licences to 121 private sector companies till 30.6.2014. Department of Defence Production has issued No Objection Certificates (NOCs) to Private Exporters for export of Military Stores for an amount of Rs. 286 Crore during the year 2013-14. Over a three year period, i.e., 2010-11, 2011-12 and 2012-13, 69% of the total capital and revenue requirement of Services was met through indigenous procurement. However this figure also includes manufacturing based on Transfer of Technology as well as licensed assembly. Thus while sourcing indigenously may have increased for instance due to manufacture of T 90 tanks and Su 30MKI fighters in India, this picture may be skewed given that these are essentially licensed manufacturing do not represent true indigenously developed products by the Indian R & D or industry. In the recent Make in India, programme the government has admitted that about 60% of its defence requirements are met through imports. Thus there is a contradictory picture that emerges from these two statements with the latter being far more near reality than otherwise.

Keeping in view this import dependency the government plans to focus on the Make in India programme for indigenous manufacturing. The Government has opened the strategic defence sector for private sector participation; this will help foreign original equipment manufacturers to enter into strategic partnerships with Indian companies and leverage the domestic markets and also aim at global business. Besides helping build domestic capabilities,

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this will bolster exports in the long term. Thus lack of adequate indigenous capacity for design and development of weapons systems implies invitation to foreign companies to participate in collaborative programmes in the country providing a major market opportunity in the long term.

Policies and Procedures in Place

While this aspect is being covered in a subsequent Section of the Report suffice to say requisite policies and procedures on defence acquisition such as Defence Production Policy, and Defence Procurement Procedure (DPP) are in place and available in the open domain. The government has now decided to revise the DPP every year. Defence products list for industrial licensing, has been promulgated with large numbers of parts/components, castings/forgings etc. been excluded from the purview of industrial licensing. The defence security manual for private sector defence manufacturing units has been issued by the Department of Defence Production. The manual clarifies security architecture required to be put in place by the industry while undertaking sensitive defence equipments. The “MAKE,” procedure, which aims to promote R&D in the industry with support from the government and placement of orders if R&D effort is successful, is also being revised to make it more attractive and unambiguous for the private sector. A well laid out policy for formation of joint venture between foreign companies, Defence PSUs and private sector keeping in view the objective of Defence Production Policy has been promulgated..

On the investment front, up to 49% investment is allowed under the government route, above 49% on a case-to-case basis on approval by the Cabinet Committee on Security, wherever it is likely to result in access to modern and state-of-the-art technology. Investments by foreign portfolio investors/FIIs (through portfolio investment) are permitted up to 24% under automatic route. Mandatory offset requirements of a minimum of 30% for procurement of defence equipment in excess of INR 3 Billion have been envisaged. An offsets policy is promulgated and included in the DPP. The key objectives of the defence offset policy are to leverage capital acquisitions to develop the Indian defence industry. On the taxation front exemptions are available under the export promotion capital goods scheme, duty remission scheme, focus product scheme, special focus product scheme, and focus market scheme and so on. The government has also allocated INR 1 Billion to set up a Technology Development Fund for defence.

Large Basic Defence Industrial Infrastructure

India has a large basic defence industrial infrastructure with 41 Ordnance factories manufacturing a variety of weapons and equipment for the armed forces which is being covered in the relevant portion of the Report. There are 10 large defence public sector undertakings five of them in ship building alone. There is also sufficiently large private defence industry which has been supporting the government and public sector with a vendor base going into thousands, selected list of which has been included in the Report. As also in the field of computers and information technology India is a global leader in terms of number of technically qualified personnel that are working in this field. A number of states are now undertaking projects to provide infrastructure to defence majors. The Telangana government has decided to set up two new Aerospace Parks on Special Economic Zones (SEZs) on the outskirts of Hyderabad which

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has a number of DRDO and DPSU establishments located in close proximity. Thus there is basic infrastructure and level of industrialization that is available in the country which can be exploited to advantage.

Market Size

There are varying estimates of the size of the Indian defence capital market. For instance the electronics market for defence, aerospace and internal security is foreseen to swell to Rs 2 Lakh Crore in the next five years at its current growth rate of 18pc according to electronics industry body, India Electronics and Semiconductor Association (IESA). The current market size is in the range of Rs 30,000 Crore INR. The sector can provide an opportunity to create around 2 lakh jobs in the short term period. Current dependency on imports on electronics is said to be nearly 70pc direct and 20pc indirect imports. Joint study of IESA and PriceWaterhouseCoopers in 2014 predicts that India’s defence budget has grown to 2, 24,000Cr INR, with 40pc allocated to capital spends which may grow to 1,37,000Cr INR to 1,54,000Cr INR by 2018. A report stated that over the next 15 years time frame the capital acquisitions could be up to US $ 250 Billion. It would be safe to presume that the overall market size in terms of capital acquisitions could be approximately US $ 20 billion per annum for the next decade or so and may enhance thereafter.

Advantage Spain - Strategic Autonomy

India’s traditional policy has been that of non alignment. The country has continued with the same even though the Cold War is over and alignments are flexible. While during the Cold War India sided with the Soviet Union, after break up in the 1990’s Indian armed forces were hamstrung due to lack of spares for large quantum of Soviet era equipment ranging from combat aircraft to tanks. This led to first steps for diversification with Israel, France and UK being amongst the initial foreign partners. While India has expanded this profile to include the United States today the primary issue of strategic autonomy continues to haunt policy makers. Thus despite growing proximity to the United States India has not signed the foundational agreements such as full scale end user monitoring, communications security and so on which Washington demands from partners. At the same time India has kept the doors open for Russia and has now established a competitive framework for procurement keeping a level playing field.

The parameter of strategic autonomy however remains constant and thus India may prefer European partners as Spain for co-development and partnership for defence acquisitions given the understanding that this will be an equitable arrangement with a commitment that is devoid of geo-political demands with each country respecting the others sovereign status and independent foreign policy.

CHAPTER 2

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SHORT TERM FACTORS CONTRIBUTING TO ENHANCED DEFENCE REQUIREMENTS

Government Policy – Focus on Defence and Capacity Building India’s present government led by Bharatiya Janata Party (BJP) is headed by Prime Minister Narendra Modi. The BJP is a conservative party with nationalist outlook thus there is adequate focus on defence and security capacity building. The Party has received mandate of the people in general elections in India held in April May 2014 wherein for the first time in over two decades a single party has got majority in the Parliament. A major factor has been the strong leadership projected by Mr Narendra Modi during the electoral campaign. Mr Modi has distinguished himself as an able administrator as the Chief Minister of Gujarat for over a decade and a half and tirelessly campaigned on the agenda of effective governance and development.

Defence and security capacity building was also a part of the electoral campaign of the Party and Mr Modi, thus it is anticipated that this will be one of the key focus of the present government. Seen in the backdrop of what was projected as weak policies of the previous regime which led to hollowness in defence capability, the Modi government which will be in power at least till 2019 when next elections are held will pursue a policy of robust defence modernization. The BJP government is also known to be industry friendly particularly towards the private sector and is also open to foreign investment in the defence sector. While the focus is on strategic autonomy and self reliance, the Government is pragmatic enough to realize that this can only take place in the long term through effective collaboration and contribution from technology rich foreign enterprises with due government approvals.

A summation of these attributes were evident in a joint address to the Parliament on 16 June 2014, by President Pranab Mukherjee who outlined key defence priorities of the Narendra Modi government which are summarized as follows:-

A policy of zero tolerance towards terrorism, extremism, riots and crime will be pursued. Government will carry out reforms in defence procurement to increase efficiency and economy. It will encourage domestic industry, including the private sector; to have a larger share in design and production of defence equipment. The government will introduce policies to strengthen technology transfer, including through liberalised FDI in defence production. With readily available skilled human resource, India can emerge as a global platform for defence manufacturing including software, which will strengthen defence and spur industrial development as well as exports. The Government will strengthen defence preparedness by modernising Armed Forces and addressing the shortage of manpower on priority. The government will set up a National Maritime Authority.

Defence Modernisation. The Modi government has declared a clear policy of defence modernization. Presently India has old and dated equipment and is striving for an ideal ratio of 30:40:30 weapons and equipment that are state of the art, contemporary and of older versions respectively. Presently most of the weapons and equipment are of the contemporary and older version, thus there is likely to be focus on enhancing the weapons systems to state of the art

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which provides for maximum opportunities for defence sales to India. The Defence Minister Mr Arun Jaitley has made particular mention of this aspect during the Naval commanders conference in Delhi Taking note of the capability shortfall of conventional submarines, ship- borne helicopters, mine counter measure vessels and other weapons and sensors in the Navy and he assured that all efforts would be made to ensure operational preparedness of the Indian Navy. Similar initiatives are due with the Indian Army and the Air Force as well.

Efficiency Defence Procurement. Government is expected to carry out reforms in defence procurement to increase efficiency and economy. This will ensure that contracts timing will be reduced and the foreign companies will not have to wait for long periods. But how far this will be implemented given the bureaucratic challenge in India remains to be seen? There are major concerns on the functioning of the Ministry of Defence and the armed forces procurement systems.

Indigenisation. The government will encourage domestic industry, including the private sector; to have a larger share in design and production of defence equipment and military hardware and platforms for both domestic use and exports, in a competitive environment. The Defence Minister Mr Arun Jaitley has particularly appreciated the indigenization efforts of the Indian Navy, of the fact that all 44 naval ships and submarines under construction are being built in Indian shipyards during the Naval commander’s conference in Delhi. India aims to achieve 75 percent indigenisation in defence production between 2020 and 2025. DRDO is working on how to enhance the rate of production of LCA to 16 per year as the Indian Air Force is keen to speed up the acquisition process. DRDO has also initiated process for indigenisation of artillery ammunition, tank ammunition, grenades and other areas. This goal has been the same as the previous government. However India’s requirement for indigenous proportion is only 30 percent, thus 70 percent components can be foreign. It is therefore apparent that there is scope for military technical cooperation even in the paradigm of initiative in indigenization being taken by the Indian government.

Technology Transfer. The government will introduce policies to strengthen technology transfer, including through liberalised foreign Direct Investment (FDI) in defence production. The process of technology transfer will be linked with FDI. Thus foreign companies who are willing to share state of the art technology will be provided even 100 percent FDI while those that are going in for simple technology transfer induct 49 percent FDI and so on.

Defence Exports. With readily available skilled human resource, the Modi government hopes that India can emerge as a global platform for defence manufacturing including software, which will strengthen defence and spur industrial development as well as exports. This is also evident from the initiatives taken including declaration of a small list of items requiring defence licences as it will facilitate companies to export those not in the negative list. However major policy parameters on defence exports would be necessary.

Strengthen the Defence Research and Development Organization (DRDO). The Modi government is expected to increase the R&D in defence, with a goal of developing indigenous defence technologies and fast tracking of defence purchases. Thus there is ample scope for cooperation in this sphere. Presently Americans have planned a number of joint

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projects with the DRDO on the same lines as the BrahMos, Indo Russian joint cruise missile development projects, thus there is scope for the same Encourage private sector participation and investment. The Modi government is encouraging Indian private sector participation and investment in the defence sector. A number of industry lobbies such as CII and FICCI are already active and are encouraged by this approach.

Ease of Doing Business. Government has taken a series of measures to improve the Ease of Doing Business in India. The emphasis has been on simplification and rationalization of the existing rules and introduction of information technology to make governance more efficient, effective, simple and user friendly. The measures include 24X7 availability of online filing of Industrial License(IL) and Industrial Entrepreneur Memorandum(IEM) applications, increasing initial validity period of Industrial License to three years, streamlining the processing of applications for grant of extension of validity of Industrial License, treating partial commencement of production as commencement of production for all the items included in the license, adoption of highly contemporary industrial classification code NIC 2008 in place of NIC 1987 and doing away with the requirement of affidavit from the applicants of Defence Industrial License, with the issue of the Defence Security Manual.

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SECTION 2 ORGANISATIONS RELATED TO DEFENCE ACQUISITIONS

CHAPTER 3

MINISTRY OF DEFENCE Overview

The Ministry of Defence (Secretariat) comprises of 4 Departments viz. Department of Defence (DOD), Department of Defence Production (DDP), Department of Ex- Servicemen Welfare (DESW) and Department of Defence Research & Development (DDR&D) and a Finance Division. Department of Defence deals with the three Services and with Inter-Services Organisations. Department of Defence Production as the name suggests coordinates defence production while Research and Development is coordinated by the last named. The Defence Secretary functions as Head of the Department of Defence and is additionally responsible for coordinating the activities of the four Departments in the Ministry. The principal functions of the Departments are as per succeeding paragraphs. Who’s Who with Telephone Numbers and address is as per Appendix A.

Department of Defence

Department of Defence (DOD) is the central coordinating arm of the Ministry of Defence. In addition DOD is responsible for the Defence Budget, establishment matters, defence policy, matters relating to Parliament, Defence cooperation, and coordination of the activities. It is headed by Defence Secretary who is assisted by Director General (Acquisition), Additional Secretaries and Joint Secretaries. Organizational chart of the Ministry of Defence, Department of Defence is at Figure below.

Defence Acquisition Wing. A Defence Acquisition Wing headed by Director General (Acquisition) has been created under the Department of Defence to deal with acquisitions. The Acquisition Wing, within the Ministry of Defence, is a unique structure, having an integrated set up with Officers from the Department of Defence, Finance Division and Services Headquarters working together as a close-knit team. All matters concerning acquisition of Capital nature are

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dealt in the Acquisition Wing. It fills the void of a dedicated specialist organization for Defence Procurement as pointed out by the Group of Ministers in the Report in 2000. The Acquisition Wing consists of four Divisions, viz., Land, Maritime and Air Force Division dealing with Army, Navy & Air Force respectively and a Systems Division dealing with systems having Tri-Services applicability. Each of the Divisions has a Joint Secretary designated as Acquisition Manager, an Additional FA (Joint Secretary level officer) designated as Finance Manager and a Service Officer of ‘Two Star’ rank designated as Technical Manager. The Acquisition Wing with its components of Civil and Defence Service Officers working as a team provides the necessary synergy to the entire acquisition process. Special Secretary (Acquisition) is assisted by Financial Adviser (Acquisition) drawn from Defence (Finance). FA (Acquisition) functions as Integrated Financial Adviser to the Special Secretary (Acquisition). Organizational chart of the Defence Acquisition Wing is at Figure follows.

DEPARTMENT OF DEFENCE

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DEFENCE ACQUISITION WING

Councils, Committees and Boards for Acquisition

All acquisition decisions are taken by the Defence Acquisition Council headed by the Defence Minister or Raksha Mantri. This is done with a view to ensure decision making in regard to the totality of the planning process, which inter-alia involves according ‘in principle’ approval of Capital Acquisitions in the long term perspective plan and according ‘in principle’ approval for each Capital Acquisition programme. The decisions flowing from the Defence Acquisition Council are to be implemented by the following three Boards entrusted with specific functions.:-

1. Defence Procurement Board headed by the Defence Secretary; 2. Defence Production Board headed by the Secretary (Defence Production); 3. Defence Research & Development Board headed by the Secretary (Defence Research & Development).

Defence Acquisitions Council (DAC)

Defence Acquisitions Council composition is as follows:-

Chairman: Raksha Mantri (RM). Members: Raksha Rajya Mantris (RRMs) Chief of Defence Staff (CDS) (when appointed) Chief of Army Staff (COAS) Chief of Naval Staff (CNS) Chief of Air Staff (CAS) Defence Secretary Secretary Dept. of Defence Production and Supplies Secretary, Defence Research and Development Secretary, Defence Finance Vice Chief of Defence Staff (when appointed)/CISC

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Special Secretary (Acquisition) Member Secretary: Dy. Chief of Defence Staff (PP&FD)

Functions

The DAC performs the following functions:

Give ‘in principle’ approval to Capital acquisitions in the Long Term Perspective Plan (LTPP) covering a 15-year time span at the beginning of a Five Year Plan period. (The approval will, in particular, identify the ‘Make’ projects in the Perspective Plan where long gestation periods are involved). Give ‘in principle’ acceptance of necessity to each Capital acquisition project for incorporation in the forthcoming Five Year Plan, at least nine months before the commencement of the first year of that plan. The approval will involve the identification of- Either - ‘Buy’ Projects (outright purchase) Or - ‘Buy and Make’ projects (purchase followed by licensed production/ indigenous development) Or - ‘Make’ Projects (indigenous production and R&D) Monitor the progress of major projects on feedback from the Defence Procurement Board. The DAC will meet as required. The approval in principle should be seen as first step in the process of ‘acceptance of necessity’ by the concerned Administrative Wing in MoD in consultation with Defence(Finance) and as a recommendation for eventual consideration of Finance Ministry [FM]/ Cabinet Committee on Security (CCS) (as required). The decision of RM based on DAC deliberations will flow down for implementation to Defence Procurement Board, Defence Production Board and Defence R&D Board.

Defence Procurement Board (DPB)

The DPB is constituted as follows:

Chairman: Defence Secretary. Members: Secretary, Dept. of Defence Production and Supplies Secretary, Defence Research and Development Secretary, Defence Finance Vice Chief of Defence Staff (VCDS)/CISC till VCDS is appointed. Vice Chief of Army Staff (VCOAS) Vice Chief of Naval Staff (VCNS) Vice Chief of Air Staff (VCAS) Special Secretary (Acquisition) Member Secretary: Financial Advisor (Acquisition)

DGQA/ DGAQA will attend meetings as special invitees as required. The Indian Army DCOAS (P&S), Indian Air Force ACAS (P) and Indian Navy ACNS (P&P) will attend meetings related to their respective Integrated HQs’ acquisition proposals. The Board may co-opt other Principal Staff Officers (PSOs) and any other person(s) as required.

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Functions

The DPB will oversee all activities related to acquisition on the capital account in the Department of Defence flowing out of the ‘Buy’ and ‘Buy & Make’ decisions of the DAC. It will function as the body responsible for the co-ordination, supervision and monitoring of the acquisition process. The major roles and functions of the DPB will be:

Set out the Annual Acquisition Plan for the three Services (based on approval of the Five Years Capital Acquisition Plan by DAC) for incorporation in the next Annual Budget by 30 Sep of each year. Carrying out such amendments in the annual plan as deemed necessary on account of operational urgencies, budgetary provisions or any other exigencies, based on recommendations made by Integrated Services HQs/ Defence Staff/DoD/Defence (Finance) Confirm/modify the inter-se and intra-se priorities of acquisition proposals of the Services and recommend modifications for approval by RM in the pattern of resource sharing on the Capital account related to acquisition of weapons, equipment and weapon systems among the Services. Accord approval/recommend the scales of authorisation and usage of Capital account items within RM’s powers or those requiring approval of Ministry of Finance/Cabinet Committee on Security (CCS) based on projections from Integrated Services HQs and recommended by the Defence Staff to the Board and from DoD/ DDP&S/Defence(Finance) to the Board . Monitor progress of major schemes and decide on creation of ‘Equipment Induction Cells’ (EICs) in Integrated Services HQs. for specific projects in consultation with Integrated Services Headquarters. Accord approval for procurement on ‘Single Vendor’ basis for acquisition in excess of Rs50 Crores based on recommendations from Integrated Services HQs and comments of the Acquisition Wing and Defence(Finance). All Qualitative Requirements (QRs) from Integrated Services Headquarters will be divided into ‘essential’ and ‘desirable’ categories. The procedure for handling waiver/amendment of both types of parameters should be set out by the Acquisition Wing in the revised Procurement procedures being developed by them. Approve emergency purchases, when necessary, within RM’s delegated powers. Perform other functions as may be allotted by the DAC/ RM from time to time. DPB will also examine proposals from the Acquisition Wing regarding procurement procedures and will make the necessary changes in the procurement process after approval by the RM.

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Defence Production Board (DPB)

The Defence Production Board is constituted as follows:

Chairman : Secretary DP&S Members : Defence Secretary. Secretary, Defence Research and Development Secretary Defence Finance Vice Chief of Defence Staff (VCDS) / CISC till VCDS is appointed. Vice Chief of Army Staff (VCOAS) Vice Chief of Naval Staff (VCNS) Vice Chief of Air Staff (VCAS) Chairman, Ordnance Factories Board CMD of Defence Public Sector Undertaking (as required) Member Secretary: Director (P&C) in the Deptt. of Def. Prod. & Supplies (DDP&S) Indian Army DCOAS (P&S), Indian Air Force ACAS (P) and Indian Navy ACNS (P&P) and other PSOs/APSOs will be co-opted, when required.

Functions

The Defence Production Board will oversee all activities related to indigenous manufacture, under the Department of Defence Production, flowing from the ‘Buy & Make’ and ‘Make’ decisions of the DAC concerning import and Transfer of Technology (ToT). Price Negotiations for all ‘Buy and Make’ projects will be led by the Acquisition Wing supported by DDP&S. The Production Board will monitor progress of all ‘Make’ projects and will revert to the DAC with recommendations relating to alterations of the original decision where so warranted..

The Defence Production Board will provide requisite details to the Defence Acquisitions Council for the latter’s deliberations on Licensed Production, Transfer of Technology, and ab- initio production/development, as required.

Department of Defence Production

The work of the Defence Production board is conductded through the Department of Defence Production by the Secretary Defence Production who has separate, land, electronics, maritime and air systems joint secretaries apart from one of these managing the Defence Offsets Management Wing. The organizational chart of the Department of Defence Production are at Figures below.

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DEPARTMENT OF DEFENCE PRODUCTION

Defence Research and Development Board (DRDB)

The Defence Research & Development Board is constituted as follows:

Chairman : Secretary, Defence Research and Development. Members : Defence Secretary Secretary Defence Production and Supplies Secretary Defence Finance Vice Chief of Defence Staff (VCDS) /CISC till VCDS is appointed. Vice Chief of Army Staff (VCOAS) Vice Chief of Naval Staff (VCNS) Vice Chief of Air Staff (VCAS) Distinguished Scientist/Chief Controller Research & Development/Director – Lab, as required. Member Secretary: Chief Controller Research & Development Indian Army DCOAS (P&S), Indian Air Force ACAS (P) and Indian Navy ACNS (P&P) and other PSOs will be co-opted, when required.

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Functions

The Research and Development Board progresses, monitors and reports on all indigenous R&D proposals flowing out of the ‘Buy & Make’ decisions of the DAC. In pursuing these objectives, the R&D Board liaises closely with the Production Board and Service users. The R&D Board recommends suitable technology evaluation and assessment process and ‘Laboratory to Induction’ planning process for the approval of RM. The Board is responsible for providing Project specific recommendations for ‘Design – Production – Induction’ planning process for the approval of RM.

Finance Division

The Finance Division of the Ministry of Defence is headed by a Financial Adviser. He is tasked with exercising financial control over proposals involving expenditure from the Defence Budget, and with the responsibility for internal audit and accounting of Defence expenditure. In the latter tasks, he is assisted by the Controller General of Defence Accounts (CGDA).

Services Headquarters and Inter-Service Organisations:

In order to execute its assigned functions, the Ministry of Defence is assisted by the three Services Headquarters and a number of Inter-Service Organisations (ISOs). The three Services Headquarters viz. the Army Headquarters, the Naval Headquarters and the Air Headquarters function under the Chief of the Army Staff (COAS), the Chief of the Naval Staff (CNS) and the Chief of the Air Staff (CAS) respectively. They are assisted by their Principal Staff Officers(PSOs). The Inter-Service Organisations are responsible for carrying out the tasks relating to the common needs of the three Services, like medical care, public relations and personnel management of the civilians in the Defence Headquarters. Some Organisations also provide technical assistance to the Department of Defence Production. All these organisations function directly under the Ministry of Defence.

Integrated Headquarters of Ministry of Defence.

Integrated Headquarters of Ministry of Defence comprising Army Headquarters, Naval Headquarters, Air Headquarters and Defence Staff Headquarters are associated in the formulation of policies in relation to matters concerning the Defence of India and Armed Forces of the Union. They are responsible for providing executive direction required in the implementation of policies laid down by the Ministry of Defence. They exercise delegated administrative and financial powers. The role and function of the Services Headquarters ‘now’ designated as Integrated Headquarters in all other respects remains unchanged.

The role of acquisition in the services is performed by departments headed by a three star rank officer who is assisted by requisite number of uniformed staff. In Indian Army DCOAS (P&S), Indian Air Force ACAS (P) and Indian Navy ACNS (P&P) are responsible for acquisitions. While Integrated in name the services in India continue to function under the

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respective Chiefs. While a Chairman of the Chiefs of Staff Committee is technically the senior most of the three Chiefs he does not have a command and control function and thus is a coordinating authority. Headquarters Integrated Defence Staff is responsible for coordination of acquisitions of the three services. The overall organization is shown in Figure follows.

INTEGRATED HIGHER DEFENCE ORGANISATION

Ministry of Defence

Department of Defence Department of Defence Producon

Department of Defence Research and Development

Indian Army Indian Navy Indian Air Force

HQ IDS

Staff and Council/Committee Links

As would be seen from the above model, the Indian decision making system is a committee driven process based on consensus. While the Defence Minister is the main approving authority for all decisions related to procurement, unless these are put up to him by various boards and committees such as the Defence Procurement Board, Defence Production Board and Defence R&D Board and so on he cannot take a stand alone decision. Thus at each stage a committee or a board will approve any procurement decision. Each board comprises of representatives from the Ministry of Defence including Ministry of Defence Finance, the services and various technical agencies such as the DRDO, DGQA and so on. Where required additional members can be called for based on the requirements projected by the board. Thus the staff in the Ministry of Defence and Services perform dual role as representatives of the Ministry and services on various committees. The links between various Ministry department and services with the committees is shown as per Figure below. Decisions by the committees and boards are by consensus unless otherwise stated. This process is time consuming and subject to bureaucratic inertia at the same time consideration is holistic and alternatives are not very viable. The government is attempting to undertake time bound decisions but how far they would be successful given the well entrenched interests of various stakeholders remains to be seen?

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STAFF AND COUNCIL/COMMITTEE LINKS

• Minister of Defence DefenceAcquision • Heads of all Departments and Service Chiefs Council

• Defence Secretary. Defence Producon Secretary, Defence R & Defence Procurement D Secretary, Finance • Vice Chiefs of the Services and equivalent representavves from Board other organisaons.

• Defence Producon Secretary, Defence Secretary., Defence R & Defence Producon D Secretary, Finance. • Vice Chiefs of the Services and equivalent representavves from Board other organisaons including Producon Agencies.

• Defence Producon Secretary, Defence Secretary., Defence R & Defence Research and D Secretary, Finance. • Vice Chiefs of the Services and equivalent representavves from Development Board other organisaons including Technology Centres.

Appendix

WHO’S WHO IN MINISTRY OF DEFENCE INDIA

Ministers

Sl NAME DESIGNA TEL TEL Email Address OFFIC . TION NO.(O) NO.(R E N ) ADDR o. ESS 1. Shri Raksha 23012286 29244 ajaitley[at]sansad[dot]nic[do 104, Manoha Mantri 23019030 587 t]in South r (Defence 23015403 29247 Block,N Parrikar Minister) (FAX) 383 ew 23017164(P 29232 Delhi H) 358 23034915 (FAX) 2. Shri Private 23092510 23073 smn.dash[at]gmail[dot]com 105, Deepak Secretary to 23092810 895 South Kumar FM/RM Block,N ew

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Delhi 3. Shri Joint 23019780 26879 107, Raghve Secretary & 116 South ndra Advisor to Block,N Narayan RM ew Dubey Delhi 4. Shri Additional 23012286 - rrsingh62[at]gmail[dot]com 102 G, Rakesh Private 23019030 South Ranjan Secretary to 23015403 Block,N Singh Raksha (FAX) ew Mantri Delhi 5. Rao Raksha 23794621 24643 rao[dot]inderjit[at]sansad[do 108-B, Inderjit Rajya 23792128 266 t]nic[dot]in South Singh Mantri 23016255 ( 24643 Block, (Minister of FAX) 265 New State for Delhi Defence) 6. Shri Private 23794621 46465 bdutt2007[at]rediffmail[dot] 113-A, Brahm Secretary to 23792128 225 com South Dutt Raksha 23016255 ( Block Rajya FAX) New Mantri Delhi. 7. Shri Deputy 23794621 29535 dhandvk[at]yahoo[dot]com 111A, Vinod Secretary 23792128 566 South Kumar RRM’s 23016255 ( Block Dhand Office FAX) New Delhi.

Department of Defence

SL NAME DESIGNAT TEL TEL Email Address OFFICE . ION NO.(O NO.(R ADDRES N ) ) S O. 1. Shri R.K. Defence 230123 246712 defsecy[at]nic[dot]in 101-A, Mathur Secretary 80 94 South [ IAS 230100 Block, Ne (MT:77)] 44 w Delhi (FAX) 2. Shri Anuj Additional 230117 241076 anuj[dot]bishnoi81[at]nic[do 199-A Kumar Secretary (B) 75 47 t]in South Bishnoi 230178 Block, N [ IAS 75 ew Delhi (UP:81)] (FAX) 3. Dr. Asha Director 230142 268737 dgacq-mod[at]nic[dot]in 137, South

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Ram Sihag General 19 59 Block, Ne [ IAS (Acquisition) 237947 w Delhi (HP:83)] 21 (FAX) 4. Shri Ravi Additional 230176 261154 ravikant.84[at]nic[dot]in 199-B, kant Secretary (R) 78 77 South [ IAS 230196 Block, Ne (BH:84)] 58 w Delhi (FAX) 5. Shri Joint 230164 230101 rabindra.panwar[at]nic[dot]i 110, South Rabindra Secretary & 47 47 n Block, Ne Panwar Acquisition 230158 w Delhi [ Manager 75 IAS(BH:8 (Maritime 5)] Systems) 6. Shri Joint 230182 241210 sranjan[at]nic[dot]in 155, E- Sanjeev Secretary 01 04 Block, Ne Ranjan (Trg) 230182 w Delhi. [ & 32 IAS(MT:8 CAO 5)] JS & 237938 241210 418 ‘B’ Secretary, 45 79 Wing Border Road 230158 Sena Development 84 Bhawan,N Board (FAX) ew Delhi 7. Shri Ram Joint 230142 241040 jsnavy[at]nic[dot]in 198-B, Subhag Secretary 22 70 South Singh (Navy & 237946 Block, Ne [ IAS Ordnance) 02 w Delhi (HP:87)] (FAX) Joint 230117 264386 jspic[at]nic[dot]in 109-B, Secretary 52 22 South (Planning & 230137 Block, Ne lnternational 52 w Delhi Cooperation) (FAX) 8. Shri Joint 230154 262510 jscw-mod[at]nic[dot]in 198-A, Deepak Secretary 44 20 South Anurag (Coordinatio 230188 Block, Ne [ n & Works) 32 w Delhi IA&AS:87 (FAX) ] 9. Shri Subir Joint 230159 410179 amls[at]nic[dot]in 8-B, South Mallick Secretary & 52 48 Block, [ Acquisition 230146 New IA&AS:89 Manager 73 Delhi ] (Land (FAX)

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System) 10. Shri Joint 230149 241041 rajeev.verma[at]nic[dot]in 130-A, Rajeev Secretary & 44 61 South Verma Acqusition 230177 Block, Ne [ IAS Manager 91 w Delhi. (UT:92)] (Air) (FAX) 11. Shri Joint 230114 241038 jsg[at]nic[dot]in, 108-A, Vikram Secretary (G 10 62 vikramdev.dutt[at]nic[dot]in South Dev Dutt & Air) 230137 Block, Ne [ IAS 09 w Delhi (UT:93)] (FAX) 12. Shri Navin Joint 237920 246713 jse[at]nic[dot]in 97, South Kumar Secretary 43 86 Block, Ne Choudhary (Establishme 230137 w Delhi [ IAS nt & Public 87 (JK:94)] Grivances) (FAX) & CVO 13. Shri Ram Adviser(Stati 230150 0120- ramkripal_shakawar[at]yaho 219-‘B’ Kripal stics) 40 412343 o[dot]com Wing Singh 237930 5 Sena [ ISS] 98 Bhawan,N ew Delhi. 14. Maj Gen Technical 230196 261531 tmls-mod[at]nic[dot]in Room No Sanjeev Manager 09 99 30, 'D- Shukla (Land 237924 II' Wing Systems) 14 Sena (FAX) Bhawan, New Delhi 15. Rear Technical 237931 261429 Room No Admiral Manager 77 62 5, 'D- Pritam Lal (Maritime & II' Wing Systems) Sena Bhawan, New Delhi 16. AVM G Technical 230120 265661 army- Room No Raveendra Manager 68 91 air[at]mod[dot]nic[dot]in 469, Vayu nath (Air) Bhawan

Defence Finance

SL. NAME DESIGNATION TEL OFFICE NO. NO.(O) ADDRESS 1. Shri Arunava Dutt Financial Adviser (Defence 23016654 139, South [ IDAS:78 ] Services) 23016629 Block, New Delhi

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2. Smt. Shobana Joshi Financial Adviser 23012915 131-A, South [ IDAS:79 ] (Acquisition) & Addl. Block, New Delhi Secretary 3. Shri Rajnish Kumar Additional Financial 23015429 134-A, South [ IDAS:84 ] Adviser(RK) & JS Block, New Delhi 4. Shri Prem Kumar Additional Financial 23011871 130-B, South Kataria Adviser(K) & JS Block, New Delhi [ IA&AS:85 ] 5. Shri Raj Ganesh Additional Financial 23013557 537 DRDO Viswanathan Adviser(RGV) & JS 23010159 Bhavan, New Delhi [ IA&AS:87 ] 6. Smt Devika Additional Financial 23012915 131-B, South Raghuvanshi Adviser(DR) & JS Block, New Delhi. [ IDAS:88 ] 7. Shri A.R.Sule Finance Manager (Air) 23016759 205-C,South [ IDAS:93 ] Block,New Delhi Finance Manager (MS) 23014966 6 South Block New Delhi 8. Smt Veena Prasad Additional Financial Adviser 23012204 132, South [ IDAS:82 ] (VP) & JS Block, New Delhi 9. Shri B K JS & Addl. FA(M) 23792076 Room No. 46, A Mukhopadhyay Block [ CSS ] 10. Shri Ranbir Singh JS & Addl. FA(RS) 23012317 Room No. 15-B, [ CSS ] South Block 11. Shri.R.K.Sinha Finance Manager (Land 23012403 7, South System) Block, New Delhi 12 Shri A.K.Kapoor Advisor(Cost) 23016429 8-A, South Block

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DEPARTMENT OF DEFENCE PRODUCTION

SECRETARY (DP) NAME & OFFICE PAX ROOM/ BLDG. DESIGNATION TELE.NO Shri G Mohan Kumar 23012527 4227 136, South Block Secretary (DP) (FAX) 23012300

Shri Sanjay Bhatnagar 23012527 4214 135-B, South Block PS to Secy (DP) 23014377

SPECIAL SECRETARY(DP) Shri Ashok Kumar Gupta 23012470 4226 184-A, South Block Special Secretary (DP) (FAX) 23013133 Mrs. Suman Dhingra PPS 23012470 4275 183-E, South Block to SS(DP) (FAX) 23013133 Shri Raman Gulati 23012470 4275 183-E, South Block PPS to SS(DP) (FAX) 23013133 JOINT SECRETARY (AEROSPACE WING) Shri K.K.Pant 23012778 4225 133 South Block Joint Secretary (FAX) (Aerospace) 23014932

Shri Suraj Sharma 23012778 4204 131-C, South Block PA to JS(Aerospace) (FAX) 23014932 Shri R.C. Meena 23011587 4287 146 B-Wing, Sena Bhawan DS(AS-I)

Vacant 23012084 209 B-Wing, Sena Bhawan DS(AS-II) Shri Pradeep Kumar 23012084 4437 209 B Wing Sena Bhawan US D(HAL-I) Shri Britius Kujur 23012084 4266 208-A B Wing Sena Bhawan US D(HAL-II)

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Shri Inderjeet Sethi 23012084 4266 208-A B Wing Sena Bhawan US D (HAL-III)

Smt.Philomena Raphael 23012084 4266 208-A B Wing Sena Bhawan SO(HAL)

JOINT SECRETARY (ELECTRONIC SYSTEM WING)

Shri J. Rama Krishna Rao 23013694 4377 184-B, South Block Joint Secretary(ES) (Fax) 23017862 Shri Jitender Kumar 23013694 4491 183-G, South Block PPS to JS(ES) (Fax) 23017862 Smt Margaret Gangte 23012634 130-E South Block Dir(Q-I/DDP) Smt. Poornima Rajendran 23013033 4309 245 B Wing DS(Q-II/DDP) Sena Bhawan Smt.Kiran Mala kujur 23011820 247 B Wing US(QA) Sena Bhawan Shri R.D.Pandey 23011820 247 B Wing SO D(QA) Sena Bhawan Smt. Jayashree C.R 23011820 247 B Wing SO D(QA) Sena Bhawan Shri Rajendra Kumar 23017134 339-B B Wing CPO(BDL) Sena Bhawan Shri Magan Singh Dabas 23017134 333-B B Wing SO D(BDL) Sena Bhawan Shri Timothy T. 2301 2779 131-C, South Block Gonmei DS(ES) Shri K.B. Nayyar 23012703 9-A, South Block US D(EPC/BEML) Shri Subrat Kumar 23012703 9-A, South Block SO D(EPC) Shri M.L.Handa 23011114 253-A US(BEL) Sena Bhawan. Shri M.D.Mishra 23011114 250 SO D(BEL) Sena Bhawan. Shri Lokesh Sharma 23014744 4473 202 B Wing OSD(LS) Sena Bhawan Vacant 23014730 4311 252B B Wing

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US D(Prod-I) Sena Bhawan Shri Elvius Lakra 23013857 4310 253 B Wing US D(Prod-III) Sena Bhawan Smt. Sherly Kuruvilla 23013857 4310 253 B Wing SO D(Prod-III) Sena Bhawan Shri Surajit Indu 23013384 4312 250 B Wing SO D(Prod-III) Sena Bhawan Shri S.C.Roy 23013384 4312 252 B Wing SO(Prod-II) Sena Bhawan Smt. Urmi Srivastava 23017134 335 B Wing CPO(U) Sena Bhawan Smt. I.J.Daphne 23017134 332 B Wing SO D(MS-III) Sena Bhawan

JOINT SECRETARY (DIP)

Shri Sanjay Garg 23015505 4363 135-A, South Block Joint Secretary (DIP) Shri Anand Prakash 23015505 4491 132-C, South Block PPS to JS(DIP) (FAX) 2301 5744 Shri Sandip Behal 23015505 132-C, South Block PS to JS(DIP) (FAX) 2301 5744

Shri Ravin Kulshrestha 23011420 15 H Block Dir(P & C)

Ms Jean G.V.Zingkhai 23010518 8-H Block DS (DIP) Shri Kuldeep Parwal 23012483 4270 335-A B Wing CPO(DIP) Sena Bhawan Shri M.C. Beniwal 23014933 4191 333-A B Wing SO D(DIP) Sena Bhawan

JOINT SECRETARY (NAVAL SYSTEM WING) )/(DEFENCE OFFSET MANAGEMENT WING)

Shri Sanjay Garg 23011219 4207 134-B South Block Joint Secretary (NS) (FAX) 23018538 Shri N.Ramesh 23011219 4489 132-C, South Block PS to JS (NS)

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Vacant 2301 1687 242A B Wing DS(NS) Sena Bhawan Ms. Veena Kalra 23016273 4439 206A B Wing US(NS-I) Sena Bhawan Shri Surendra Kumar 23016273 206A B Wing US D(NS-II) Sena Bhawan Shri Munna Prasad 23015737 205 B Wing DO D(NS-I) Sena Bhawan Shri Tual Za Kam 23016273 205 B Wing SO D(NS-I) Sena Bhawan Shri Raghvendra Singh 23794275 225 Kushwah South Block SO D(NS-II) Shri Sanjay Kumar 23016273 205 B Wing SO D(NS-III) Sena Bhawan Cdr P.K.Bhattacharya, 23794275 OSD,DOMW 225-B, South Block Shri R.R.Thakur 23792069 OSD,DOMW (Telefax)

Shri Shalabha Prakash, 23792069 OSD,DOMW (Telefax)

Shri Gopalakrishnan, 23010663 235-B, OSD,DOMW 23014234 South Block

JOINT SECRETARY (PERSONNEL & COORDINATION WING)

Smt. Kusum Singh 23011553 4377 96, South Block Joint Secretary(P & C) ( FAX) 23019961 Shri George Mathew 23011553 4391 183-G, South Block PPS to JS(P & C)

Shri Ashish Tripathi 23011553 183-G, South Block PS to JS(P & C)

Dr. K.V. Jacob 23013705 11-A South Block Joint Secretary(KVJ) Smt. Mansi Mehta 23011468 4211 18-B South Block US D(Coord/DDP) (Telefax) Smt. Jatinder Kaur 2379 4358 17 South Block SO D(Coord/DDP) Shri Vijay Andley 2379 4358 17 South Block SO D(Coord/DDP)

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Shri Sanjay Kumar Singh 23014919 4310 340A B Wing US D(Gen/DDP) South Block Shri R.S. Kushwah 23794119 249 B Wing SO D(Gen/DDP)) Sena Bhawan Shri Sharda Prasad 23012838 4468 338 B Wing Deputy Secretary(P) Sena Bhawan Shri Vinod Kumar 23012838 4308 338 B Wing US D(Estt./IOFS)) Sena Bhawan

Shri Biswajit Sarkar 23018574 4468 339 B Wing US D(Estt./Gazetted) Sena Bhawan Shri Amlan Das 230 17248 4463 340B B Wing US D(Estt./Non-Gazetted) Sena Bhawan Shri Uttam Kumar Mishra 23016221 4308 338 B Wing SO D(Estt./IOFS) Sena Bhawan Smt. Madhu Agarwal 23016221 339 B Wing SO D(Estt./Gazetted) Sena Bhawan Shri Jagdish Chandra 23016221 339 B Wing Upreti Sena Bhawan SO D(Estt./NG) Vacant 2301 1687 242A B Wing DS(NS)/MIDHANI Sena Bhawan Shri Surendra Kumar 23016273 4439 206 B Wing US D(NS-II/MIDHANI) Sena Bhawan Shri Munna Prasad 23015737 205 B Wing DO D(NS-I/MIDHANI) Sena Bhawan ShriBabuLal 23011153 336 JD(OL) Sena Bhawan Shri S.L.Jugran 23019547 4178 122 ‘A’ Dy. Dir. (OL) Sena Bhawan Shri S.S.Rawat 23012043 4417 104 ‘A’ Asstt. Dir. (OL-II) Sena Bhawan D(VIGILANCE/DDP) WING---directly under Additional Secretary(DP)

Shri R.K.Shekhawat 23017836 343 B Wing Dir(Vig/DDP) Sena Bhawan Shri Shailesh Rana 23012581 343 B Wing US D(Vig/DDP)) (Telefax) Sena Bhawan Shri R.S. Kushwah 23012581 343 B Wing DO D(Vig) (Telefax) Sena Bhawan Shri Tara Dutt 23012581 343 B Wing SO D(Vig/DDP) (Telefax) Sena Bhawan

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ADVISOR (COST) ---directly under Additional Secretary(DP)

Shri A.K.Singhal 23015734 4268 23,Pt.III Advisor(Cost) South Block

Shri Rajender Singh 23015734 17, South Bloc PPS to Adviser(Cost)

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SECTION 3 CHAPTER 4 DEFENCE PRODUCTION POLICY 20111

General. A primary policy in the sphere of defence acquisition in India is the Defence Production Policy 2011 [hence forth referred to as Production Policy]. This was promulgated by the Ministry of Defence Government of India on 01 January 2011. The Policy is in vogue for over three years now. Overall framework of defence acquisitions is based on the Production Policy though frequently the discourse is more about Defence Procurement Procedure (DPP). The Production Policy envisages a long term view of defence acquisitions in India whereas DPP deals with transactional issues. Thus to understand overall trajectory in this domain a study of the Production Policy is necessary. Objectives. The objectives of the Production Policy are four fold (1) to achieve substantive self reliance in design, development and production of equipment/ weapon systems/ platforms required for defence in as early a time frame as possible (2) to create conditions conducive for the private industry to take an active role in this endeavour (3) to enhance potential of SMEs (Small and Medium Enterprises) in indigenization and (4) to broaden the defence R&D base of the country. Self reliance, privatization, capacity building of SMEs and expansion of the R & D base can be seen as the four fold objectives of the Production Policy. While these objectives have been identified there is a note of caution given low defence industrial base of India. This would imply achievement in a longer time frame as also adoption of a gradual step by step approach. Terms of Reference. Keeping this in view the Production Policy also clarifies that, “while pursuing the above objectives, the overall aim of ensuring that our forces have an edge over our potential adversaries at all times – in immediate terms as well as in sustainability – will be ensured”. Thus the terms of reference remains that of ensuring that the armed forces are fully equipped to meet the challenges of potential adversaries which in the case of India are – Pakistan, China and a number of militant organizations operating in various parts of the country. Given rapid modernization of the Chinese People’s Liberation Army (PLA) in the past decade or so, there are growing concerns of emergence of a capability gap. One option to close the same is through technological superiority. As there are stringent restrictions on defence sales to China by technologically advanced countries such as the United States and European Union countries, India expects facilitative collaboration with defence majors of these nations, to acquire weapons systems with a higher level of technology. This may seem to be a dichotomy with relation to the objective of self reliance, the proposal is considered pragmatic given defence technology and industrial base in India so far.

1 Original document Defence Production Policy 2011 PDF is at serial 1 of primary documents folder.

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Acquisition from Foreign Sources. A related inference that can be drawn from the Production Policy is also that indigenization will depend on the timeline within which weapons and systems are required to be acquired by the Services. Thus the Production Policy states, “Preference will be given to indigenous design, development and manufacture of defence equipment. Therefore, wherever the required arms, ammunition and equipment are possible to be made by the Indian industry within the timelines required by the Services, the procurement will be made from indigenous sources”. The Policy adds, “However whenever the Indian industry is not in a position to make and deliver the equipment as per the Service Qualitative Regulations (SQRs) in the requisite time frame, procurement from foreign sources would be resorted to, in accordance with the Defence Procurement Procedure”. The decision to procure indigenously or through foreign sources is to be undertaken based on two key parameters such as (1) time taken in the procurement and delivery from foreign sources vis-à-vis the time required for making it in the country, (2) urgency and criticality of the requirement for the armed forces. At present there is limited scope for acquiring cutting edge technology based system indigenously thus dependence on imports is likely to continue. Basis of Decision for Foreign or Indigenous Acquisition. The decision for acquisitions from sources indigenous or foreign will be based on the Long Term Integrated Perspective Plan (LTIPP) which is the road map for procurement for the next 15 years. The present LTIPP is for the period from 2012-2027. The document is not available in the public domain. It is therefore expected that, “ equipment/ weapon systems/ platforms required 10 years and further down the line will by and large be developed/ integrated/ made within the country”. However where, “Sub- systems/ equipment/ components that are not economically viable or practical to be made within the country may be imported, ensuring their availability at all times”. While this has been the aim of the Production Policy, there are concerns that militate against indigenization. Firstly the time for design and production envisaged of 10 years is far too ambitious and planning process for the same is not fully streamlined. Thus procurement from imports will continue to be the option that will be exercised by the defence acquisition managers in India for some decades to come. Thus despite aim of indigenization the potential for foreign businesses in the Indian defence sector exists and is likely to continue in the decades ahead, till some of the gaps in objectives and their realization and processes are overcome. Co Development and Co Production. A notable remark in the Production Policy that despite imports, design and integration of platforms will be indigenous is a pointer to co- development, co-production and transfer of technology. Thus the Production Policy states, “However, as far as possible, the design and integration of the platform/ system will be undertaken within the country”. While integration with transfer of technology has been the form that has been followed in what is known as, “Buy and Make,” paradigm of defence acquisition over the years, design and co-development is now increasingly being attempted. Thus, apart from the production agencies collaboration with research and development agencies as the Defence Research and Development Organisation (DRDO) assumes importance. Private Sector. The Policy also underlines greater involvement of the private sector in defence industry. At present Indian defence industry is dominated by the government and public sector and it is aimed to widen the field and, “build up a robust indigenous defence industrial base by, proactively encouraging larger involvement of the Indian private sector in design, development and manufacture of defence equipment”. Importantly the government envisages

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“progressively identifying and addressing any issue which impacts; or has the potential of impacting the competitiveness of the Indian defence industry in comparison to foreign companies”. Thus the Indian private sector is expected to be provided a level playing field vis a vis the government and public sector. So far there has been limited progress in this direction but the new government which has taken office in May 2014 is intending to prioritize the same with a number of initiatives such as “Make in India,” outlined in subsequent parts of this Section which is expected to give a fillip to private sector in defence. Working with the private sector is easier for foreign companies thus the potential can be better harnessed. Integrated Approach. An integrated approach is envisaged to produce “state of the art defence equipment/ weapon systems/ platforms within the price lines and timelines that are globally competitive”. This will be in the form of consortia, joint ventures and public private partnerships. A backward integration with academia, research and development Institutions and technical and scientific organizations for this purpose is part of the process. The Policy also outlines the necessity for the Ordnance Factory Board (OFB), Defence Public Sector Undertakings (DPSUs) and private sector to support research and development for up-gradation and improvement in systems under manufacture. Incremental Process of Development. The process of development of indigenous systems would follow the standard course of stage by stage incremental development from Mark-I to Mark-II and so on. This process will be reviewed by the Defence Production Board or Defence R&D Board and where delays are envisaged the option of “Buy” that is purchase from foreign sources will be exercised till indigenous systems can be procured. Upgrades. The Policy also envisages that upgrades will be carried out by the Indian Industry as far as possible wherein the DRDO, services, OFB, DPSUs and private sector, “will work in close coordination for continuous up gradation in systems”. SMEs. The Policy lays special emphasis on encouraging SMEs which operate at Tier 1 and below. Thus the Government has set up a, “separate fund to provide necessary resources to public/private sector including SMEs as well as academic and scientific institutions to support research and development of defence equipment/systems enhancing cutting edge technology”. The budgetary resources allotted for this purpose have however been limited so far. Transfer of Technology. The aim of Transfer of Technology (TOT) is envisaged to be such that this can be subsequently absorbed and thus “successive generations of the weapon systems/ platforms will be developed in the country”. There are challenges to this process so far yet this would be the ultimate objective in the case of TOT. Conclusion. Production Policy is an important document which outlines long term policy framework for defence acquisitions in India. Self reliance, privatization, capacity building of SMEs and expansion of the R & D base are the four pillars of the Production Policy. This has outlined a pathway to self reliance in defence in the long term but with ample scope for foreign collaboration at various stages – research and development, design, production, upgrades, maintenance and overhaul and finally direct sales. A summary of opportunities and threats for Spanish companies is tabulated as given below; many of these aspects will be elaborated in subsequent chapters.

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Summary of Opportunities and Challenges for Spanish Companies

Opportunities Challenges Foreign collaboration is essential for provision Key objective is self reliance, thus emphasis on of state of the art weapons and system to the indigenous technology absorption, transfer of Indian armed forces to keep pace with technology issues a concern modernization of contemporary adversaries as Chinese PLA. LTIPP time frame of design development and Slow process thus limited progress in production of 10 years too short for indigenous implementation even though policy is in vogue development providing scope for foreign for past three years and eleven months. collaboration Co development and co production is preferred Time consuming step by step approach. option for collaboration. Multiple opportunities for cooperation - Bureaucratic hurdles production agencies, private and public, research and development agencies, academia and so on Consortia, joint ventures and public private Coordination involved with large number of partnerships permitted agencies Focus on Small and Medium Enterprises (SMEs) expands scope for collaboration with Tier 1 and 2 companies. Proactive approach adopted by new government

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CHAPTER 5 DEFENCE PROCUREMENT PROCEDURE 20132

Overview Defence Procurement Procedure 2013 (DPP 2013) issued by the Ministry of Defence Government of India is the basic document which lays down detailed processes and guidelines for acquisitions. This is an important document for all stakeholders, user services, defence procurement managers, finance authorities and suppliers alike. The document is evolutionary in nature and thus briefly tracing its history may be relevant. India had undertaken defence reforms in 2000 an outcome of the same was Defence Procurement Management Structures and Systems outlined by the Ministry of Defence[MoD or MOD] in various letters in September and October 2001 [MoD order No SA/01/104/2001 dated 10 September 2001 and No 17179/2001-Def Secy/IC/2001 dated 11 October 2001]. A Defence Procurement Procedure (DPP) 2002 was issued which revised the previous orders on the subject dated 1992.[MoD ID No 1(1)/91/PO (Def) dated 28 February 1992]. DPP’s have been progressively evolved with versions in 2005, 2005, 2006, 2008 and 2011. DPP 2013 is the seventh iteration of procurement procedures issued by the Ministry of Defence based on the experience gained in implementation and interaction with a number of agencies including the services, defence R&D and industry. Over the years a number of new facets have been included such as offsets, integrity clause, joint ventures and so on. Thus while basic outline of procurement remains uniform there have been a number of additions that has provided maturity. DPP 2013 DPP 2013 lays special emphasis on impetus to Indian defence industry, Public and Private sector, by according a higher preference to the ‘Buy (Indian)’, ‘Buy and Make (Indian)’ and ‘Make’ categories for procurement, bringing further clarity in the definition of the ‘Indian Content’ and simplifying the ‘Buy and Make (Indian)’ procedure. The period of approval for purchase has been reduced from two years to one year with a stipulation to freeze the Services Qualitative Requirements (SQRs) before the accord of the Acceptance of Necessity (AON). This has been undertaken to ensure that services are not able to change the SQR at random. The new offset policy guidelines which were promulgated in August 2012 have also been included along with the Joint Venture guidelines. The DPP’s are due for review every two years, thus DPP 2013 is also under review and a revised version is expected to be published in 2015. In future DPP’s will be reviewed every year. The DPP 2013 broadly covers the following aspects each of which is explained in subsequent paragraphs of this chapter:-

2 Original document Defence Procurement Procedure 2013 PDF is at serial 2 of primary documents folder.

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1. Defence Procurement Procedure – 2013 (‘Buy’, ‘Buy & Make’ and ‘Buy & Make (Indian)’ Categories) 2. Defence Procurement Procedure (‘Make’ Category) 3. Procedure for Defence Ship Building. 4. Fast Track Procedure. 5. Standard Contract Document.

Of these Chapter 1 is the most important and covers extensive details which are relevant to foreign companies and also establishes the basic framework. Other Chapters relate to indigenous manufacturing and prototype development. Salient Features of the DPP are covered as per succeeding paragraphs. Aim and Objectives of DPP The stated aim of the DPP 2013 is, “to ensure expeditious procurement of the approved requirements of the armed forces in terms of capabilities sought and timeframe prescribed by optimally utilising the allocated budgetary resources. While achieving the same, it will demonstrate the highest degree of probity and public accountability, transparency in operations, free competition and impartiality. In addition, the goal of achieving self-reliance in defence equipment will be kept in mind”. This aim has been reiterated from the previous versions of the DPP and is focused on timely procurement of requirements of armed forces to create the capabilities sought. While self reliance is a part of the aim, this could be seen relegated to a possible lower priority unlike in the Defence Production Policy 2011 thus underlining that in the short term dependency on foreign procurements will continue. Comments and Observations. The main objective of procurement is ensuring contemporary capabilities of war fighting for the armed forces. While an ideal armed forces could theoretically speaking have over 70-80 percent state of the art equipment optimally this is believed to be, ‘thirty per cent state of the art’, ‘forty per cent contemporary’ and ‘thirty per cent systems which are of a lower generation’. Management of obsolescence of 30 percent equipment is inbuilt in the DPP whereas up gradation of 40 percent will also be part of the process. Thus at any one time over 50 percent of the equipment would be undergoing some stage of modernization either replacement or upgrade. Maintenance and up gradation of contemporary weapons and equipment is another important component of procurement. Much of this will depend on the budget made available for modernization as well as the operational necessity. Present economic resources in India permit the luxury of meeting to an extent operational necessity by allotment of additional sums of money where required a fact that has been reiterated by a number of Finance Ministers at the time of presentation of the budget. Keeping in view cost effectiveness of equipment, indigenous manufacture is seen to be the best option however the capability of the Indian industry to develop and produce state of the art fourth generation military systems being limited collaboration will remain the way out.

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DPP 2013 – Stages, Steps, Categories Stages and Steps Defence procurement as per DPP 2013 can be broadly divided into four stages and eleven steps. Each stage is divided into steps some of which can be undertaken simultaneously. The four stages include planning, tendering, technical evaluation and commercial evaluation and contracting. The eleven steps are derived from the four steps and are covered in subsequent paragraphs. Four Stages Stage 1 Planning. Stage 1 is that of planning which is mainly carried out by the Service HQs (Army, Navy, Air Force and Coast Guard) and coordinated by HQ Integrated Defence Staff (HQ IDS). The plan is published in the form of 15 years Long Term Integrated Perspective Plan (LTIPP). HQ IDS prepares the LTIPP based on the Defence Planning Guidelines and in consultation with the Service Headquarters (SHQs). The Five Year Defence Plans for the services are also formulated, by HQ IDS, to include requirements of the services based on five years Services Capital Acquisition Plan (SCAP). The SCAP indicates list of equipment to be acquired, keeping in view operational exigencies and overall requirement of funds. The planning process is under the overall guidance of the Defence Acquisition Council (DAC) headed by the Defence Minister. Its decisions are followed up for implementation by the Defence Procurement Board (DPB). Thus LTIPP and SCAP are approved by the DAC. From this is derived Annual Acquisition Plan(AAP) of each service which is a two year roll on plan for capital acquisitions and consists of schemes approved in SCAP. Based on the AAP budgetary allotments are made. The LTIPP at present covers the period 2012 - 2027. While the LTIPP is a classified document not available in the public domain, the Technology Perspective and Capability Road Map (TPCR) derived from the LTIPP is published and forms the basis of planning for acquisitions of technologies and systems. TPCR 2013 is available and is being covered separately. A study of the TPCR provides a fair idea of the technology requirements of the armed forces in a long term perspective. Stage 2 – Tendering. The second stage of DPP is formulation of requirement and tendering and is mainly carried out by the services and the Ministry of Defence. Request for Information is the first point of contact with the industry in this process based on which the Service Qualitative Requirement (SQR) is prepared. A survey of possible suppliers is undertaken based on which Request for Proposal (RFP) or tender is issued on, “Single Stage-Two Bid System.” In general the RFP is issued to those who have also participated in the RFI process though this is not necessary. The Single Stage – Two Bid system implies submission of technical and commercial offers together but their evaluation is sequential. Thus prospective suppliers provide two separate sealed envelopes one containing the technical and the other commercial offers. Those suppliers who successfully pass the technical stage based on the process of trials are eligible for participation in the commercial bid and their bids are then opened. Stage 3 – Technical Evaluation. The third stage involves evaluation of the technical proposal which includes user trials. Details are covered in subsequent paragraphs of the report.

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Stage 4 – Commercial Evaluation and Contracting. The final stage is that of commercial evaluation and contracting. Before signing of the contract negotiations are carried out with the lowest bidder. Details are covered in subsequent paragraphs of the report. Eleven Steps The eleven steps include, (i)Formulation of SQRs, (ii) Categorisation of Acceptance of Necessity (AoN), (iii) Solicitation of offers (RFP), (iv) Evaluation of technical offers by Technical Evaluation Committee (TEC), (v) Field evaluation, (vi) Staff evaluation, (vii) Oversight by Technical Oversight Committee (TOC) for acquisition above Rs 300 Crore.(Euro 3.86 million [1 Indian Rupee equals 0.013 Euro]), (viii) Commercial negotiations by Contract Negotiation Committee (CNC), (ix) Approval of Competent Financial Authority (CFA), (x) Award of contract/supply order and Contract administration and (xi) post-contract management. These steps are applicable for procurement through competitive bidding. The DPP 2013 also outlines procedure for government to government purchase that is through inter government agreements, strategic agreement and fast-track procurement. In such scenarios while some of the steps as RFP may be done away with, most other steps for example trials for fast track procurement are applicable including technical evaluation, contract negotiation and so on. Inter government agreement is made generally in case where there is a single country which can provide the equipment. For example for Fifth Generation fighter programme, India and Russia have signed an inter government agreement given that the latter was considered the most cost effective option for India to acquire a stealth fighter. Each step as relevant is being discussed in succeeding paragraphs. Services Qualitative Requirements (SQRs) - Foreign Vendors All Capital Acquisitions are based on Services Qualitative Requirements (SQRs). The SQRs lay down user’s requirements in a comprehensive, structured and concrete manner and are drafted by the services and vetted by technical authorities. SQRs are generally broad-based and realistic. SQRs also specify the requirement of military grade, ruggedised and Commercially Off the Shelf (COTS) items. The SQRs express the user’s requirements in terms of capability desired with minimum required verifiable functional characteristics and its formulation does not prejudice technical choices by being narrow and tailor made. Services with a view to make broad based SQRs, obtain required inputs by issue of Request for Information (RFI) on Ministry of Defence (MoD) website (www.mod.nic.in) and by corresponding with maximum manufacturers. Additional inputs are obtained from defence attaches, internet and defence journals/magazines/exhibitions and previously contracted cases in such category. Apart from monitoring of the MoD website, it is important for foreign vendors to display their products and technical and capability profile across a range of mediums from company websites to professional journals, at exhibitions and directly through mailers to the concerned stakeholders. A strong presence of the company and the weapon or technology on offer on the web will ensure that as services representatives do a web search while preparing the RFI, company should appear amongst the top vendors list. This would ensure that the service representative mails a copy of the RFI to the foreign agency which will be on list of possible suppliers for the product or system.

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Inputs obtained from RFI are compiled in the form of a compliance table of SQRs vis a vis technical parameters of equipments available in world market, in as much detail as feasible. RFI asks vendor to provide all the elements which need to be structured into the costing of the weapon / equipment system (including that of a comprehensive maintenance / product support package). The RFI may also seek ToT aspects to include range and depth of ToT and the key technologies identified by DRDO. This will serve as a guideline to formulate an all encompassing Commercial Offer format at the stage of the RFP. RFI may also be issued in certain cases as advance intimation for the vendors to obtain requisite government clearances. RFI asks details from vendor as per Appendix E to Chapter I of DPP 2013 which includes basic information including product OEM or otherwise, turn over and so on. Vendors can also be asked for approximate cost estimation and to suggest alternatives for meeting the same objective as mentioned in RFI.

Recommendations Spanish Companies High visibility of company and product on the Web, Indian media. Monitor Indian MoD web site. Be on distribution list of stake holders – weapons and systems related staff directorates of service HQs, HQ IDS, DRDO and other agencies. In case of response to RFI and possible issue of RFP is envisaged commence process of registration and government clearances including in home country. Select Indian partner for joint venture.

Categorisation of Capital Acquisitions

Buy Indian 70 % Foreign Component permied

Buy and Make (Indian) Integraon by Indian Company - 50 Percent foreign components permied

Make (Indian) - Indian Design and Development - Foreign Collaboraon permied

Buy and Make - Minimum 30 % Offsets

Buy Global - Minimum 30 % Offsets

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As per DPP 2013, capital acquisitions are categorized as under:- Acquisitions Covered under the ‘Buy’ Decision. “Buy” means an outright purchase of equipment. Based on the source of procurement, this category is classified as “Buy (Indian)” and “Buy (Global)”. “Indian” means Indian vendors only and “Global,” foreign as well as Indian vendors. However it should be noted that “Buy (Indian)” does not preclude foreign vendors as the indigenous content is only minimum 30% on cost basis. Aspects for Consideration. Calculation of cost of indigenous content of equipment has been adequately defined in the DPP 2013. This includes apart from the overall indigenous content being at least 30% of the total contract value a minimum 30% indigenous content (i) Basic Cost of Equipment; (ii) Cost of Manufacturers’ Recommended List of Spares; and (iii) Cost of Special Maintenance Tools and Special Test Equipment (reference parts 1(a), 1(c) and 1(d) of “Evaluation Criteria & Price bid Format” i.e Appendix G to Schedule I of DPP 2013). 30% indigenous content is ensured in the Basic cost of equipment at all stages of contract, including the FET stage. On the other hand in Buy Global there is no restriction of indigenous content but there would invariably be an offset clause varying from 30 to 50 percent in case value of the procurement is above Euro 3.66 million. In the Buy Global category there would be a provision for Transfer of Technology (TOT) to an Indian Public/ Private entity, for providing Maintenance Infrastructure. These aspects will have to be borne in mind by foreign vendors while bidding in this category. Acquisitions Covered under the ‘Buy & Make’ Decision. Acquisitions covered under the ‘Buy & Make’ decision would mean purchase from a foreign vendor followed by licensed production/ indigenous manufacture in the country. Initial quantities in this case are to be delivered by the vendor ex base while maximum numbers are to be produced in situ in India. Aspects for Consideration. A contemporary example in this category is Medium Multi Role Combat Aircraft (MMRCA) contract which is presently being negotiated by Dassault Aviation, 18 Rafale combat aircraft are to be provided ex France and the remainder 108 of a total of 126 are to be built in India. Acquisitions Covered under the ‘Buy & Make (Indian)’ Decision. Acquisitions covered under the ‘Buy & Make (Indian)’ decision would mean purchase from an Indian vendor (including an Indian company forming joint venture/establishing production arrangement with a foreign OEM), followed by licensed production/indigenous manufacture in the country. ‘Buy & Make (Indian)’must have minimum 50% indigenous content on cost basis. This implies that indigenous content in the total of (i) Basic Cost of Equipment; (ii) Cost of Manufacturers’ Recommended List of Spares; and (iii) Cost of Special Maintenance Tools and Special Test Equipment (reference parts 1(a), 1(c) and 1(d) of “Evaluation Criteria & Price bid Format”, Appendix G to Schedule I) must be at least 50% of the total contract value. In addition, such cases require minimum 30% indigenous Indian content in the first basic equipment made/assembled in India and in subsequent deliveries thereof. However, no minimum indigenous content shall be required for the ‘Buy’ portion of the contract, in case a ‘Buy’ portion is approved at the stage of accord of Acceptance of Necessity. Aspects for Consideration. In Buy and Make Indian there is scope for foreign vendors in the Buy portion where no indigenous content has been specified as well as in 50 percent of the Make portion of the contract.

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Acquisitions Covered under the ‘Make’ Decision. This involves process of prototype development. Acquisitions covered under the ‘Make’ decisions would include high technology complex systems or critical components/equipment for any weapon system to be designed, developed and produced indigenously. A minimum 30% indigenous content on cost basis shall be required in such cases in the successful prototype. Here again there is scope for 70 % foreign content on cost basis providing adequate opportunities for overseas vendors to participate in the contracts Priority of Categorisation. DPP 2013 lays down priority for categorization of the equipment at the stage of Acceptance of Necessity as given below. 1. Priority 1. Buy (Indian) – Offer open to Indian vendors only, however foreign joint venture participation is permitted. 2. Priority 2. Buy & Make (Indian) – Offer open to Indian vendors only, however foreign joint venture participation can be undertaken including TOT. 3. Priority 3. Make (Indian) - Offer open to Indian vendor’s only, foreign joint venture participation is permitted. 4. Priority 4. Buy & Make. Offer open to foreign vendors with offsets liability if applicable up to 30 percent in orders above Euro 3.66 million. 5. Priority 5. Buy (Global) - Offer open to foreign vendors with offsets liability if applicable up to 30 percent in orders above Euro 3.66 million.

Aspects for Consideration. The discussion in the foregoing paragraphs would denote that there is ample scope for foreign collaboration in each of the category varying from a minimum of 50 percent to a maximum 100 percent in Buy Global. Given preference in categorization of Buy or Make Indian and related categories focus of foreign vendors could be on the same given adequate scope for collaboration with broad interpretation of indgenisation. Acceptance of Necessity Acceptance of Necessity (AON) involves a formal approval by the Defence Acquisition Council or lower body depending on value of the acquisition to proceed with the Request for Proposal or RFP. At this stage categorization is done in terms of Buy (Indian) etc. The categorization committee can invite representative of industry associations/ representatives nominated by industry associations, wherever participation by Indian industry is probable. In cases where ToT is being sought, appropriate Production Agency (PA) is also approved by the DAC based on the recommendations of the SCAPCHC. The PA could be selected from any of the public/private firms including a joint venture company based on the inputs from DDP and, if required, from DRDO. The offset clause would be applicable for all procurement proposals where indicative cost is Rs 300 Crore (Euro 3.66 million) or more and schemes are categorized as ‘Buy (Global)’ involving outright purchase from foreign / Indian vendors and ‘Buy and Make with Transfer of Technology’ i.e Purchase from foreign vendor followed by Licensed Production. Foreign vendors could at this stage ensure close coordination with Indian partner to provide maximum inputs to the agencies concerned and facilitate approval as well as categorization.

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Recommendations Spanish Companies Process of categorization is interactive in which participation of vendors is possible. Close coordination with Indian partner for provision of inputs to categorization committee. Assessment of overall requirement of the armed forces, possibility of provisioning the same by the Company and likely competitors can be made at this stage. Participation in the Tender stage should be based on this assessment and should be undertaken on high probability of success as the process is rigorous with high scope of elimination of low technology or high cost products. [Example is of the MMRCA contract where relatively low technology products as F 16/F 18 and high cost Eurofighter were not approved].

Solicitation of Offers or Process of Tendering Short-listed vendors are floated offers. These are selected to include generally Original Equipment Manufacturers (OEMs)/ Authorised Vendors/ Govt Sponsored Export Agencies (applicable in the case of countries where domestic laws do not permit direct export by OEMs). In cases involving TOT, short-listing of the vendors would take into account their ability to transfer requisite technology for license production. The list of short-listed vendors may be supplemented by the Technical Managers in Acquisition Wing of the Ministry of Defence [Organisations covered in Section 2] for which, a databank is maintained by them. Keeping security and other relevant aspects in view, appropriate publicity is given to the proposed procurement with a view to generate maximum competition. Aspects for Consideration. In order to generate maximum vendor response the following means are being adopted though these may not necessarily be evident at present unless there is a regular follow up:- Vendor’s Identification through Internet. The generic requirements of the services are advertised on the MoD website. All vendors desirous of responding to any of the listed proposals are asked to send their request to the concerned Technical Managers as per the format at Appendix E to Chapter1 of DPP 2013 that is financial status of the company, product structure with specifications, annual report, past supplies / contracts can be sought from the prospective vendors. These vendors are then included in the vendor database. This database is product/ system specific. The vendor database can be shared with various Industry associations. Case Specific Advertisement on the Internet. When a case is being processed for seeking AON, the statement of case would also include information regarding the procurement that can be placed on the MoD website to generate larger vendor response. This aspect would be debated by the SCAPCHC to recommend as to whether or not the information can be placed on the MoD website. For cases which are recommended to be placed on the MoD website the nature / scope of the information would also be indicated, keeping the security concerns of the services in mind. A draft format indicating nature/scope of information to be provided in such cases is available at Appendix E 1 Chapter 1 of DPP 2013 and includes possible use of the equipment and compliance by vendors to criteria stated. After DAC/DPB/SCAPCHC accords approval, the

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details are placed on the MoD website by respective SHQ and the vendors would respond to concerned Technical Manager as per the format at Appendix E Chapter 1 of DPP 2013. Expression of Interest and advertisements through newspapers may be resorted to in case the measures adopted above do not generate enough responses from the vendors.

Recommendations Spanish Companies Registration in Data Base with Technical Manager of respective service in Acquisition Wing of Ministry of Defence Monitoring of Ministry of Defence and Services website/media for issue of proposals or advertisements

Indigenisation Plan. In case of systems categorized as ‘Buy and Make (Indian)’ the RFP shall also seek an indigenisation plan and a technology absorption plan in strict accordance with indigenous content requirements at various stages of the delivery schedule and technology absorption requirements mentioned in the RFP. The technologies that are required to be absorbed by the Indian vendor are also identified in the RFP for this category. The TOT will be 50% in Category I and II as given at Para 1(k)(i) and (ii) of Appendix L to Schedule I of DPP 2013. This implies that the vendor or the subcontractor should provide original design and development parameters for these items. Technologies other than these that can be absorbed can also be mentioned. The Indian vendors in this case while responding to the RFP, has to ensure that foreign partner(s) from whom technology transfer is obtained should be OEMs or their authorised licensees, design agencies or government sponsored export agencies. In addition, such foreign partner(s) should not be debarred, banned, suspended or blacklisted by the Ministry of Defence. Aspects for Consideration. Importance of preparation of indigenization plan at the outset while tendering has to be underlined. This has been one of the major factors for delay in finalization of commercial terms for the MMRCA with Dassault Aviation OEM for Rafale. Early selection of an Indian partner, close coordination and evolution of a viable plan for indigenization is emphasized.

Recommendations Spanish Companies Close coordination with Indian partner for Transfer of Technology

Request for Proposal (RFP). The RFP is a self-contained document that enables vendors to make their offer after consideration of total requirements of the acquisition. This is the first stage where the process enters the domain of contractual legalities, thus implications of each factor requires careful study. A standardized RFP document is attached as Schedule I to Chapter I to DPP 2013. This is applicable for all acquisitions and generally consists of four parts as under:- General Requirement. The first part elaborates the general requirement of the equipment, the numbers required, the time frame for deliveries, the environmental parameters for functioning, conditions of usage and maintenance, requirement for training, Engineering Support

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Package (ESP), Offset obligations (if applicable) and warranty/guarantee conditions, etc. It specifies the prescribed procedure and last date and time for submission of offers. Technical Parameters. The second part of the RFP incorporates SQRs describing technical parameters of the proposed equipments in clear and unambiguous terms. In case equipment is being procured for the first time and needs to be evaluated, the RFP includes the requirement of field evaluation on a “No Cost No Commitment” (NCNC) basis. Compliance of offers would be determined only on the parameters spelt out in the RFP. Commercial Aspects. The third part of the RFP outlines the commercial aspects of the procurement, including clear statements on Payment Terms, Performance-cum-Warranty Guarantees, and Guarantees against Warranty Services to be performed by the supplier. It also includes standard contract terms along with special contractual conditions, if any. Criteria for Evaluation. The fourth part of the RFP defines the criteria for evaluation and acceptance, both in terms of technical and commercial contents. A format is enclosed for submission along with commercial offer to facilitate preparation of Comparative Statement of Tenders (CST) and identification of Lowest (L1) vendor. Submission of incomplete format enclosed along with commercial offer will render the offer liable for rejection. Additional Requirement for TOT. In cases where TOT is involved, the RFP also includes requirement for licence production under TOT in range and depth of the technology required including technology for repair and overhaul, production from Completely Knocked Down (CKD) /Semi Knocked Down (SKD) kits and production from raw material and component level.

Aspects for Consideration. Vendors have the liberty and freedom to raise queries on the RFP. These however need to be projected timely envisaging likely time taken for response by the agency concerned to enable preparation of the RFP response which includes techno-commercial offers by due date. Pre-bid meeting of all the vendors can be invited by the user directorate along with representatives from Weapons Equipment Directorate /ACNS (P&P) /ACAS (Plans), Rep of DOMW for Offset matters, Rep of PA for ToT/MToT matters, Technical Managers and Finance Managers. The clarifications are processed by the SHQ and given in writing to all the vendors by the Technical Managers preferably within three weeks of the Pre bid meeting. Parameters of RFP (SQRs) however cannot be changed / amended at this stage.

Extension of Time. Extension of time can be given by Technical Manager concerned on application from the vendor at least two weeks prior to bid submission date failing which such request may not be entertained. The extension so granted generally does not exceed a period of eight weeks from the original date of submission of offers with four weeks by DG Acquisition and four weeks by the Defence Minister. The extension will be applicable for all vendors.

Process of Opening the RFP. The RFP is opened on the notified date & time, by the members of a committee chaired by the Technical Manager, in the presence of the bidders or their authorised representatives of vendors. The committee will open the envelope containing the sealed technical and commercial offers. The technical offer is opened by the committee and sent to SHQ for evaluation by a Technical Evaluation Committee (TEC) and the sealed envelope containing the commercial bid is sent to the Acquisition Manager, unopened. Offers which do

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not conform to the prescribed procedure for submission of offers as laid down in Para 21 of the standardised RFP (Schedule I) or which are received after the scheduled time for submission of offers, and unsolicited offers are returned.

Recommendations Spanish Companies Study the RFP Document in detail to include all parts. Evolve a multi disciplinary team for preparation to include technical, financial and legal representatives Basic technical or commercial parameters cannot be changed and RFP may have to be re- notified. Have frequent interaction with relevant SHQ/Technical managers for clarification. Do not presume unless given in writing by Technical Manager. Submit RFP in time, if required ask for additional time well in advance. Sufficiently senior representative should be present at the time of opening of tender well versed in legal terms of reference of the Tender.

Technical Evaluation of RFP

TEC. Technical evaluation of the RFP is done by a Technical Evaluation Committee (TEC). The TEC is constituted by the SHQ for evaluation of the technical bids received in response to RFPs, with reference to the QRs, under an officer from the SHQ. This includes, apart from the representatives of the user service and maintenance agency, representatives of QA. In addition, in cases where TOT is involved, TEC will also include representatives of PA and DRDO, as deemed necessary.

TEC Compliance. The TEC examines the extent of variations/ differences, if any, in the characteristics of the equipment offered by various vendors with reference to the QRs as given at Appendix ‘A’ to RFP and prepare a ‘Compliance Statement’ short listing the equipment for trials/ induction into service, as applicable. TEC will also examine compliance of vendors to provisions of RFP as listed at Appendix B of the Schedule I. Cases where ToT for maintenance infrastructure to an Indian Public / Private firm is sought, the TEC will examine the joint compliance of the OEM and the Indian entity for establishing the required maintenance infrastructure as laid down in the RFP. The TEC may invite the vendors for technical presentations/ clarifications on technical issues.

Variations. Minor variations which do not affect the basic character/ profile of the offer can be made at this stage provided an opportunity is afforded to all vendors in an equal measure to ensure fair play. However no extra time is given to any vendor to upgrade his product to make it SQR compliant or dilution of SQR. The original commercial quote submitted earlier must remain firm and fixed and cannot be amended.

Acceptance. The Director General (Acquisition) formally accepts the report of the TEC on recommendations of the Technical Managers. If at the TEC stage, only one vendor is found complying to all the SQR parameters, then the RFP can be retracted on approval of the Director General (Acquisition) and reissued with the approval of DG (Acq)/Vice Chiefs of Service

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Headquarters/DG ICG, as the case may be, after taking suitable corrective measures including reformulating SQRs.

Recommendations Spanish Companies Avail opportunity for interaction with Technical Manager at the TEC stage. Amend minor technical parameters if necessary however these should not impact commercial offer made.

Field Evaluation (Trials)

Trial Directive. Field Evaluations (Trials) are conducted by the User Service on the basis of trial methodology given in the RFP, based on which a Trial Directive is prepared. The manufacturers of the short listed equipment are asked to send the desired number of units of the equipment/weapon system to India for Field Evaluation. One or more trial teams could be constituted by the SHQ for each type of terrain and climate characteristics.

Terrain Configuration for Trial. In general trials of equipment are carried out in three configurations – plains, desert and high altitude mountains. These could be during summer and winter separately if necessary. The Trial Directive has specific points conforming to each parameter to be addressed for validating the ‘Essential’ parameters. For instance in the MMRCA trial over 600 plus essential parameters were identified in the Trial Directive. All six participants Eurofighter, Rafale, Gripen, MiG 35, F 16 and F 18 were put through the trials and only two Eurofighter and Rafale succeeded in complying with all the Essential parameters and were thus declared as successful in the technical phase.

Support and Maintainability Trial. Validation of the support system and maintainability trials, integral to and complimenting the trial programme of the weapon system are held simultaneously, wherever feasible. Representatives of DRDO, QA agency are also part of the field evaluation, on as required basis. A representative of the Acquisition Wing may also participate in the field evaluation as an observer. For trials of equipment involving Transfer of Technology, representative of PA may be included as an ‘associate member’.

Debriefing. After each stage of trials, a debriefing of all the vendors is carried in a common meeting (wherever feasible) on performance of their equipment. Compliance or otherwise, vis-à-vis the RFP parameters, is specifically communicated to all the vendors at the trial location itself. All verbal communication with the vendors is confirmed in writing within a week and all such correspondences are placed on file for record. A detailed Field Evaluation Report is drawn up and sent to SHQ for preparation of Staff Evaluation.

Variation in Circumstances. The field evaluation is normally conducted on No Cost No Commitment (NCNC) basis. There may be cases where trials are not visualised or trials need to be conducted abroad in vendor premises. Where field evaluation is not feasible, there may be possibility of conducting evaluation through computer simulation. In such cases, the exact scope of the trials will be included in the Statement of Case while seeking the AON. There may be cases when, during the process of trials in India, it emerges that certain validations need to be carried out abroad in the vendor premises. This may be necessitated due to export restrictions,

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security related issues, availability of testing infrastructure/ platforms or such like reasons. Approvals for such validations abroad are then taken on file from the Defence Minister. In some cases Multi-Disciplinary Committees can be established. A grace period of 15 – 30 days to produce the equipment for trials is available. All technical evaluation is completed at this stage before the commercial bids are opened.

Recommendations Spanish Companies Ensure that the technical parameters conform to essential parameters of Trial Directive. Ensure presence of representative at the briefing at trial location throughout period of trials, take the notes on observation including that of competitors in case reevaluation is to be sought.

Staff Evaluation of Trials

Based on field evaluation the SHQ will carry out a staff evaluation, which gives out the compliance of the demonstrated performance of the equipment vis-à-vis the SQRs as given in the Trial Directive. The staff evaluation analyses field evaluation results and shortlists the equipment recommended for introduction into service. The staff evaluation report is approved by the Service HQ and forwarded to the Acquisition Wing for acceptance. The Technical Manager receives the Staff Evaluation Report, and after due examination, submits the report to the Director General (Acquisition) with his recommendations for acceptance or otherwise. The result of technical trials and evaluation along with reasons for disqualification are also intimated to vendors by the Technical Managers. Such intimation is done after acceptance of TEC/ Staff Evaluation/Technical Oversight Committee Report (whichever applicable).

Technical Oversight of Trials

Technical oversight of trials is carried out by a Technical Oversight Committee (TOC) constituted by Defence Secretary for selected acquisition proposals in excess of Rs 300 Crores (Euro 3.66 Million) and any other case recommended by the DPB. A TOC comprises three members- one Service Officer, one DRDO scientist and one representative of DPSU. The TOC is tasked to assess correctness of trials, trial evaluations, compliance to QRs and selection of vendors according to prescribed procedures. TOC also includes oversight of the trial methodology during trials vis-a-vis that given in the RFP and the trial directive. The TOC has to give a ruling, based on a majority decision, within 30 days.

Commercial Offers and Contract Negotiation

The process of commercial negotiations will commences after Staff Evaluation Report of the trials has been accepted by the Director General (Acquisition) and the TOC Report has been accepted by the Defence Secretary, as applicable. Short listing of vendors for the commercial offers is done at this stage. There is a standard composition of the CNC which has been indicated at Appendix B to DPP 2013. The CNC carries out all processes from opening of commercial bids till conclusion of contract.

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The sealed commercial offers of the technically accepted vendors are opened by the CNC at a predetermined date and time under intimation to vendors, permitting such vendors or their authorised representatives to be present. The bids of the competing firms are read out to all present and signed by all members of the CNC. The licence production contract and maintenance infrastructure and other contracts are also negotiated along with the contract for the finished product. The CNC is a multi step process and starts with preparation of a ‘Compliance Statement’ incorporating the commercial terms offered in the RFP and that sought by the vendor(s), analysis of the discordance and the impact of the same.

A similar statement is prepared in regard to deviations noticed in the delivery schedules, performance-cum-warranty/guarantee provisions, acceptance criteria, Engineering Support Package (ESP), etc. The CNC prepares a Comparative Statement of Tenders (CST) with a view to evaluate the technically acceptable offers and determine the lowest acceptable offer (L1 Vendor). Reasonability of price of L1 Vendor is also to be assessed. Once L1 vendor is identified and considered as reasonable, the contract is concluded with him and normally there is no need for any further price negotiations.

The RFP in multi vendor cases clearly indicates that no negotiations would be carried with the L1 vendor once the reasonability of the price quoted by him is established. In case it is found that the lowest tenderer (L1) is not able to supply the entire quantity within the prescribed time-frame, the CNC can divide the quantity amongst other qualified tenderers (L2, L3……. in that order), on the condition that other tenderers accept the price and terms & conditions quoted by the lowest tenderer.

During this stage vendor is also required to provide the following details:- (a) Assured supply of information on product / technological improvement, modifications and upgrades. (b) Obsolescence management and life time purchases. (c) An illustrated spares price catalogue with base price and pricing mechanism for long term.

An undertaking is also sought from the bidder that he has not supplied/ is not supplying the similar systems or subsystems at a price lower than that offered in the present bid in respect of any other Ministry/Department of the Government of India and if the similar system has been supplied at a lower price than the details regarding the cost, time of supply and quantities should be included in the commercial offer.

Vendors can be given the option of extension of date of validity of commercial offers in case the acceptance of staff evaluation report is delayed. In such cases, vendors can be given an option to either extend the validity of the commercial offer for a specified period (the period to be decided in consultation with SHQ) or to submit fresh commercial proposals.

Aspects for Consideration. CNC first establishes a benchmark price and reasonableness before commencing opening of the commercial offers and carries out an assessment of the possible price band. This is achieved based on comparison with benchmark fixed in the internal meeting.

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Total Cost of Acquisition and Life Cycle Cost

Commercial evaluation is now being made based on Total Cost of Acquisition (TCA) model and Life Cycle Cost (LCC). The elements of TCA model applicable to the procurement are stated in the Request For Proposal (RFP). The TCA Model has been approved by the Defence Acquisition Council. Acquisition Wing of Ministry of Defence uses TCA model for capital acquisition on case to case basis as approved by Competent Authority. For calculation Net Present Value (NPV) is used as per the methodology stipulated in the Request For Proposal (RFP). The fuel consumption is measured in a standardized flight profile stated upfront in the RFP. No notional arbitrary fuel figures are used to compute the total fuel consumption. Seven cases have been initiated by Indian Air Force and two cases initiated by Indian Navy. One contract for procurement of Basic Trainer Aircraft has been signed under LCC approach. No case using LCC approach has been aborted / cancelled at final stages.

Recommendations Spanish Companies Benchmark price evaluation should be carried out before submission of commercial offer so that estimates can be arrived at. Ensure commercial bid validity and seek extension or resubmission of bid in case the commercial offers are not opened as per given schedule after trials. Ensure presence of representative during time of commercial bid opening at all stages and make notes including that of competitors. Establish comparative parameters with competitors for assessment of review by the procurement agency if need be. TCA and LCC concepts are advantageous in generating long term commitment and business in defence industry in India.

Approval of Competent Financial Authority

The CNC documents the selection of vendor using a formal written recommendation report addressed to the relevant approval authority.

Standard Contract Document

The Standard Contract Document at Chapter V of DPP 2013 indicates general conditions of contract that would be the guideline for all acquisitions. The date of signing of the contract will be the effective date of contract for all acquisitions. In case of an inter government agreement terms of contract will be regulated by the agreement made between the entities government and company as applicable.

Recommendations Spanish Companies Study the Standard Contract Document in DPP 2013 and prepare a draft contract for comparison. Final contract document should be approved by the Board or the authority vested with powers to do the same.

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Integrity Pact

An ‘Integrity Pact’ (IP) is signed between government department and the bidders for all procurement schemes over Rs 100 Crore (Euro 1.22 Million). The Integrity Pact is a binding agreement between the government department and bidders for specific contracts in which the government promises that it will not accept bribes during the procurement process and bidders promise that they will not offer bribes. Under the IP, the bidders for specific services or contracts agree with the procurement agency or office to carry out the procurement in a specified manner. The IP is to be signed by the CEO of the company and is liable up to the end of the contract period which includes the life cycle as in the present procedure contracts in India are based on the Life Cycle Concept.

Recommendations Spanish Companies Integrity is a major issue in the Indian procurement system. At present a number of foreign companies have been blacklisted for a period of 10 years. Stringent adoption of integrity standards is recommended. Specifically employment of agents is not legal and should be avoided as this has been one of the common charges faced by foreign companies.

Post Contract Monitoring

Post-contract monitoring is conducted by the Acquisition Wing and reviews carried out by laid down authorities including Acquisition Manager / equivalent service officer in the SHQ or by steering committee headed by Director General (Acquisition) in the MoD or Principal Staff Officer at SHQ, with members from MoD, MoD (Fin), DRDO, DDP and SHQ.

Recommendations Spanish Companies Maximum cooperation with Indian authorities is recommended to ensure smooth operation of contract.

Special Situations

Subsequent Procurement of Already Contracted Equipment. For equipment / systems / platforms already inducted into service a commercial RFP would be issued to the vendor, for quantity not exceeding 100% of the previous order. Specific approval of DAC/DPB is required for repeat order of quantity exceeding 100% of previous order. However these restrictions in Repeat Order would not be applicable for cases categorized as `Buy and Make’/ `Make’/`Design & Development’ cases other than `Make’ category. A typical example is the C 130 J transport aircraft procured from Lockheed Martin of the USA. Six aircraft have been procured in the initial tranche and another six are envisaged to be procured under this clause of 100% repeat order.

Single Vendor Situation. If certain state-of-the-art equipment being manufactured by only one vendor is to be procured to get qualitative edge over the adversary, then such case should be debated by the DAC after proper technology scan is carried out by HQ IDS in consultation with the DRDO. Cases in which bids had been submitted by more than one bidder

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in a competitive manner, and the Staff Evaluation after trials shortlists only one equipment for introduction into service, would not be considered as a single vendor situation, as the techno- commercial offers would have been received before trials and the commercial bids were competitive in nature. Bidders had submitted their offers in an open competition and were not aware of any single bidder getting approved after the trials. The case of Sikorsky manufactured Multi Role Helicopters is instructive in this regard where one of the two vendors has been rendered null after the trials have been completed however Sikorsky remains eligible for consideration of final contract.

Cases which are being undertaken by DRDO/ Defence PSUs / OFB as a design and development projects, would not fall in the category of Single Vendor cases. However, approval of DAC for carrying out the design and development need to be sought prior to commencing the design and development process.

If DPSU/ OFB signs a MOU with a foreign firm for co-production / ToT / procurement of equipment to be offered to services with approval of DAC then such procurements, at a later point of time, would not be considered single vendor cases requiring approval of DAC again.

Recommendations Spanish Companies This is a good opportunity after an initial breakthrough is made as it overcomes long chain of the procurement procedure and should be exploited for which smooth management of contract is recommended.

Inter Government Agreement

Procurements carried out from friendly foreign countries necessitated due to geo-strategic advantages or other reasons may not classically follow the Standard Procurement Procedure as enumerated above. However the Standard Contract Document would be based on mutually agreed provisions by the Governments of both the countries. Such procurements will be done based on an Inter Governmental Agreement after clearance from CFA. The following cases fall under the preview of this provision:-

High Technology Systems. There are occasions when equipment of proven technology and capabilities belonging to a friendly foreign country is identified by Armed Forces while participating in joint international exercises. Such equipment can be procured from that country which may provide the same, ex their stocks or by using Standard Contracting Procedure as existing in that country. In case of multiple choices, a delegation may be deputed to select the one, which best meets the operational requirements.

Excess Items. There may be cases where a very large value weapon system / platform, which was in service in a friendly foreign country, is available for transfer or sale. Such procurements would normally be at a much lesser cost than the cost of the original platform/ weapon system mainly due to its present condition. In such cases, a composite delegation would be deputed to ascertain its acceptability in its present condition. The cost of its acquisition and its repairs / modifications would be negotiated based on Inter-Governmental Agreement.

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Leasing of Equipment In certain cases, there may be a requirement of procuring a specific state-of-the art equipment/platform, however, the Government of the OEM’s country might have imposed restriction on its sale and thus the equipment cannot be evaluated on ‘No Cost No Commitment’ basis. Such equipment may be obtained on lease for a specific period by signing an Inter-Governmental Agreement before a decision is taken for its purchase.

Long Term Commitment. In cases of large value acquisition, especially that requiring product support over a long period of time, it may be advisable to enter into a separate Inter Government Agreement if not already covered under an umbrella agreement covering all cases with the Government of the country from which the equipment is proposed to be procured after the requisite inter ministerial consultation.

Aspects for Consideration. There are a number of examples of procurement on Inter Government Agreement particularly from Russia and the United States including Su 30MKI fighter aircraft, Mi 17v 5 medium lift helicopters and C 17 Heavy lift transport aircraft. This option does not envisage competitive bidding process however technology transfer and offsets cannot be ruled out. Large numbers are usually procured in Buy and Make (India) mode.

Procedure for Procurement on Strategic Considerations

In certain acquisition cases, imperatives of strategic partnerships or major diplomatic, political, economic, technological or military benefits deriving from a particular procurement may be the principal factor determining the choice of a specific platform or equipment on a single vendor basis. These considerations may also dictate the selection of particular equipment offered by a vendor not necessarily the lowest bidder (L1). Decisions on all such acquisitions would be taken by the Cabinet Committee on Security (CCS) on the recommendations of the DPB.

Recommendations Spanish Companies Platforms with cutting edge technologies where available should be demonstrated to the Indian armed forces and media from time to time as Spanish Combat Supply Ship ESPS Cantabria 27 Nov 2013 visit to Goa's Mormugao Port. In addition where technologies of subsystems are available these could also be displayed in exhibitions as well as media so that demand for the same can be generated in India. At the same contracts strategic country to country relations and not product alone will determine selection of the product or company.

Commercial Clauses

Payment Terms. DPP 2013 has introduced payment terms in multi-vendor cases in ‘Buy Global’ category based on International Commercial Terms -INCOTERMS-2010. As per DPP 2013, the appendix F and G to the RFP i.e. the Payment Terms and Commercial Offer have been revised as Commercial Clauses and Evaluation Criteria of Price Bid Format. These include use of the (INCOTERMS 2010), bringing payment terms for Indian Bidders on par with those for the foreign bidders, specificity in stages and modes of payment and removal of excise duty in determination of L-1.

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Foreign Bidders. Foreign bidders are required to submit their bids in US Dollars/Euros/Pounds Sterlings and Indian bidders in Indian rupees. Fifteen (15%) of the Contract price shall be paid within thirty (30) days of signing of Contract through Direct Bank Transfer (DBT) and upon submission of claim and a Bank Guarantee (BG) for equivalent amount. The Seller is required to furnish BG for advance payment from banks of international repute and the details of the bank have to be furnished in the commercial bid. Buyer reserves the right to consult Parliament Street branch of State Bank of India, New Delhi as to whether to get the BG from a foreign bank confirmed. The Advance Payment Bank Guarantee (APBG) will be deemed to be proportionately and automatically reduced until full extinction along with and prorate to value of each delivery, as evidenced by corresponding copy of document proving delivery and invoices of goods / services supplied / provided.

Calculation of Discounted Cash Flow (DCF) Calculation is seen disadvantageous to Indian companies as Prime lending rates in India are much higher than other countries. For Parity sake Prime Lending rate of Home country would be applicable in all such cases. E Platform for Defence Purchases.

The Indian Ministry of Defence has recently adopted an “end to end” e-procurement platform for all needs since June for purchases above Rs 10 Lakh (Euro 13000/-). The limit will be made tighter at Rs 5 Lakh (Euro 6500/-) from April 1, 2015. The procurements will be through the government portal at eprocure.gov.in. The proposal was in the offing since 2011 and the new government in an effort to push through reforms within a short time has proposed the measure days after having taken over. This is expected to bring in greater transparency and increase the speed of processing tenders in the coming months.

Recommendations Spanish Companies Detailed study of the commercial system operative in India should be carried out as even though migration to international norms has been undertaken peculiarities of foreign exchange and related issues differ and need careful consideration. Bank Guarantee is an important issue in a number of cases encashment has been affected by the Indian government in case of breach of contract.

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CHAPTER 6 DEFENCE OFFSET GUIDELINES

General

Indian DPP envisages direct offsets that are required to be discharged in the fields of defence, internal security and civil aerospace; this has been outlined in the Defence Offsets Guidelines which is part of DPP2013. The objective of the defence offset policy is essentially the same as other policies and procedures of the Ministry of Defence related to acquisitions that are to enhance self reliance. Thus offsets in defence procurement are being leveraged for (i) fostering development of internationally competitive enterprises, (ii) augmenting capacity for Research, Design and Development related to defence products and services and (iii) encouraging development of synergistic sectors like civil aerospace and internal security. The Defence Offset Guidelines in vogue at present are in force with effect from 1st August, 2012. India has attracted over $4.27 billion through defence "offsets'' since 2007. The figure may increase substantially with several major defence deals in the pipeline. The $20 billion MMRCA (medium multi-role combat aircraft) project to acquire 126 fighters, for instance, specifies a 50% offset obligation on the foreign vendor. Brief details of Defence Offsets Guidelines are being covered in subsequent paragraphs and should be read in conjunction with relevant portion of the DPP 2013.

Quantum and Scope of Offsets

Offset provisions apply to all Capital Acquisitions categorized as ‘Buy (Global)’, i.e. outright purchase from foreign/Indian vendor, or ‘Buy and Make with Transfer of Technology’, i.e. purchase from foreign vendor followed by Licensed Production where the estimated cost of the acquisition proposal is Rs 300 Crore (Euro 3.66 Million) or more. They also apply to Indian firms or its Joint Ventures is bidding for a proposal under “Buy (Global)” procurements as explained in Para 5.10 of DPP 2013 where indigenous content of the product on cost basis is less than 50 percent.

The minimum offset obligation is 30 percent of the estimated cost of the acquisition in ’Buy (Global)’ category acquisitions and 30 percent of the foreign exchange component in ‘Buy and Make with ToT’ category acquisitions. In respect of Shipbuilding cases on competitive basis (Section B, Chapter III of DPP 2013), for the purpose of calculating offset obligation, the total cost shall include basic cost of the vessel, cost of Base & Depot (B&D) Spares and the modification cost.

Defence Acquisition Council (DAC) is empowered to prescribe varying offset obligations above 30 percent or waive the requirement of offset obligations in special cases. This can be applicable for a class of cases or for an individual case depending on the factors involved, such as type of acquisition, strategic importance or urgency of the acquisition, ability of Indian defence industry to absorb the offset and any other relevant factors. However it may be noted that so far the offset clause has not been waived off in any Buy Global case.

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The offset condition is a part of the RFP and subsequently of the main contract. A separate offset contract will be executed simultaneously with the main contract. Advance offset programmes can be created by foreign vendors in anticipation of future obligations through offset banking as per guidelines being covered in subsequent paragraphs. These provisions are not applicable to procurements under the Fast Track procedure, and procurements under the ‘Option’ clause where an offset obligation was not stipulated in the original contract which is essentially related to old contracts and are not applicable to fresh ones. In the present context offsets provisions are invariably included.

Recommendations Spanish Companies Offsets are an opportunity for foreign companies to do defence business in India. Presently there are challenges in offset implementation both in terms of policy and procedures as well as capability for discharge under various heads, thus close scrutiny of the regulations and a viable response would be necessary based on the product concerned as well as domestic laws in Spain for aspects such as transfer of technology and so on. Offsets are case specific thus the offset obligations required for each procurement will have to be examined separately and a standard format may not be viable. Good knowledge of Indian market potential for employment of various routes specified including opportunities is necessary for full exploitation. A number of companies in India have sprung up offering offset solutions, careful vetting of these is recommended based on track record and industry reputation.

How to Discharge of Offset Obligations

Discharge of offset obligations is through eligible products and eligible services. Six routes for discharge are available and any one or a combination of the methods can be used. The six routes are as per succeeding paragraphs.

Route 1 - Direct Purchase Route. Direct purchase of or executing export orders for, eligible products manufactured by, or services provided by Indian enterprises, i.e. Defence Public Sector Undertakings, Ordnance Factory Board and private and public sector Indian enterprises. The list of products and services eligible for discharge of offset obligations is at Annexure VI to Appendix-D of the DPP 2013 and main items are included as per Box below. Investment in civil infrastructure is excluded from the list of eligible products and services, unless specifically indicated.

Recommendations Spanish Companies Given present manufacturing capability of the Indian defence industry which is not able to fully meet requirements of armed forces and lack of production of state of the art equipment, there may be limited scope to avail of this route for high value items. Thus option of low value items in high volumes may have to be envisaged through this route As far as defence export orders are concerned a separate Defence Exports Strategy has been included which will be covered separately in subsequent part of the Report.

Route 2 - FDI Foreign Direct Investment (FDI) in joint ventures with Indian enterprises (equity investment) for the manufacture and/or maintenance of eligible products and provision of

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eligible services. Such investment would be subject to the guidelines/licensing requirements stipulated by the Department of Industrial Policy and Promotion. FDI guidelines are being covered separately in subsequent chapters of the Report.

Recommendations Spanish Companies At present the FDI is restricted to 49 percent of total equity of a firm. This may be a viable route for discharge of offsets.

Route 3 - Investment in TOT. Investment in ‘kind’ in terms of transfer of technology (TOT) to Indian enterprises for the manufacture and/or maintenance of eligible products and provision of eligible services. This could be through joint ventures or through the non-equity route for co-production, co-development and production or licensed production of eligible products and eligible services. The investment in kind in terms of TOT must cover all documentation, training and consultancy required for full TOT (civil infrastructure and equipment is excluded). The TOT should be provided without licence fee and there should be no restriction on domestic production, sale or export.

Recommendations Spanish Companies Technology will have to be proprietary to the company and necessary approvals from parent government where applicable would have to be obtained. There are inherent advantages in using TOT clause in terms of multipliers but implementation will need deliberation for evaluation of technology poses challenges.

Route 4 - Investment in Kind. Investment in ‘kind’ in Indian enterprises in terms of provision of equipment through the non-equity route for the manufacture and/or maintenance of eligible products and provision of eligible services (excluding TOT, civil infrastructure and second hand equipment).

Recommendations Spanish Companies A viable route which could be examined, however there are presently some restrictions on provision of services that have been imposed after the issue of Defence Offset Guidelines in 2012 thus there is scope only in manufacturing and maintenance.

Route 5 - Equipment/TOT to Government. Provision of equipment and/or TOT to Government institutions and establishments engaged in the manufacture and/or maintenance of eligible products and provision of eligible services, including DRDO (as distinct from Indian enterprises). This will include augmenting capacity for Research, Design and Development, Training and Education but exclude civil infrastructure.

Recommendations Spanish Companies A viable route and also includes the DRDO, thus could be examined for implementation. However only 30 percent of offset obligations are eligible under this clause. Route 6 - Technology Offering Technology Acquisition by the Defence Research and Development Organization in areas of high technology listed in Annexure-VIII to Appendix-D of DPP 2013, See relevant Box below.

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Recommendations Spanish Companies The possibility of transfer of technology will have to be examined in tandem with domestic laws in Spain. However only 30 percent of offset obligations are eligible under this clause.

LIST OF PRODUCTS AND SERVICES ELIGIBLE FOR DISCHARGE OF OFFSET OBLIGATIONS

1. Defence Products (a) Small arms, mortars, cannons, guns, howitzers, anti tank weapons and their ammunition including fuzes. (b) Bombs, torpedoes, rockets, missiles, other explosive devices and charges, related equipment and accessories specially designed for military use, equipment specially designed for handling, control, operation, jamming and detection. (c) Energetic materials, explosives, propellants and pyrotechnics. (d) Tracked and wheeled armoured vehicles, vehicles with ballistic protection designed for military applications, armoured or protective equipment. (e) Vessels of war, special naval systems, equipment and accessories to include following: - (i) Design, manufacture or upgrade of weapons, sensors, armaments, propulsion systems, machinery control systems, navigation equipment/instruments other marine equipment and hull forms of warships, submarines, auxiliaries. (ii) Facilities and equipment required for testing, certification, qualification and calibration of hull forms, platform, propulsion and machinery control systems, weapons sensors and related equipment including enhancement of stealth features and EMI/EMC studies for warships, submarines and auxiliaries. (iii) Software specially designed, developed and modified for design of all types of warships, submarines and auxiliaries or their hull forms. (iv) Setting up of maintenance and repair facility for equipment/weapons and sensors and other marine systems including related technical civil works. (f) Aircraft, unmanned airborne vehicles, aero engines and air craft equipment, related equipment specially designed or modified for military use, parachutes and related equipment. (g) Electronics and communication equipment specially designed for military use such as electronic counter measure and counter measure equipment surveillance and monitoring, data processing and signalling, guidance and navigation equipment, imaging equipment and night vision devices, sensors. (h) Specialized equipment for military training or for simulating military scenarios, specially designed simulators for use of armaments and trainers and training aids viz. Simulators, associated equipment, software and computer based training modules. (i) Forgings, castings and other unfinished products which are specially designed for products for military applications and troop comfort equipment. (j) Miscellaneous equipment and materials designed for military applications, specially designed environmental test facilities and equipment for the certification, qualification, testing or production of the above products. (k) Software specially designed or modified for the development, production or use of above

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items. This includes software specially designed for modelling, simulation or evaluation of military weapon systems, modelling or simulating military operation scenarios and Command, Communications, Control, Computer and Intelligence (C4I) applications. [Presently services are not eligible due to restrictions imposed by Ministry of Defence however the item is included for information purpose in case the restrictions are removed.] (l) High velocity kinetic energy weapon systems and related equipment. (m) Direct energy weapon systems, related or counter measure equipment, super conductive equipment and specially designed for components and accessories. 2. Products for Inland/Coastal Security (a) Arms and their ammunition including all types of close quarter weapons. (b) Specialised Protective Equipment for Security personnel including body armour and helmets. (c) Vehicles for internal security purposes including armoured vehicles, bullet proof vehicles and mine protected vehicles. (d) Riot control equipment and protective as well as riot control vehicles. (e) Specialized equipment for surveillance including hand held devices and unmanned aerial vehicles. (f) Equipment and devices for night fighting capability including night vision devices. (g) Navigational and communications equipment including secure communications. (h) Specialized counter terrorism equipment and gear, assault platforms, detection devices, breaching gear etc. (i) Specialised equipment for Harbour Security and Coastal Defence including seabed/ maritime surveillance sensor chains, sonars, radars, optical devices, AIS. (j) Vessel Traffic Management Systems (VTMS/VATMS) and appropriate vessels/crafts/ boats. (k) Miscellaneous maritime equipment for undertaking investigations, Boarding, Search and Seizure of ships/vessels. (l) Software specially designed, developed and modified for all types of Coastal and Maritime security domain awareness, operations and data exchange. [Presently services are not eligible due to restrictions imposed by Ministry of Defence however the item is included for information purpose in case the restrictions are removed.] (m) Training Aids viz simulators, associated equipment, software and computer based training modules. 3. Civil Aerospace Products (a) Design, Development, Manufacture and Upgrade of all types of fixed wing and rotary wing aircraft or their airframes, aero engines, avionics, instruments and related components. (b) Composites, forgings and castings for the products. (c) Training Aids viz. Simulators, associated equipment, software and computer based training modules. (d) Guidance and Navigation equipment. (e) Test facilities and equipment required for testing, certification, qualification and calibration of the above products. (f) Software specially designed, developed or modified for the above products. [Presently services are not eligible due to restrictions imposed by Ministry of Defence however the item is included for information purpose in case the restrictions are removed.] 4. Services (Related to eligible products) [Presently services are not eligible due to restrictions

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imposed by Ministry of Defence however the item is included for information purpose in case the restrictions are removed.] (a) Maintenance, repair and overhaul. (b) Up gradation/life extension. (c) Engineering, design and testing. (d) Software development. (e) Quality assurance. (f) Training. (g) Research and Development services (from government recognised R&D facilities).

Restrictions on Eligibility of Services for Offsets

Ministry of Defence vide Office Memorandum No 9(42)/2013/OFFSETS dated 23 May 2013 has issued an amendment to the DPP 2013 as well as those issued previously to keep the paragraphs pertaining to eligibility of services for offsets in the offsets guidelines in abeyance till further instructions. The orders are in force with immediate effect that is 23 May 2013 and also apply to all RFPs issued after as well as issued where last date for submission of technical and commercial bids is not yet over. Services include maintenance, repair and overhaul; upgradation/life extension; engineering, design and testing; software development; quality assurance; training; and, research and development. It also includes software, designed and developed for the platforms used by all the services. This is possibly a fall out of the, “VVIP Helicopter [Agusta Westland] case where kickbacks were allegedly routed through phony contracts with India-based software companies.

Recommendations Spanish Companies Potential for products needs to be explored for purchase as well as re-export. The restriction on services is likely to considerably constrain the discharge of offset obligations by foreign vendors as given the limited capability in the Indian defence industry to absorb industrial offsets meeting the new criteria may require revision of offset evaluation.

Restrictions

There are a number of restrictions in terms of employing the quantum of offsets through each route. A minimum 70 percent of the offset obligation must be discharged by any one or a combination of routes 1 to 4 that is excluding TOT and Technology Acquisition by the DRDO. Similarly in the case of Route 4 that is investment in equipment for manufacture the vendor will be required to buyback a minimum 40 percent of the eligible product and/or service (by value) within the permissible period for discharge of offset obligations.

Where the discharge of offset obligations is proposed in terms of Route 3 stated above that is investment in kind for transfer of technology the offset credit for TOT shall be 10 percent of the value of buyback during the period of the offset contract, to the extent of value addition in India.

Recommendations Spanish Companies Restrictions for employing some of the routes particularly related to technology transfer need careful consideration. An ideal combination to suit profile and products of the company will have to be worked out for maximum usage of various provisions to advantage.

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Indian Offset Partner

Indian enterprises and institutions and establishments engaged in manufacture of eligible products and/or provision of eligible services, including DRDO, are referred to as the Indian Offset Partner (IOP). The IOP has to be compliant with guidelines/licensing requirements stipulated by the Department of Industrial Policy and Promotion (DIPP) as applicable, that is he should be a licensee of manufacturing of a defence product that falls within the parameters specified by the DIPP. The foreign OEM/vendor/Tier-I sub-vendor is free to select the IOP for implementing the offset obligation provided the IOP has not been barred from doing business by the Ministry of Defence. The agreement between the OEM/vendor/Tier-1 sub vendor and the IOP will be subject to the laws of India.

Recommendations Spanish Companies Careful selection of IOP is advisable with due diligence in all respects. All agreements will be subject to the laws in India.

Discharge of Offset Obligations -Vendor Responsibility

Offsets can be discharged by Tier 1 vendors as well but the OEM or main vendor under the main procurement contract will be responsible for the fulfillment of offset obligations even when using a Tier-1 sub-vendor for discharging a part of the offset obligations. Any shortfall by the Tier-1 will be accounted for by the main/prime vendor.

Recommendations Spanish Companies Careful selection of Tier 1 vendor is necessary and fail clause in case of non compliance of offset obligations should be included in the contract.

Period for Discharge

Offset obligations are to be discharged within a time frame that can extend beyond the period of the main procurement contract by a maximum period of two years. The period of the main contract includes the period of warranty of the equipment being procured under the main contract.

Recommendations Spanish Companies Under normal circumstances there should be adequate time for execution of offsets as the period also includes warranty which is normally one to two years from delivery. However effective planning is necessary to ensure discharge within the allotted time frame.

Performance Bond

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Where the period for discharge of offset obligations exceeds the period of the main procurement contract, the vendor will be required to furnish an additional Performance Bond to Defence Offset Management Wing in the form of a Bank Guarantee covering the full value of the un-discharged offset obligations falling beyond the period of the main procurement contract. This Performance Bond shall be reduced annually, until full extinction, based on the pro rata value of the discharged offset obligation accepted by the Defence Offsets Management Wing (DOMW). The additional Performance Bond has to be submitted six months prior to expiry of the main Performance-cum-Warranty Bond.

Variation

These rules could vary in cases where the main procurement contract is signed on the basis of a Inter-Governmental Agreement (IGA) under Para-71 of Defence Procurement Procedure (DPP 2013). For example contracts signed with the US through the Foreign Military Sales (FMS) route with offset contract signed with the OEM/vendor, the OEM/vendor is required to furnish a Performance Bond equal to 5 percent of the offset obligation which is required to be fulfilled during the period of the main procurement contract. An additional Performance Bond would be required in case the period for discharge of offset obligation exceeds the period of the main procurement contract.

Offset Banking

Only contracts for direct purchase or export of eligible products or services or investments made in eligible products or services as given in Route 1 above after signing of main procurement contract shall be reckoned for discharging offset obligations. Pre-approved banked offset credits can also be considered for discharge of offset obligations subject to a maximum of 50 percent of the total offset obligation under each procurement contract. The banked offset credits shall remain valid for a period of seven years from the date of acceptance by DOMW. Banked offset credits will not be transferable except between the main vendor and his Tier-1 sub- vendors within the same procurement contract. The main vendor will be required to submit a list of such Tier-1 sub-vendors along with the technical and commercial offset proposals. Banking of offset credits shall be permissible only in respect of offsets stipulated in Routes 1 to 4 of the Defence Offset guidelines that is excluding TOT and Technology Acquisition by the DRDO as the latter is considered intangible.

Recommendations Spanish Companies Offset banking route can be undertaken after bidding for a contract as there is sufficient scope for the same under existing regulations even in pre-approved case.

Value Addition

The concept of value addition will apply only for direct purchase/export of eligible products that is Route 1. Value Addition will be determined by subtracting (i) value of imported components (i.e.) import content in the product and (ii) any fees/royalty paid.

‘Buy (Global)’ Procurements – Joint Venture with Indian Firm

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For ‘Buy (Global)’ category procurements, if an Indian firm including a Joint Venture between an Indian Company and its foreign partner is bidding for the proposal, the clause relating to offset obligation will not be applicable if the indigenous content in the product is 50 percent or more (by value). In case the indigenous content in the product is less than 50 percent, the Indian firm or the Joint Venture has to ensure that offset obligations are fulfilled on the foreign exchange component of the contracted value. In case the indigenous content is less than 50 percent, the Indian firm or Joint Venture shall submit an undertaking to fulfil the offset obligation along with the main technical bid. Indigenous content (by value) will be determined on the basis of exchange rates prevailing on the last date for submission of the main technical bid. For calculation of Indigenous content see Box below.

Indigenous content will be calculated for an equipment or an item by excluding from the total cost of that equipment/ item the following elements at all stages (tiers) of manufacturing/ production/ assembly:- (a) Direct costs (including freight / transportation and insurance) of all materials, components, sub-assemblies, assemblies and products imported into India; (b) Direct and Indirect costs of all services obtained from non-Indian entities/ citizens; (c) All license fees, royalties, technical fees and other fees/ payments of this nature paid out of India, by whatever term/ phrase referred to in contracts/ agreements made by vendors/ subvendors; and (d) Taxes, duties, cesses, octroi and any other statutory levies in India of this nature.

Multiplier for Micro, Small and Medium Enterprises (MSME)

In the discharge of offset obligations under Routes 1 to 4 that is excluding TOT and Technology Acquisition by the DRDO a multiplier of 1.50 will be permitted where Micro, Small and Medium Enterprises (MSME) are IOPs. For definition of MSME [also referred as SME] see Box below.

For the purpose of offsets, Micro, Small and Medium Enterprises are defined as follows: (a) In the case of enterprises engaged in manufacture of goods: (i) A micro enterprise is that where investment in plant and machinery does not exceed Rs 2.5 million; (ii) A small enterprise is that where investment in plant and machinery is more than Rs2.5 million but does not exceed Rs 50 million; and (iii) A medium enterprise is that where investment in plant and machinery is more than Rs 50 million but does not exceed Rs 100 million. (b) In the case of enterprises engaged in providing services: (i) A micro enterprise is that where investment in equipment does not exceed Rs1 million; (ii) A small enterprise is that where investment in equipment is more than Rs 1 million but does not exceed Rs20 million; and (iii) A medium enterprise is that where investment in equipment is more than Rs 20 million but does not exceed Rs 50 million. The monetary limits shall be subject to change as may be notified by Department of Micro, Small and Medium Enterprises, Government of India from time to time.

Recommendations Spanish Companies Indian MSME in the defence sector have huge potential, thus this route needs to be exploited to advantage.

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Multiplier for Technology Acquisition by DRDO

In the discharge of offset obligations under Route 6 that is technology acquisition by DRDO, a multiplier up to 3 is permitted. (i) Multiplier of 2.0 will be applicable when the technology is offered for use by Indian Armed Forces only but without any restriction on the numbers that can be produced. (ii) Multiplier of 2.5 will be applicable when the technology is offered for use only in Indian Market but for both military and civil applications and without any restriction on the numbers that can be produced. (iii) Multiplier of 3.0 will be applicable when the technology is offered without any restriction and with full and unfettered rights, including right to export. For critical areas being sought by the DRDO see Box below.

Critical Technology Areas Being Sought by DRDO 1. MEMs based sensors, actuators, RF devices, Focal plane arrays. 2. Nano technology based sensors and displays. 3. Miniature SAR & ISAR technologies. 4. Fiber Lasers Technology. 5. EM Rail Gun technology. 6. Shared and Conformal Apertures. 7. High efficiency flexible Solar Cells technology. 8. Super Cavitations technology. 9. Molecularly Imprinted Polymers. 10. Technologies for Hypersonic flights (Propulsion, Aerodynamics and Structures). 11. Low Observable Technologies. 12. Technologies for generating High Power Lasers. 13. High Strength, High-modulus, Carbon Fibers, Mesophase pitch-based fiber, Carbon Fiber Production Facility. 14. Pulse power network technologies. 15. THZ Technologies.

Valuation of Offsets

For the purpose of these offset guidelines, the date of discharge of offset obligations under Route 1 will be reckoned as the date of invoice or the date of final payment whichever is later. In case of equity investment under Route 2 or other investments or TOT and Technology Acquisition covered under paras Routes 3 to 6, the date of completion of the transaction, based on documentary evidence, shall be reckoned as the date of discharge of offset obligation. The value of the offset components for which offset credits are sought would have to be supported by documentary evidence. Only transactions undertaken after signing of the offset contract will be reckoned for discharging offset obligations (excluding Offset Banking).

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Summary of Offsets Multipliers

Type of Offset Multiplier Banking (7 years) Route 1. Direct Purchase 1.5 if IOP is an MSME Allowed goods & Services Route 2. FDI in Indian 1.5 if IOP is an MSME Allowed Industry Route 3. ToT ( JV or non- 1.5 if IOP is an MSME Allowed equity routes) D. Transfer of equipment 1.5 if IOP is an MSME Allowed (non-equity route) F. Technology acquisition by Up to 3.0: Not allowed DRDO 2.0 if the ToT is meant for unrestricted domestic production for armed forces

2.5 if the ToT is meant for unrestricted domestic production for both civil & military use

3.0 if ToT is meant for unrestricted production for domestic (civil & military) and export purposes

Management of Offsets - Organisations

Management of Offsets is done by two organizations simultaneously. The Acquisition Wing in the Department of Defence is responsible for (i) technical and commercial evaluation of offset proposals received in response to RFPs and (ii) conclusion of offset contracts. Thereafter it hands over responsibility to the Defence Offsets Management Wing (DOMW) under the Department of Defence Production which is responsible for formulation of Defence Offset Guidelines and all matters relating to post contract management. Both agencies work in close coordination to manage the offsets. The functions of DOMW are as per Box below.

Functions of DOMW Formulation of Defence Offset guidelines. Monitoring the discharge of offset obligations, including audit and review of progress reports received from vendors. Participation in Technical and Commercial evaluation of offset proposals as members of

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TOEC and CNC. Implementation of Offset Banking guidelines. Administration of penalties under offset contracts in consultation with Acquisition Wing. Assisting vendors in interfacing with Indian industry. Other responsibilities assigned under the offset guidelines or entrusted by the Government.

Recommendations Spanish Companies The DOMW a post contract organization is in a nascent stage thus extensive interaction is recommended for mutual benefit. Clear minutes of discussions and decisions taken should be noted and approved by both sides to be seen as valid and acceptable.

Submission of Offset proposals

When offsets are applicable at the stage of submission of the techno-commercial proposal, the vendor submits a written undertaking in the laid down format to the effect that he will meet the offset obligations laid down in the RFP as per the Defence Offset Guidelines. This undertaking is to be included in the envelope containing the vendors’ technical bid. Thereafter the Technical and Commercial offset proposals is submitted by the vendor by a date specified in the RFP separately, which would normally be three months from the date of submission of the main technical and commercial proposals. The technical and commercial offset proposals should be submitted in two separate sealed covers to the Technical Manager of Acquisition Wing as per laid down formats in DPP 2013.

The commercial offset proposal will provide details of the business model for proposals relating to Route 3 and 4 of the offset guidelines in case offset credits are being sought under these specific provisions. The Technical and Commercial Offset proposal for Technology Acquisition by DRDO under Route 6 of the Offset Guidelines will be forwarded by the Technical Manager to DRDO. In case any offset credits are claimed under Route 6 of the Offset Guidelines, the Technical and Commercial Proposals should be submitted in a separate envelope

Recommendations Spanish Companies Separate teams may be required for examination preparation of offsets proposals and preparation of technical as well as commercial documents.

Processing of Offset Proposals

Technical Evaluation. Technical Evaluation is done by the Technical Offset Evaluation Committee (TOEC) constituted by the Technical Manager with approval of the Director General (Acquisition) with all relevant representatives as applicable including external experts. The TOEC scrutinizes the technical offset proposals (excluding proposals for Technology Acquisition by DRDO) to ensure conformity with the offset guidelines. Technology Acquisition Offset Proposals are assessed by a Technology Acquisition Committee (TAC) constituted by the

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DRDO. The assessment covers both technical as well as financial parameters, including valuation of technology, and also indicates the timeframe and strategy for utilizing the technology.

Commercial Evaluation. The Commercial Offset Offer will contain the detailed offer specifying the value of the offset components, with a breakdown of the details, phasing, Indian Offset Partners and banked offset credits proposed to be utilized. The commercial offset offer is opened along with the main commercial offer after the TOEC report has been accepted by the Director General(Acquisition). The commercial offset offer will have no bearing on determination of the L-1 vendor. The CNC for the main procurement case will verify that the Commercial Offset Offer meets the stipulated offset obligations. Only the commercial offset offer of the L-1 vendor in the main procurement proposal will be evaluated by the CNC. The L-1 vendor may amend the commercial offset offer at this stage, to align the proposal with the technical offset proposal, if required.

Approvals. All Offset proposals will be processed by the Acquisition Manager and approved by the Defence Minister/DAC Mantri, regardless of their value. The offset contract will be signed by the Acquisition Manager after the main procurement proposal has been approved by the Competent financial Authority. A model Offset Contract has also been provided in the DPP 2013.

Recommendations Spanish Companies There is scope for amendment of the commercial offset proposal in case the vendor is L 1 to align the same with the technical offset proposal which is useful as frequently there may be a mismatch between the initial offer and the final proposal.

Six monthly Reports

The vendor is required to submit six monthly reports to the DOMW. DOMW may conduct an audit by a nominated officer or agency to verify the actual status of implementation. Offset credits are assigned by DOMW after scrutiny of six monthly reports.

Re-phasing of offset obligations

A vendor may, giving reasons, request re-phasing of the offset obligations within the period of the offset contract. In exceptional cases, DOMW may recommend change in offset partner or offset component on being convinced that the change is necessary to enable the vendor to fulfil offset obligations. Any change in IOP/offset component of a Tier-1 sub-vendor will have to be forwarded to DOMW through the main/prime vendor. The overall value of offset obligations shall, however, remain unchanged. Any change in the IOP shall be approved by the Secretary (Defence Production). Any change in the offset component will require approval of the Defence Minister based on the recommendations of the Defence Procurement Board (DPB). If a vendor fails to fulfil the offset obligation in a particular year in accordance with the annual phasing as agreed in the offset contract, a penalty equivalent to five percent of the unfulfilled offset obligation will be levied on the vendor. The unfulfilled offset value will thereafter be re-

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phased over the remaining period of the offset contract. The overall cap on penalty is 20 percent of the total offset obligation during the period of the main procurement contract.

Recommendations Spanish Companies Effective accounting of offset credits and coordination with the DOMW is essential at this stage. Sufficient leeway is available for re-phasing of offsets and related issues which should be used to advantage.

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CHAPTER 7-

OTHER PROCUREMENT CATEGORIES

DEFENCE PROCUREMENT PROCEDURE – 2013 – MAKE PROCEDURE

Make Procedure

Process. Make procedure involves design, development of prototype and manufacture of an item. The acquisition process for Make Procedure is through constitution of Integrated Project Management Teams (IPMT). The IPMT prepares Project Definition Document (PDD); issue Expression of Interest (EoI) for short listing of agencies and carries out detailed analysis of Detailed Project Report (DPR), and obtaining CFA approval. Monitoring of the projects during the design and development of prototype phase is carried by the IPMT which periodically appraises progress of the project to Defence Production Board through Acquisition Wing. The conduct of trials and its evaluation is under the aegis of the respective Service. After acceptance of the staff evaluation report, commercial negotiations would be carried out with the L1 agency for award of contract for Limited Series Production (LSP).

Functional Pathway

The acquisition process under Make Procedure broadly involves the following functional pathway:-

1. Defence Capability Plan and LTIPP. At this stage assessment whether procurement through Make procedure is feasible given the lead time available is carried out. 2. Preliminary Services Qualitative Requirements (PSQRs). 3. Feasibility Study. 4. Categorisation and AON by DAC. 5. Constitution of IPMT. 6. Preparing Detailed Project Report (DPR). 7. CFA approval. 8. Design and Development of Prototype. 9. User Trials by Service HQ. 10. Staff Evaluation. 11. Solicitation of Commercial Offers. 12. Commercial negotiations by Contract Negotiation Committee (CNC). 13. Award of Contract.

Submission of Expression of Interest.

IPMTs invite Expression of Interest (EoI) from DPSUs /OFB / Indian Private Industry / Consortia that would like to participate in the programme. The EoI lays down the broad parameters of the evaluation process and acceptance criterion for the system under development. The time frame for induction of equipment is explicitly mentioned so that the industry can

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respond in a meaningful manner. The industry/Consortia are required to furnish following information in response to EOI:-

Main features of the proposal. Recommended stages/ phases with priorities and time schedules. Defined milestones that are clearly demonstrated to facilitate project monitoring. Detailed risk analysis including the measures to manage these risks. Estimated capital expenditure. Specific expertise and know-how, which the development/production agency (ies) possesses to handle the product(s). Role of foreign technology provider, if any. Requirement of proof firing and other specialised testing assistance where facilities are available only with DRDO/DGQA. Indicate the minimum order quantity which they would like to execute after the successful completion of the project. Undertaking to furnish the cost of the final product during the evaluation stage itself, once the final configuration of the end product under development is frozen. This is to prevent the development agency to hike the prices in case only one agency is able to develop the product.

Eligibility Indian Private Industry for “ MAKE” cases

(a) Public Limited Indian Companies registered under the Companies Act, which are manufacturing concerns. (b) Companies registered for minimum 10 years with foreign holding not exceeding 26%. (c) Companies with Capital assets in India not less than Rs100 Crore (Euro 13.05 million approximate) and turnover not less than Rs 1000 Crore (Euro 130.5 million approximate) for each of the past three years. (For this purpose, the group of companies engaged in manufacture will be treated as one company). (d) Companies with a minimum credit rating equivalent to CRISIL/ICRA – “A”. (e) Companies with consistent profitable financial record showing profits in at least three years of the last five years and with no accumulated losses. (f) Companies with established track record in engineering and Manufacturing for real value addition – Not a trading company/agency. (g) Companies with established R&D Base. (h) Companies with units/divisions with established Quality Control System meeting various quality certifications and standards as laid down from time to time. Current standards should include ISO 9001 & ISO 1400. (j) Companies with security infrastructure meeting relevant requirements authorized by Government agencies. This will be as per the Security Manual issued by the Ministry of Defence. (k) The companies that shall possess a licence/LOI for production of Defence items in accordance with the amendment to the Industries (Development and Regulation) Act 1951 (Notification No.S.O.477 (E) dated 25th July 1991) notified by the Government vide Notification dated 3rd January 2002.

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Assessment of Capability of Developing Agency

This is carried out in detail by the IPMT based on responses received to the EOI. The IPMT clearly identifies critical technology areas of the development programme where design and manufacturing capabilities are being developed or are being obtained through the collaboration route from a foreign partner by the industry. The contribution of the Indian industry in the critical technology areas are the key criterion in assessment of various proposals. Indian industry cannot become conduit for entry of foreign companies without any significant value addition by the Indian partner.

Recommendations Spanish Companies “Make,” projects are suitable for long term partnership and investments in India given potential of the market over many decades in the future. Willingness to transfer technology including design to Indian partner will be defining criteria for selection. “Make,” projects have prospects of partial funding by the Indian MOD. Selection of an Indian manufacturing partner with adequate capability and potential as given in Box above for eligibility of Indian entities for Make projects is essential. Preparation of the EOI in conjunction with Indian partner should be comprehensive and contain complete details to include system configuration and technical details of subsystems. Proposal should favour transfer of capability including relevant technology component to the Indian partner. IPR rights where involved will be owned by the Indian company or MOD where projects are funded by the latter, thus necessary regulatory approvals for the purpose under domestic laws in Spain need to be considered.

DEFENCE PROCUREMENT PROCEDURE – 2013 - SHIP BUILDING

Procedure

As naval shipbuilding is a capital and technology intensive complex activity a separate procedure for design / construction /acquisition of naval ships, submarines, yard crafts, auxiliary ships and Coast Guard vessels through design/ construction is envisaged in DPP 2013. Two methods of Ship Building have been specified as Category 1 and 2 respectively which are outlined as follows:-

Category 1. Acquisition of Naval and Coast Guard Ships, submarines, yard crafts and auxiliary crafts etc by nomination to Defence Public Sector Unit (DPSU) shipyard. There are five DPSU Shipyards Mazagon Docks Ltd, Garden Reach Shipping, Goa Shipyard, Cochin Shipyard and Hindustan Shipyard. Details have been included separately in Chapter 17 subsequently. At present a number of private shipyards have also emerged as competitors to the DPSU shipyards, though adequate clarity on eligibility of these does not exist at present but it is envisaged that in the future there is a strong possibility of these also being included in Category 1. Details of private shipyards are included separately in Chapter 18. In this Category shipyards will be nominated by the Ministry of Defence Department of Defence Production. For instance

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the Mazagon Docks Ltd was nominated for construction of the six Scorpene submarines in collaboration with DCNS France and other companies.

Category 2. Acquisition of Naval Ships, Coast Guard Ships, submarines, yard crafts and auxiliary crafts etc on competitive basis.

Opportunities for Collaboration by Foreign Companies

Category 1. Under this category the acquisition of naval craft is through a DPSU shipyard in which case there are following opportunities available for foreign companies:-

Direct collaboration to include joint venture with a DPSU Shipyard for designing and construction of ship/craft. Scorpene submarine project is a salient example of the same. Provision of Ship-borne Equipment to include non weapon equipment, weapons and sensors. These items including weapons and related sensors can be procured directly by the shipyards including imports. The Shipyard can place direct orders with prior approval of the DAC/DPB where the order is being placed for the first time and directly by the shipyard at a later stage. Given that a combat ship is admix of large number of varied weapons, sensors and other assemblies this provides substantial opportunities for collaboration by foreign companies.

Category 2. Under this section acquisition of ships, submarines, auxiliaries and yard crafts is being carried out through competitive bidding on multi-vendor basis under the categories ‘Buy’ (Indian), ‘Buy and Make, ‘Buy and Make (Indian)’ and ‘Buy Global’, and is generally as per procedure outlined for the same in relevant section hitherto fore in Chapter 5 with suitable modifications with reference to specific requirements related to ship building.

Recommendations Spanish Companies Given the strength of ship building industry in Spain this is a potential area for exploration and exploitation in Category 1 as well as 2. Effective liaison with the DPSU Shipyards as well as private shipyards could be envisaged for this purpose.

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CHAPTER 8 FOREIGN DIRECT INVESTMENT POLICY IN DEFENCE

Policy Parameters of FDI in Defence3

The Government of India has recently reviewed the Foreign Direct Investment (FDI) policy and amended relevant paragraphs of the 'Consolidated FDI Policy Circular 2014' [hereinafter referred to as FDI Circular] with reference to the Defence Sector that is Para 6.2.6 of the Circular in August 2014. Under the new Policy as stated in the amended para reads 49 percent FDI equity is permitted in the defence industry which is subject to industrial licence under the Industries (Development & Regulation) Act 1951. The entry route for this purpose however remains government that is through Foreign Investment Promotion Board (FIPB) which is under Ministry of Finance, Government of India. FDI equity above 49 percent is permitted on a case to case basis when approved by the Cabinet Security (CCS), “wherever it is likely to result in access to modern and 'state-of-art' technology in the country”.

Qualifying Statements

FDI limit of 49% in the defence sector is composite and includes all kinds of foreign investments i.e. Foreign Direct Investment (FDI), Foreign Institutional Investors (Fils), Foreign Portfolio Investors (FPls), Non Resident Indians (NRls), Foreign Venture Capital Investors (FVCI) and Qualified Foreign Investors (QFls) regardless of whether the said investments have been made under Schedule 1 (FDI), 2 (FII), 2A (FPI), 3 (NRI), 6 (FVCI) and 8 (OFI) of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations. At the same time portfolio investment by FPls/Flls/NRls/OFls and investments by FVCls together will not exceed 24% of the total equity of the investee/joint venture company. Portfolio investments are however under automatic route. A lock-in period of 3 years on equity transfer has been done-away with in FDI for defence thus easing norms for investment.

Conditions and Stipulations

As per para 6.2.6.2 of FDI Circular certain other conditions have been laid down to regulate and streamline FDI in the defence sector. These include the following:-

DIPP –Licence Controlling Authority. Licence applications will be considered by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, in consultation with Ministry of Defence and Ministry of External Affairs. Full particulars of the Directors and the Chief Executives have to be furnished along with the applications.

Indian Citizen. The applicant company seeking permission of the Government for FDI up to 49% has to be an Indian company owned and controlled by resident Indian citizens. The management of the applicant company has to be in Indian hands with majority representation on the Board as well as the Chief Executives of the company/partnership firm being resident

3 Original document FDI Policy 2011 PDF is at serial 3 of primary documents folder.

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Indians. The requirement of single largest Indian ownership of 51% of equity has now been removed further facilitating investment.

Security Related Regulations. Chief Security Officer (CSO) of the investee/ joint venture company has to be a resident Indian citizen. Security Manual has been issued by the Ministry of Defence which specifies norms for security to be observed by various categories of manufacturers which has been covered in the paragraphs subsequently. Adequate safety and security procedures as per the Security Manual have to be put in place by the licensee once the licence is granted and production commences. These are subject to verification by authorized Government agencies.

Verification of Antecedents. The Government of India has the right to verify antecedents of foreign collaborators and domestic promoters including their financial standing and credentials in the world market. Preference would be given to original equipment manufacturers or design establishments, and companies having a good track record of past supplies to Armed Forces, Space and Atomic energy sections in India and also having an established R & D base.

Minimum Capitalization FDI. There is no minimum capitalization for the FDI. A proper assessment however has to be done by the management of the applicant company depending upon the product and the technology. The licensing authority has to satisfy itself about adequacy of the net worth of the non-resident investor taking into account category of weapons and equipment that are proposed to be manufactured.

No Purchase Guarantee. Ministry of Defence does not give purchase guarantee for products to be manufactured. However, the planned acquisition programme for such equipment and overall requirements are as generally known in the open domain. Further consultations can be had with Ministry of Defence or other agencies as on required basis to gain a full picture of the potential opportunities.

Capacity Norms. The capacity norms for production will be provided in the licence based on the application as well as the recommendations of the Ministry of Defence. The latter will base its assessment on existing capacities of similar and allied products.

Design and Development. Investee joint venture company is also required to be structured to be self-sufficient in areas of product design and development.

Maintenance and Life Cycle. The investee joint venture company along with manufacturing facility also has to have maintenance and life cycle support facility of the product being manufactured in India.

Import of Equipment. Import of equipment for pre-production activity including development of prototype by the applicant company is permitted. However normal export regulations including taxes will apply.

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Standards and Quality Assurance. The standards and testing procedures for equipment to be produced under licence from foreign collaborators or from indigenous R & D have to be provided by the licensee to the Government nominated quality assurance agency under appropriate confidentiality clause. The nominated quality assurance agency would inspect the finished product and would conduct surveillance and audit of the Quality Assurance Procedures of the licensee. Self-certification can be permitted by the Ministry of Defence on case to case basis, which may involve either individual items, or group of items manufactured by the licensee. Such permission will be for a fixed period and subject to renewals. Generally self certification is given very infrequently and only after a company has established itself in the Indian industry.

Purchase Preference. Purchase preference and price preference may be given to the Public Sector organizations as per guidelines of the Department of Public Enterprises. Thus there are concerns of lack of a level playing field, thus products that are not being manufactured should be explored.

Prospective Customers. Arms and ammunition produced by the private manufacturers will be primarily sold to the Ministry of Defence. These items may also be sold to other Government entities under the control of the Ministry of Home Affairs and State Governments. Separate instructions have been issued that permits such products to be sold to other government of India ministries and agencies without the approval of Ministry of Defence. No such item can be sold within the country to any other person or entity.

Exports. The exports of manufactured Items are subject to the Defence exports policy, the strategy and guidelines have been issued and are covered separately. In general these will be on the same lines as applicable to Ordnance Factories and Defence Public Sector Undertakings. Non-lethal items would be permitted for sale to persons/entities other than the Central of State Governments with the prior approval of the Ministry of Defence.

Removal of Goods. Licensee has to institute a verifiable system of removal of all goods out of their factories. Violation of these provisions may lead to cancellation of the licence.

FIPB. All applications seeking permission of the Government for FDI in defence have to be made to the Secretariat of Foreign Investment Promotion Board (FIPB) in the Department of Economic Affairs. FIPB has been set up in the Ministry of Finance to promote inflows of FDI into the country, as also to provide appropriate institutional arrangements, transparent procedures and guidelines for investment promotion and to consider and approve/recommend proposals for foreign investment. Approvals of composite proposals involving foreign investment or foreign technical collaboration are also granted on the recommendations of the FIPB. The companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors.

FDI above (Euro 15. 5 million) Applications for FDI up to 49% will follow the existing procedure with proposals involving inflows in excess of Rs. 1200 Crore (Euro 15.5 Million) being approved by Cabinet Committee on Economic Affairs (CCEA).

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FDI Beyond 49 %. Based on the recommendation of the Ministry of Defence and FIPB, approval of the Cabinet Committee on Security (CCS) will be sought by the Ministry of Defence in respect of cases seeking permission of the Government for FDI, beyond 49% which are likely to result in access to modern and 'state-of-art' technology in the country. Proposals for FDI beyond 49% with proposed inflow in excess of Rs. 1200 Crores, (Euro 15.5 Million) which are to be approved by CCS will not require further approval of the Cabinet Committee on Economic Affairs (CCEA).

Time Period for Processing. Government decision on applications for FDI in defence industry sector will be normally communicated within a time frame of 10 weeks from the date of acknowledgement.

Foreign Management Permitted Beyond 49 %. For the proposal seeking Government approval for foreign investment beyond 49% applicant should be Indian company/foreign investor. The management of the applicant company however need not be in Indian hands and also majority representation on the Board as well as the Chief Executives of the company/partnership firm need not be resident Indians. Thus a foreign national can be Chief Executive of such a company and majority representation on the Board can be non Indians subject to the overall FDI percentage that is being permitted.

Recommendations Spanish Companies FDI has to be based on the overall model of production that is envisaged by the joint venture unless the same is being proposed for investment in an Indian company. Thus whole structure of the company for production has to be thought through before application. Advantages of high technology can be exploited through joint ventures which allow over 49 % FDI where control can be with the foreign investors. A number of agencies will be involved to include Ministries of Defence, Commerce and Industry, External Affairs and so on for processing the case and final approval by the FIPB, thus considerable time is envisaged for approval which may exceed given 10 weeks. Options other than FDI such as FII, FPI and so on are available for investment within the 49 percent ceiling or above which can be explored as these investments can be made through the automatic route and thus separate approvals are not required for FII, FPI investments etc once the overall FDI is approved but breakdown will have to be given. FDI as a route for offsets also needs to be considered.

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CHAPTER 9 DEFENCE INDUSTRIAL LICENSING POLICY

List Of Defence Items Requiring Industrial License4

India has reviewed the defence industrial licensing policy in July 2014. The Ministry of Commerce and Industry, Department of Industrial Policy & Promotion in conjunction with the Ministry of Defence has published a negative list restricting the requirement of licensing in the defence. The orders issued in July 2014 state that defence items are covered under compulsory licensing under the IDR Act, 1951, mentioned at 51. No.37 of the Schedule I of the Act and also included as entry No. 13 of Schedule II of Notification No.S.0.477 (E) dated 25 July 1991. Consequent to the decision in 2001 for opening up of the defence sector manufacturing for private sector participation, necessary amendment to the Schedule II of 477 (E) containing list of compulsory licensing items, was carried out vide Notification No. S.O.l1(E) dated 3rd January 2002 by substituting, for the words 'Arms and ammunition, parts and accessories thereof' the words “arms and ammunition and allied items of defence equipment; parts and accessories thereof.

A list of defence items as finalized by Department of Defence Production, Ministry of Defence, to be read in conjunction with Entry No. 13 of Schedule II of Notification No.S.0.477 (E) dated 25 July 1991 as amended by Notification No.S.O. l1(E} dated 3rd January 2002, has thus been indicated in the Department of Industrial Policy & Promotion Press Note No 3 (2014) Series reference No -7(3)/2009-IP.Vol III Dated 26th June, 2014 and are given below. Items that are not included in the list would not require industrial license for defence purposes. Further. it is clarified that dual use items, having military as well as civilian applications, other than those specially mentioned in the list, would also not require Industrial License from Defence angle.

Tanks and other armoured fighting vehicles.

Ground vehicles, as follows - (a) Ground vehicles namely tanks and other military armoured/armed vehicles and military vehicles fitted with mountings for arms or equipment for mine laying or the launching of munitions includes all tracked and wheeled self-propelled armoured and non-armoured weapon systems and trailers for towed and: static weapon systems. (b) Other ground vehicles namely all-wheel drive vehicles capable of off road use which have been manufactured or fitted with materials or components to provide Ballistic protection to level III (NIJ 0108.01, September 1985, (or comparable national standard or; above) with mountings for arms or equipment for mine laying specially designed for military use. (c) Amphibious, hovercrafts and deep water fording vehicles. (d) Cryogenic and superconductive equipment especially designed or configured to be installed in military vehicle.

Defence Aircraft, Space Craft and Parts thereof - "Aircraft" including but not limited to helicopters, "lighter-than-air vehicle", "Unmanned Aerial Vehicles" (UAVs), Remotely Piloted Vehicles (RPVs), autonomous programmable vehicles, unmanned, lighter than air

4 Original document List of Items Requiring Licensing is at serial 4 of primary documents folder.

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vehicle (to include all variety of manned and unmanned airborne vehicles - includes target system. loitering missiles, drones, balloons, blimps, aerostat, parachutes, paragliders, ground effect machines, air cushion vehicles/hovercraft, UAVs and launchers, designed for military. application).

War ships of all Kinds. Vessels of war (surface or underwater) other surface vessels (Fitted with automatic weapons having a caliber of 12 7 mm or higher, CBRN protection, and active weapon countermeasure systems), special naval equipment, anti-submarine/torpedo nets, hull penetrators and connectors "specially designed for military use". Air Independent Propulsion (AlP) systems (nuclear/conventional) for marine applications are also included in this list.

Arms and ammunition. All Rifle & Smooth-bore weapons and other arms, and allied items of automatic/Semi-automatic or pump action type defence equipment; weapons, Weapons using case less ammunition, parts and accessories. Silencers, special gun-mountings, weapons sights, signature reduction devices and flash suppressors to include rifles, carbines, revolvers, pistols, machine pistols, multi barrel rocket, machine guns, guns, rocket, cannon & missile systems -used on land, ships & shore based and airborne, howitzers, mortars, anti-tank weapons, projectile launchers, military flame throwers, rifles, recoilless rifles.

Ammunition and fuze setting devices including the following – (a) Safing and arming devices, fuzes, sensors and initiation devices; (b) Power supplies with high one-time operational output; (c) Combustible cases for charges; (d) Sub munitions including bomblets, minelets and terminally guided projectiles. Bombs, torpedoes, grenades, smoke canisters, rockets, mines, missiles, depth charges, demolition- charges, demolition-devices, demolition kits, aircraft missile protection systems (AMPS), "pyrotechnic" devices, cartridges and simulators (i.e. equipment simulating the characteristics of any of these items), especially designed for military use.

"Energetic materials" and related substances includes all explosives like primers, boosters, initiators, igniters, detonators, smoke bomb, colour Signals, propellants and pyrotechnics, oxidizers. binders, plasticizers, mobomers, additive coupling agents, Precursors and other related ammunition.

High Energy Kinetic energy weapon systems and related equipment: (a) Kinetic energy weapon systems specially designed for destruction or effecting mission-abort of target; (b) Specially designed test and evaluation facilities and test models, including diagnostic instrumentation and targets, for dynamic testing of kinetic energy projectiles and systems.

Directed Energy Weapon (DEW) systems, related or countermeasure "equipment and test models" as follows:- (a) "Laser" systems specially designed for, destruction or effecting mission, abort of a target; (b) Particle beam systems capable of destruction or effecting mission- abort of a target; (c) High power Radio-Frequency (RF) systems capable of destruction or effecting mission abort of target; (d) Equipment specially designed for the detection or identification of; or defence against, systems at (a) and (c) above. (e) Physical test models for the systems, equipment and components, specified under this head. (f) 'Laser protection equipment (e.g. eye and sensor protection)'.

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Electronic Equipment used for electronic counter measure (ECM) and electronic counter countermeasure (ECCM), surveillance, intelligence, Command and Control systems, Global Navigation satellite systems (GNSS) jamming equipment. Data processing, storage and transmission security equipment, identification and authentication equipment (including identification Friend or Foe and non-Cooperative Target Return Identification systems), guidance and navigation equipment'

Troposcatter-radio communications equipment' and Military Information Security assurance systems and equipment (like cryptographic devices including military Cryptographic key management and Cryptanalytic systems, communication equipment, frequency modules and secrecy devices, specially designed for Military use.

Armoured or protective equipment as follows:- (a) Constructions of metallic or non- metallic: materials, or combinations thereof, specially designed to provide ballistic protection for military systems (b) Body armour or protective garments of level III (NIJ 0101.06, July 2008 or national equivalent and above). ‘Specialised equipment for military training' or simulators specially designed for training in the use of any firearm or weapon. Imaging or countermeasure equipment, as follows, specially designed for military user- (a) Recorders and image processing equipment; (b) Image intensifier equipment; (c) Infrared or thermal imaging equipment; (d) Imaging radar sensor equipment; (e) Countermeasure or counter-countermeasure equipment

Miscellaneous Concealment and deception equipment specially designed for military application, including but not limited to special paints, decoys smoke or obscuration equipment and simulators, and Metal embrittling agents.

Aspects for Consideration. Items in the negative list which require licensing are in line with industrial norms. The review has been made with a view to India publishing an official SCOMET list apriori joining the Wassenaar Arrangement. The reaction of the Indian private sector to publication of the negative list has been positive. "We are happy to see that Ministry of Defence has taken cognizance of CII's recommendations to prune the list and keeping it to the bare minimum" Baba N Kalyani, Chairman, CII National Committee on Defence remarked. Given that dual use items having military as well as civilian applications, other than those specially mentioned in the list, would also not require industrial license there is scope for undertaking production and sales of the same. Concerns remain however as mention of, “parts thereof,” denotes that spares and assemblies of items in the negative list will remain within the purview of licensing.

Additional Measures for Easing Licensing in Defence Industry

As per Press Note 9 (2014) Series issued by the Ministry of Commerce and Industry, Department of Policy and Promotion, certain measures to streamline the procedure for grant of Industrial Licenses have been undertaken. These are as follows:-

Increasing the validity period of Industrial License. As a measure of ease of doing business, henceforth two extensions of two years each in the initial validity of three years of the Industrial License shall be allowed up to seven years. This is in supersession of Press Note No.

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5(2014 Series) dated 02.07.2014. Thus a company has seven years to commence production that too partially.

Removal of stipulation of annual capacity in the Industrial License. It has been decided to deregulate the annual capacity for defense items for Industrial License. However, the licensee shall submit half yearly production return to Department of Industrial Policy & Promotion and Department of Defence Production, Ministry of Defence in the prescribed format, to be notified separately.

Sale of Defence items to Government entities without approval of Ministry of Defence. The Licensee shall be allowed to sell Defence items to Government entities under the control of Ministry of Home Affairs (MHA), State Governments, Public Sector Undertakings (PSUs) and other valid Defence Licensed Companies without prior approval of the Department of Defence Production (DoDP). However, for sale of the items to any other entity, the Licensee shall take prior permission from the Department of Defence Production, Ministry of Defence.

Present Status of Issue of Licences. Department of Industrial Policy and Promotion (DIPP) has, so far, issued 210 Letters of Intents (LOIs)/ Industrial Licenses (ILs) till March 31, 2014 for manufacture of a wide range of defence items to 126 private companies. 43 licensed companies have so far reported commencement of production. Consequent to opening up of the Defence Industry Sector for Indian Private Sector Participation with Foreign Direct Investment (FDI) as per the existing policies, 30 FDI proposals/ Joint Ventures have been approved in defence sector for manufacture of various defence equipments, both in public and private sector as on March 31, 2014.

Recommendations Spanish Companies Greater clarity on products on the defence and dual lists provides adequate potential for investment in select items. There is increased scope in spares and assemblies as well once clarification on eligibility is provided by the government. India is likely to join the Wassenaar Arrangement by 2017 which will provide greater scope for defence manufacturing, exports, and trade and so on.

MAKE IN INDIA INITIATIVE

Indigenisation of Manufacturing

Linked to the plan for expansion of indigenization is expansion of the manufacturing capacity of the Indian industry including defence. Towards this end, Prime Minister Narendra Modi, launched the, “Make in India,” initiative with an aim to give the Indian economy global recognition on 25 September 2014 on the eve of his maiden visit to the United States.

The aim of the initiative is to convert India into a manufacturing hub like China had achieved growth in this sector in the past. At the same time recognizing that there were structural challenges Mr Modi sought foreign assistance, technology and investment. He stated that, "FDI"

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should be understood as "First Develop India" and not just, "Foreign Direct Investment." He urged investors not to look at India merely as a market, but instead see it as an opportunity. Mr Modi said, “I mean, today ‘Make in India’ is not a mere slogan or an invitation, it is our responsibility. If we move forward with determination, world will come looking for us, have faith. For this we need to stress both FDIs. ‘First Develop India’ at the same time ‘Foreign Direct Investment. `”

The section on Sectors for Make in India has a Defence Manufacturing Sector which is seen as significant. Each Sector has been divided into Summary, Reasons To Invest in the sector, Statistics, Growth Drivers, FDI Policy, Sector Policy, Financial Support, Investment Opportunities, Foreign Investors and Agencies. These have been covered in various parts of the Report and are thus not reiterated here.

Tax Incentives under Make in India

The Make in India policy has outlined a number of tax incentives which need consideration. These include the following:-

The scope of exemption from Basic Custom Duty (BCD) and Countervailing Duty (CVD) on goods imported for use in the manufacture of aircraft for the Ministry of Defence is being clarified to the effect that the exemption is available to all materials in any form and articles thereof, subject to the overall condition that they conform to aeronautical specifications accompanied with a certificate of conformance and/or a release note. Either of the following two deductions can be availed: 1. Investment allowance (additional depreciation) at the rate of 15% to manufacturing companies that invest more than INR 1 Billion in plants and machinery acquired and installed between 01.04.2013 to 31.03.2015 provided the aggregate amount of investment in the new plants and machinery during the said period exceeds INR 1 Billion. 2. In order to provide a further fillip to companies engaged in the manufacture of an article or thing, the said benefit of additional deduction of 15% of the cost of new plants and machinery, exceeding INR 250 Million, acquired and installed during any previous year until 31.3.2017. A weighted tax deduction is given under Section 35 (2AA) of the Income Tax Act. A weighted deduction of 200% is granted to assesses for any sums paid to a national laboratory, university or institute of technology, or specified persons with a specific direction that the said sum would be used for scientific research within a programme approved by the prescribed authority. For companies engaged in the manufacture of an in-house R&D centre, a weighted tax deduction of 200% under Section 35 (2AB) of the Income Tax Act for both capital and revenue expenditure incurred on scientific research and development. Expenditure on land and buildings are not eligible for deduction. Export promotion capital goods scheme, duty remission scheme and focus product scheme, special focus product scheme, focus market scheme provide additional benefits. Incentives for units in SEZ/NIMZ as specified in respective Acts or for the setting up of projects in special areas such as the North-east, Jammu & Kashmir, Himachal Pradesh and Uttarakhand are also available.

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Recommendations Spanish Companies “Make in India,” has substantial potential for foreign investments and collaboration. The Scheme is personally driven by the Prime Minister Mr Narendra Modi which is expected to be a key driver imparting momentum to implementation. In combination with other defence production schemes identified in the previous parts of the Report Make in India scheme can be used to advantage to establish a foot print in India. Tax incentives can be particularly attractive for joint ventures.

JOINT VENTURES

Establishing Joint Venture Companies with Defence Public Sector Undertakings 5

Guidelines for establishing Joint Venture Companies by Defence Public Sector Undertakings (DPSUs) were issued by the Ministry of Defence, Government of India on 17 February 2012. This effectively operationalised provisions of Defence Production Policy 2011 which states that in order to synergize and enhance national competence in producing state-of- the-art defence products within the price lines and timelines that are globally competitive, all viable approaches such as formation of consortia, joint ventures (JVs) and public private partnership etc. within the Government approved framework should be undertaken. Joint Venture Guidelines (JVG) outline details of this framework to include the following:-

• Enhancing fairness and transparency in selection of JV partner • Ensuring a well defined nature and scope of the JV • Retention of the affirmative right of DPSU for prior approval to key JV decisions such as amendments to the Articles of Association of the JV Company, declaration of dividend, sale of substantial assets, and formation of further JVs/ subsidiaries; • Exit provisions for the DPSU; and • Regular reporting and monitoring of the functioning of the JV Company.

The JVG provide streamlined, fair and transparent framework for entering into JVs by DPSUs, with the ultimate objective of better risk-management/ greater efficiency/shorter time frames for delivery to meet the increasing demands of armed forces, and for enhancing self- reliance in the defence sector as a whole.

The formation of JVs can be undertaken by Board-managed DPSUs within the framework of the JVG as opposed to by the Ministry of Defence Production earlier. Thus the JVG intend to give greater autonomy to the DPSUs in creating joint ventures.

The aim of the joint ventures is also to utilise dynamism of the private sector in India and increasing opportunities to obtain advanced technologies from foreign sources that can further the objective of achieving substantive self-reliance in the defence sector and production of state- of-the-art defence items within the country. The DPSUs can consider formation of suitable partnerships both with Indian as well as foreign companies in order to harness these new

5 Original document Joint Venture Guidelines is at serial 5 of primary documents folder.

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opportunities These partnerships can be of various kinds, such as outsourcing, subcontracting, formation of consortia, project – specific special purpose vehicles (SPVs), formation of JVs, etc.

These SPVs and JVs will have their own legal existence that is separate from the legal existence of the partners. Long term commitment by the JV partners is envisaged. The aim of a JV is also to enhance complimentary capacities, infrastructure, technology or capability available with the partners which require engagement for a longer term and results in achieving either lower costs or better risk management or greater efficiency or shorter timeframes for delivery or enhancing self-reliance in the defence sector as a whole. While establishing JV Companies, the DPSUs have to ensure that existing capacity does not idle or is left spare and their existing resources are utilised in the most optimal and best possible manner.

Formation of the JV Company is restricted to specific product(s) or service(s) required to achieve the objectives of the JV Company. Exposure of the DPSU in the JV Company will be limited to a bare minimum time that may be required for the viability of the JV Company. Preferential treatment to the JV Company by the DPSU is restricted to placing orders of “Minimum Economic Quantities” (MEQs) on specific prior approval of the Board of Directors of the DPSU.

Board of the Parent DPSU retains the right of prior approval of the key decisions of the JV Company, such as:-

Amendment of Memorandum of Association (MoA) or Articles of Association (AoA); Approval for the appointment of Chairman and/or Managing Director; Approval of Annual Business Plan and any material changes thereto; Approval of/and amendment to the Annual Budget; Declaration of Dividend; Bidding for major contracts; Appointment of key managerial personnel; Delegation of Authority of any of the powers of the Board of Directors of the JV Company to any individual or to a committee of its Board of Directors; Any restructuring, inter-alia, by issue or buy-back of shares and/ or securities; Sale of substantial assets; Decisions on loans and encumbrances; and Formation of further JVs/ subsidiaries by the JV Company. The DPSU retains a right to receive management, operational and financial statements of the JV Company on a monthly / quarterly basis and such other information as may be requested or required by the DPSU from time to time.

Recommendations Spanish Companies Given that most Indian DPSUs have a large order book, there is merit in having a JV with these for despite move for privatization of defence production, this will take some time before maturation. Mother DPSU will have extensive control over the JV through various terms of reference identified in the JVG, thus these aspects need to be considered while planning and entering

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into a MOU.

Procedure for formation of a JV Company by a DPSU

Process of selection of the JV partner affords a fair opportunity to competing applicants and for securing best outcomes for the DPSU except where propriety technologies and/ or projects with the DPSU as the offset partner is involved which will have to be approved by the Board of the DPSU. Technology transfer will be incorporated in the Share Holders’ Agreement (SHA) pertaining to the JV Company, and the JV has to ensure that technology will be acquired. The DPSU will sign a suitable Non-Disclosure Agreement (NDA) with prospective partner(s) before sharing any confidential information concerning the DPSU. A typical SHA is expected to contain the following:-

Affirmative rights of the DPSU. Comprehensive representations and warranties by Private Sector Entities; Non solicitation of the employees of the DPSU by the JV Company; Indemnity clauses protecting the interest of DPSUs; Responsibilities of the DPSUs under contracts already awarded to them; Provisions safeguarding the interest of DPSU in relation to its intellectual property; Diligent valuation of assets being transferred or utilized by the JV Company in an independent manner; and Assessment of contingent liabilities.

The Laws of the Republic of India (including, inter alia, the Companies Act, 1956 and the Foreign Exchange Management Act, 1999, as amended from time to time) would govern the JV Company and the corresponding SHA. If parties to the JV Company choose to submit to arbitration as a dispute resolution mechanism in form of arbitration proceedings, such proceedings would be governed in accordance with the provisions of the Indian Arbitration and Conciliation Act, 1996 and the venue of arbitration shall be India. In case a DPSU is a listed company, compliance with disclosure obligations under the relevant listing agreement(s). If the DPSU is not a listed company, it is required to obtain approval by its Board of Directors to a SHA in respect of JV formation promptly followed by an appropriate announcement on its website and by a press release including during subsequent stages of final incorporation of the JV Company as a separate legal entity.

Recommendations Spanish Companies Detailed preparation of SHA and other related documents is necessary with due diligence under Indian as well as Spanish laws.

Establishing Joint Ventures Private companies

A foreign company can invest in an Indian company through a joint venture agreement (or as a wholly owned subsidiary) in defence apart from other areas as indicated by the

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government from time to time. Foreign investment into India is governed by the Foreign Direct Investment (FDI) policy and the Foreign Exchange Management Act, 1999 (FEMA). Other than this, there are no separate laws for joint ventures in India with private companies. Companies incorporated in India, even with up to 100% foreign equity, are treated the same as domestic companies and thus domestic laws as per the Companies Act are applicable. At present FDI in Defence under government route is permitted up to 49 percent. Details of FDI policy have been covered separately.

Recommendations Spanish Companies Joint ventures for defence production also require to be vetted by the Ministry of Defence in case these relate to manufacture of items in the restricted list. The process can be complex even though government is improving ease of Doing Business. A number of firms in India have expertise in preparing joint venture agreement and strategies particularly for joint ventures with private sector companies. Once a proposal by a Spanish company is firmed up for a joint venture, in conjunction with the Indian partner, suitable entity could be contacted for this purpose.

INTELLECTUAL PROPERTY RIGHTS (IPR)

Indian Commitment to IPR India has a strong commitment to Intellectual Property Rights (IPR). India is a member of the World Trade Organisation and committed to the Agreement on Trade Related Aspects of Intellectual Property. India is also a member of World Intellectual Property Organization, a body responsible for the promotion of protection of intellectual property rights throughout the world. India is also a member of the following important WIPO-administered International Treaties and Conventions relating to IPRs:-

Budapest Treaty on the International Recognition of the Deposit of Micro-organisms for the Purposes of Patent Procedure Paris Convention for the Protection of Industrial Property Convention Establishing the World Intellectual Property Organization Berne Convention for the Protection of Literary and Artistic Works Patent Cooperation Treaty Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks- Madrid Protocol Washington Treaty on Intellectual Property in respect of Integrated Circuits Nairobi Treaty on the Protection of the Olympic Symbol Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonograms

The DPP mandates that IPRs for technologies developed as part of “Make” programs need to fully vest with Ministry of Defence. For protection of IPR specific MOUs and agreements are drawn up for sharing of technologies as laid down under international norms.

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For co-developed products the IPR is jointly held and shared. In cases where acquisitions are being made from a foreign vendor, certifications that there are no infringements on IPR are to be given and the seller will have to indemnify the buyer from any third party claims. The prices quoted have to be inclusive of the IPR if any.

Pts for Consideration

Indian IP law is thorough and is aligned to the global regime; the challenge is however in IP enforcement. Enforcement even through civil courts is delayed with a large backlog of cases. While judgments have been by and large fair to foreign company’s time and bureaucracy may lead to loss of value of the IP eventually. Thus prevention is the best form of cure. In India patent law operates under the ‘first to file’ principle, thus it is better to do so at the soonest as a competing product may also be in line for registration. When hiring staff which may involve IP related work this should be clearly stated in the employment contracts and the staff aligned to your IP concerns. Physical means of protection also assume importance. On the whole an IP related risk assessment is necessary.

Recommendations Spanish Companies Undertake an IP related risk assessment with advice from experts in the country who provide legal services in this domain. IPR agreements should be drawn up on a case to case basis for sharing of specific technologies. Continuous monitoring of IP enforcement within is important to ensure protection.

Review of IPR

Department of Industrial Policy and Promotion has constituted an IPR Think Tank to draft the National Intellectual Property Rights Policy and to advice the Department of Industrial Policy and Promotion on IPR issues. The terms of reference of the IPR Think Tank are i. To draft National Intellectual Property Rights Policy. ii. To identify areas in the IPRs where study needs to be conducted and to furnish recommendations in this regard to the Ministry. iii. To provide views on the possible implications of demands placed by the negotiating partners. iv. To keep the Government regularly informed about the developments taking place in IPR cases which have an impact upon India`s IPR Policy. v. To advise the Government on best practices to be followed in Trademark Offices, Patent Offices and other Government Offices dealing with IPR in order to create an efficient and transparent system of functioning in the said offices. vi. To prepare periodic reports on best practice followed in foreign countries. vii. To highlight anomalies in the present IPR legislations and to advice possible solutions to the Ministry. viii. To give suggestions on the steps that may be taken for improving infrastructure in IP offices and Tribunals. ix. To examine the current issues raised by industry associations and those that may have appeared in media and to give suggestions to the Ministry on such issues.

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CHAPTER – 10 OTHER MAJOR POLICIES

DEFENCE EXPORTS STRATEGY – A BRIEF SURVEY

General6 The Government of India does not directly export arms, ammunitions and weaponry systems to any country. As per DGFT’s Policy Circular No. 45(RE-08)/2004-09, dated 4th December 2008, Department of Defence Production (DDP) issues ‘No Objection Certificate’ (NOC) for export of goods, which are in the nature of military stores. Thus the overall volume of defence exports by India is limited. As per No Objection Certificates issued by DDP, the value of exports of Indian Defence industry including the 9 DPSUs and OFB for 2012-13 was Rs 460.97 Crore and in 2013-14 it is Rs 635.45 Crore (provisional). The Year on year trend in exports shows good growth however the potential remains unrealised. Some of the major export destinations for defence products have been Italy, Israel, Ecuador, Russia, USA, UAE, Namibia, Sri Lanka, Malaysia, Seychelles, France, Germany, Romania, UK, Indonesia, Mauritius, Netherlands, Surinam, Kenya, Nepal, Botswana and Oman. Some of the defence items exported were DG sets, spares for radars, sensors, radar warning receivers, helicopter spares, Jaguar spares, MIG spares, Dornier Aircraft spares, forgings etc. Export by private defence industry has also shown growth.

However the government is increasingly looking at defence exports as an avenue for creating economies of scale in the defence industry and exploits low manufacturing costs in India to attract foreign companies and capital to advantage. Thus a Defence Exports Strategy has been issued and basic contours of the same are covered herein.

Aim and Objectives. The Defence Exports Strategy underlines importance of expanding the scope for domestic defence industry to invest in R&D and production by going in for defence trade as indigenous demand is considered inadequate for this purpose. The Defence Exports Strategy is seen as an addendum to the Defence Production Policy of 2011 which had laid stress on indigenous production. This thrust on defence indigenization which is seen as imperative to maintain strategic autonomy of the country continues across governments headed by different political parties.

Defence Exports Strategy is closely linked with the Foreign Trade Policy (FTP), issued by the Ministry of Commerce & Industry (MOCI) which outlines export promotion schemes, duty/ tax exemptions and other facilitative measures to boost trade abroad. The present FTP is applicable till 31 March 2014 and a new one is likely to be announced shortly. Tax incentives for defence exports are also likely and formation of Special Economic Zones (SEZs) for the purpose may also be in the offing. Karnataka for instance has already laid out a plan for an aerospace SEZ in 2013. The Defence Exports Strategy will be dependent on smooth integration of policy and processes between the Ministry of Defence (MOD) and Ministry of Commerce & Industry (MOCI). This thus assumes importance.

6 Original document Defence Exports Strategy is at serial 6 of primary documents folder.

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Main Parts of Strategy

The Strategy for Defence Exports has three main parts, Export Promotion/ Facilitation, Export Regulation and Implementation and Review.

Export Promotion/Facilitation. Export Promotion is proposed through creation of Export Promotion Body and Defence Export Steering Committee, Government Support to Defence Exports, Export Financing and Other Incentives and Use of Offset Policy.

Export Regulations. Export Regulation is an important facet as global arms trade necessitates controls more importantly as India is not a member of the Wassenaar Arrangement. The strategy includes aspects covering Issue of NOC, Finalisation of the List of Military Stores and Online and Time Bound Clearance and Export of Indigenously Developed Sensitive Systems.

Recommendations Spanish Companies India has the potential of manufacturing hub for exports of defence systems, assemblies and accessories which needs to be explored. Government is increasingly open to defence exports and has announced a strategy which should be taken advantage of. Advantage in defence exports for discharging offsets can also be taken of through this route.

Issue of NOC.

Provisions for issue of No Objection Certificate and End User Monitoring have been promulgated. Export Strategy acknowledges the present dichotomy of regulations split between two departments, those in the SCOMET list of Foreign Trade Policy of DGFT by that body and for military stores by the Department of Defence Production. The DGFT issues licence based on the Inter-Ministerial Working Group in which the Ministry of Defence is one of the members. This dichotomy has now been removed and the Standard Operating Procedure (SOP) revised and streamlined to provide clarity regarding the procedure.

The Department of Defence Production in Ministry of Defence has finalised the process of issue of NOC for defence exports based on the revised list of defence products requiring Industrial Licence from DIPP for manufacturing. This list has been modified by including software and technologies for the purpose of defence applications.. The procedure for issue of NOC is varied and is based on the type of military stores and purpose for which the exports are being made. These have been divided in five categories as follows:-

Category 1 is covered in Part – A : For export of Military Stores as in Annex-I Category 2 is covered in Part – B : For export of Military Stores other than in Annex-I Category 3 is covered in Part – C : Export for exhibition purposes Category 4 is covered in Part – D : Export for testing and evaluation Category 5 is covered in Part – E : Export for participation in tender

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Category 1 - Part – A (For export of Military Stores): This category requires End User Certificate (EUC). The EUC is to be signed/ stamped by government of end user/ ultimate end user country/ state. In case the item is intended to be exported to an ultimate end user through intermediary importer(s) abroad, then EUC from each such intermediary user/users is also required. The EUC/EUCs should be able to establish the chain of transmission of the exported product until it reaches the ultimate end user The end user/ ultimate end user (as applicable) should give undertaking/ declare/ certify that a) That the item(s) imported shall not be used for purposes other than those declared in the EUC. b) That the item(s) would not be subsequently transferred (re-exported) without the prior authorization of the original exporting Government. c) That imported goods shall not be diverted, sold or transferred to any third party whatsoever, except as indicated in the EUC. d) That, if required, verification/ certification about the possession of the item(s) has occurred would be provided. e) That the items imported shall not be used for any purpose that relate to the development of weapons of mass destruction.

The application will be processed in conjunction with Ministry of External Affairs (MEA), concerned Service Headquarters, DRDO, PIC Wing in MOD and any other agency, as the case may be, for comments within 15 days. If comments are not received within 15 days, it would be presumed that the concerned agency has ‘no comments’ to offer on the proposal and the case would be processed further.

A committee under the chairmanship of Joint Secretary (DIP) having representatives of MEA, PIC Wing of MOD, concerned SHQ, DRDO and any other expert, as deemed necessary, will examine and make recommendation on granting NOC for export. The meeting of the committee will be scheduled at a gap of 15 days from circulation of application to all members. In case, due to certain sensitivities involved in the proposal due to any reason, or the committee is not in a position to take a view, the matter will be placed before Defence Exports Steering Committee (DESC), which will be chaired by Secretary (Defence Production).

The applications in respect of advance approvals/ in-principle clearance for participating in tenders/ RFP or for exploring export opportunities in other countries will also be processed and considered by the above mentioned procedure except that no EUC will be required in such cases. Such in-principle clearance for participating in tender/ RFP for export would have validity of two years from the date of issue of NOC or for the period covered under the application, whichever is less.

The NOC will be issued for the entire order/ contract at one go with validity of maximum two years or completion of the order, whichever is earlier. The validity of NOC may be extended from time to time, based on requirements and merits by the competent authority based on the recommendation of the committee under the chairmanship of Joint Secretary (DIP). The quantity exported under each consignment shall be endorsed by Customs authorities on the original NOC at the time of each consignment.

Other Categories. Category included in Part – B (export of Military Stores other than requiring NOC) an End User Certificate (EUC), in original is required and consultations will be held if the export is intended to negative list countries with the MEA within a period of 15 days. Other categories will be considered on a case to case basis without the necessity of a NOC.

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List of Defence Items Requiring NOC

1. All Rifle & Smooth-bore weapons and other arms, automatic/Semi-automatic or pump-action type weapons, Weapons using case less ammunition, Silencers, special gun-mountings, weapons sights, signature reduction devices and flash suppressors to include rifles, carbines, revolvers, pistols, machine pistols, multi barrel rocket, machine guns, guns, rocket, cannon & missile systems – used on land, ships & shore based and airborne, howitzers, mortars, anti-tank weapons, projectile launchers, military flame throwers, rifles, recoilless rifles .

2. Ammunition and fuze setting devices including the following :- a) Safing and arming devices, fuzes, sensors and initiation devices; b) Power supplies with high one-time operational output; c) Combustible cases for charges; d) Submunitions including bomblets, minelets and terminally guided projectiles.

3. Bombs, torpedoes, grenades, smoke canisters, rockets, mines, missiles, depth charges, demolition-charges, demolition-devices, demolition kits, Aircraft missile protection systems (AMPS), "pyrotechnic" devices, cartridges and simulators (i.e., equipment simulating the characteristics of any of these items), specially designed for military use.

4. Ground vehicles, as follows:- (a) Ground vehicles namely Tanks and other military armoured/armed vehicles and military vehicles fitted with mountings for arms or equipment for mine laying or the launching of munitions includes all tracked and wheeled self-propelled armoured and non-armoured weapon systems ,and trailers for towed and static weapon systems. (b) Other ground vehicles namely all-wheel drive vehicles capable of off road use which have been manufactured or fitted with materials or components to provide ballistic protection to level III (NIJ 0108.01,September 1985, or comparable national standard or above) with mountings for arms or equipment for mine laying specially designed for military use. (c) Amphibious, hovercrafts and deep water fording vehicles for military use.

5. "Energetic materials" and related substances includes all explosives like primers, boosters, initiators, igniters, detonators, smoke bomb, colour signals, propellants and pyrotechnics, oxidizers, binders, plasticisers, mobomers, additive scuopling agents, Precursors and other related ammunition.

6. Vessels of war (surface or underwater), other surface vessels (fitted with automatic weapons having a calibre of 12.7 mm or higher, CBRN protection, active weapon countermeasure systems), special naval equipment, anti- submarine/ torpedo nets, hull penetrators and connectors “specially designed for military use”.

7. “Aircraft” including but not limited to helicopters, “lighter-than-air vehicle”, Unmanned Aerial Vehicles” (UAVs), Remotely Piloted Vehicles (RPVs), autonomous programmable vehicles, unmanned light than air vehicle (to include all variety of manned and unmanned airborne vehicles – includes target systems, loitering missiles, drones, balloons, blimps, aerostat, parachutes, paragliders, ground effect machines, air cushion vehicles/hovercraft, UAVs and launchers, designed for military applications).

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8. Electronic Equipment used for electronic countermeasure (ECM) and Electronic counter countermeasure(ECCM), surveillance, intelligence, Command and Control systems, Global Navigation Satellite systems (GNSS) jamming equipment. Data processing, storage and transmission security equipment, identification and authentication equipment (including identification Friend or Foe and Non-Cooperative Target Return Identification Systems), guidance and navigation equipment’ Troposcatter-radio communications equipment’ and Military Information Security Assurance systems and equipment (like cryptographic devices including military Cryptographic key management and Cryptanalytic systems). Communication equipment, frequency modules and secrecy devices, specially designed for Military Use.

9. High velocity kinetic energy weapon systems and related equipment : a) Kinetic energy weapon systems specially designed for destruction or effecting mission-abort of a target; b) Specially designed test and evaluation facilities and test models, including diagnostic instrumentation and targets, for dynamic testing of kinetic energy projectiles and systems.

10. Armoured or protective equipment as follows:- a) Constructions of metallic or non-metallic materials, or combinations thereof, specially designed to provide ballistic protection for military systems. b) Body armour or protective garments of level III (NIJ 0101.06, July 2008 or national equivalent and above).

11. 'Specialised equipment for military training' or simulators specially designed for training in the use of any firearm or weapon.

12. Imaging or countermeasure equipment, as follows, specially designed for military use:- a) Recorders and image processing equipment;" b) Image intensifier equipment; c) Infrared or thermal imaging equipment; d) Imaging radar sensor equipment; e) Countermeasure or counter- countermeasure equipment

13. Directed Energy Weapon (DEW) systems, related or countermeasure "equipment and test models”, as follows:- a) “Laser” systems specially designed for, destruction or effecting mission, abort of a target; b) Particle beam systems capable of destruction or effecting mission-abort of a target; c) High power Radio- Frequency (RF) systems capable of destruction or effecting mission-abort of a target; d) Equipment specially designed for the detection or identification of; or defence against, systems at (a) and (c) above. e) Physical test models for the systems, equipment and components, specified by this S.No. f) ‘Laser protection equipment (e.g. eye and sensor protection)’.

14. Cryogenic and superconductive equipment especially designed or configured to be installed in military vehicle.

15. Air Independent Propulsion (AIP) systems (nuclear/conventional) for marine applications.

16. Miscellaneous : Concealment and deception equipment specially designed for military application, including but not limited to special paints, decoys, smoke or obscuration equipment and simulators, and Metal embrittling agents.

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17. Software: Softwares especially designed or modified for military use or for the development, production or use of equipments, materials listed.

18. Technology: Technologies required for the development, production, operation, installation, maintenance, repair, overhaul or refurbishing of items specified.

SECURITY MANUAL FOR DEFENCE INDUSTRY

General

A, “Security Manual for Licensed Defence Industries,”7 has been issued by the Ministry of Defence in June 2014. The Security Manual is issued in pursuance of para 12 of the Press Note No.2(2002 series) issued by the Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce and Industry, Government of India wherein licensed defence companies are required to put in place adequate safety and security procedures once licence is granted and production commences and this would be subject to verifications by authorized Government agencies. The Security Manual prescribes minimum standards of security and other safeguards required to be put in place by the licensee in the interest of national safety and security. Defence products have been categorized in three categories such as A, B & C. Category A involve products which require highest level of security, category B involve a medium level of security and category C would require a minimum level of security. If any company is involved in the manufacturing of the Defence products which lie in more than one category, then either the company should clearly segregate the areas of operation/ manufacturing for different categories of products and apply the related security instructions or if the areas of operation/ manufacture are not possible to be segregated, the security instructions applicable to the higher level of security would be applied.

The companies are required to follow this Security Manual whenever they undertake the manufacturing of any Defence item for which they have been issued Industrial Licence. The security instructions relating to the category to which the Defence product belongs, would be applicable in such case. Drawing up an elaborate disaster management plan to safeguard the plan/facility from major catastrophic incidents and carrying out frequent rehearsals to ensure effectiveness of the plan in the event of any disaster.

Categories and Security

Category - A : The products involved in this category would be highly classified and sensitive from the security angle and the manufacturing of these items would require the highest level of security. The illustrative examples of products under this category are explosives, propellants, propulsion, aircrafts, warships, battle tanks, radars, weapons, software and various

7 Original document Defence Security Manual is at serial 7 of primary documents folder.

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types of charges. Stringent security measures have been specified for establishments falling in this category including for visits by foreigners.

Category - B : This category would include semi-finished products, sub-assemblies, sub- systems of main weapons/ equipments/ platforms and some finished products of lesser degree of sensitivity. The illustrative examples of products under this category are wing assemblies/ structural assemblies/ barrel assemblies/ turret/ avionics etc. Reasonable security measures have been specified for industry falling in this category.

Category - C : This category would include products which do not involve use of any classified/ secret information and are very generic in nature. The products in this category would normally be not specifically designed or modified for military use and therefore would require only a very minimal level of security. The illustrative examples of products under this category are sub-assembly components, sheet metal parts, all other C class items & consumables. Limited security measures have been specified for industry falling in this category.

Detailed categorization of Category A and B industries from the point of view of security has also been made by the Ministry of Defence Department of Defence Production vide Office Memorandum No 7 (20)/2008/D(DIP) dated 25 August 2014. For example in the weapons category, industrial facilities manufacturing basic arms such as rifles, pistols and so on are in Category A while those manufacturing silencers, mounts, flash suppressors and so o are in Category B.

Recommendations Spanish Companies Requirement for visits of industry and establishments in Category A should be floated well in advance to ensure timely clearance. Cost effect of security measures should be factored in the proposal.

HARMONISATION WITH INTERNATIONAL ARMS EXPORT REGIMES

India is aspiring to be a member of four multilateral export controls regimes—the Nuclear Suppliers Group (NSG), the Missile Technology Control Regime (MTCR), the Australia Group, and the Wassenaar Arrangement. India’s aim of being a part of these international institutions is to contribute to global governance and security, represent interests of developing countries and create a favourable environment of equity in the global order. India thus continues to press for reform of the United Nations and expansion of its Security Council to make it more representative and democratic to enhance its credibility and effectiveness and reflect contemporary geo-political realities.

The aim of participation in the export control regimes is to benefit from the arms and munitions trade that is carried out by signatories relatively more freely within than with countries who are not members of the groupings. Thus India hopes that it will gain in terms of acquiring advanced technology by easing trade regulations and also be able to export munitions in the days ahead.

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These regimes have emerged as the leading forums of the global export controls system and are oldest multilateral bodies for export controls. Though these are small informal groupings, they derive their importance from the nature of their membership. Most of the major suppliers of high technology or sensitive technology, mostly dual use in nature, are members of these regimes. Therefore membership of such regimes is envisaged to give India a distinct advantage in participating in the management of the global commerce in advanced technology. India is thus strengthening global export controls or strategic trade management through the multilateral export controls regimes. United States and Russia amongst other major powers have declared their support for India joining these regimes. Harmonization with international arms export regimes is expected to boost defence manufacturing and trade for India.

India has rejected the global arms trade treaty (ATT) negotiated by the United Nations as the text fell short of expectations in producing a clear, balanced and implementable goal that could attract universal adherence in 2013. The ATT does not make a real impact on illicit trafficking in conventional arms and their illicit use especially by terrorists and other unauthorized and unlawful non-State actors, Sujata Mehta India’s Permanent Representative to Conference on Disarmament, Geneva and Head of the Indian Delegation to the Arms Trade Treaty Conference said. The provisions in the final draft on terrorism and non-state actors are weak and diffused and find no mention in the specific prohibitions of the Treaty. India has also stressed consistently that the ATT should ensure a balance of obligations between exporting and importing states. There is a fundamental imbalance in the text which is flawed as the weight of obligations is tilted against importing States. Given that India is a net arms importer and New Delhi is exploring a number of procurement agreements it may find itself in a tight spot due to some restrictions of the ATT.

Recommendations Spanish Companies India is likely to join the international arms control regimes by 2020 given the complex and time consuming processes. This is expected to open defence exports and trade to India adding to attractiveness of the country’s industry for foreign investments.

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CHAPTER 11

RECENT POLICY INITIATIVES BY THE GOVERNMENT

Review of Blacklisting Policy

Large number of allegations of corruption in defence deals is a major concern in India’s defence sector. During the last three years and up to 30th June of the current year, the Central Bureau of Investigation (CBI) has registered cases of alleged irregularities / corruption as per the following break-up:-

Year No. of regular No. of preliminary Total cases enquiries 2011 18 05 23 2012 30 08 38 2013 21 08 29 2014 13 03 16 (upto 30.06.2014) 82 24 106

Out of the above 106 cases, 07 cases have been closed. The remaining cases are in various stages of inquiry, investigation and trial etc.

While well defined procedures with adequate checks and balances, are prescribed in Defence Procurement Procedure (DPP) for capital procurement and in Defence Procurement Manual (DPM) for revenue procurement these are reportedly being violated. The existing procedures contain stringent provisions aimed at ensuring higher degree of probity, public accountability and transparency. Whenever any irregularity / corruption in defence procurement come to light, the case is instantaneously handed over to Central Bureau of Investigation (CBI) for thorough investigations.

The Ministry of Defence is planning to review the present policy of banning all companies based on complaints received from sundry authorities and violation of contract norms. It was seen in the past that banning parent company prevents subsidiaries operating in different domains of defence industry from participating in tenders thus denying options for the Indian armed forces in procurement, restricting choice and in some cases even persistent deficiencies as some of these are the sole manufacturers in particular domains. The single vendor scenario is another nightmare if of the two or three companies only one is left in the technical stage itself as others are ruled out due to various factors including allegations of corruption. As many of these allegations take time to investigate years go by even as the armed forces are devoid of the equipment. Thus a more practical policy is expected to be put into place. For instance in the case of Italian company Finmeccanica – only those subsidiaries accused such as Agusta Westland have been blacklisted while others such as WASS; radar and communications specialist Selex

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Electronics Systems; aerospace giant, Alenia Aeromacchi; and armaments major, Otomelara have not been blacklisted but will not be able to apply for fresh tenders. Frivolous and unsubstantiated complaints or letters by Ministers, parliamentarians or other leaders including anonymous complaints will be disposed off at the Ministry of Defence level.

Private Sector Boost

The Modi government is giving a boost to the private sector. Thus tenders for replacement of 56 Avro transport planes were issued to the private sector leaving out Hindustan Aeronautics Ltd for the first time. Consequently, 16 aircraft, in a fly-away condition would be exported by a foreign vendor, who will select an Indian partner in the private sector for the manufacture of the remaining 40 planes. Similarly the P 75 I Submarine tenders will be issued to both public/private sector shipyards. The tender issued for Light Utility Helicopters for the Army is also being issued to public/private sector. The Government is planning to spend $12 billion to encourage private firms to establish an aircraft manufacturing facility and break Hindustan Aeronautics Limited’s monopoly on aircraft manufacturing after years of delays on several projects. For this purpose the Light combat aircraft (LCA) Mark-2 has been offered to private defense majors, Tata Group, Mahindra & Mahindra and Larsen and Toubro either independently or in partnership with overseas firms are eligible for this contract.

Easing norms for private sector in defence the government has now allowed these to sell manufactured items to the state sector without any approval of the Ministry of Defence. This will considerable expand the size of the market that is available for items produced for the defence sector which were earlier sold only on prior concurrence of the Ministry of Defence Department of Defence Production. Private industry in India will now have greater options with exports and reduction of requirement of licensing for dual use also approved in July 2014. This would also mark rapid introduction of new regulations thereby easing the norms and providing a fillip to the ease of doing business index in this sector. It now remains to be seen how the actual implementation of these rules takes place and whether these will generate enough interest in the private sector to invest in defence.

Speedy Clearance of Private Sector Joint Venture Applications

Giving a big boost to “Make in India”, the Licensing Committee chaired by Secretary, Department of Industrial Policy & Promotion has cleared 19 proposals for grant of Industrial License. 14 pending defence applications, applicants were informed that licenses were not required anymore as a vast number of defence items have been delicensed. Vide Press Note 3(2014), Defence Products list for industrial licensing have been issued, wherein large number of parts/components, castings/ forgings etc. have been excluded from preview of industrial licensing. Similarly dual use item, having military as well as civilian application (unless classified as defence items) do not now require Industrial License from defence angle. This has enabled domestic and international companies to undertake manufacturing without going through a lengthy process. The applicant company now only needs to file an Industrial Entrepreneur Memorandum (IEM) for these items and implement his project through the automatic route. It is expected that clearance of these 33 applications and the deregulation of Defence product List excluding a large number of components from purview of industrial

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licensing will provide a major impetus to advanced manufacturing in Defence sector. Thus joint ventures in the private sector are likely to be processed speedily.

Government May Permit Authorised Agents in Defence

Defence ministry has held one round of discussions on the policy for "authorised Indian representatives or agents" and the role they can play in facilitating and smoothening arms deals in a legitimate manner. While the Indian government had banned agents and consultants who were not registered the norms of registration were so stringent that not many came up for the same. Yet there were many who are known to be operating in the background and were indulging in pay offs with scams recently unveiled including the Agusta Westland helicopter deal. A number of companies who were blacklisted were due to payments made to agents who claimed that they would be able to get the deals through. In addition the area of offsets had led to a number of companies cropping up to act as facilitators but these too have come to grief. Now it is apparent that the government wants to formalise the informal structures of agents to ensure that those who were operating without any restrictions are brought in line and reduce level of corruption while allowing them to seek fees for their services.

Recommendations Spanish Companies Policy reforms in defence industry are being undertaken with a view to ease doing business in defence which will facilitate entry and collaboration by foreign companies. Policy reforms in the defence and industry in general are being undertaken by the present government in India with increasing frequency, thus regular monitoring of changes is recommended.

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OVERVIEW OF POLICIES FACILITATING ENTRY BY SPANISH COMPANIES

COLLABORATION MODELS POSSIBLE

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CHAPTER 12

SUMMARY OF OPPORTUNITIES, CHALLENGES AND POLICY CHANGES ENVISAGED

General Opportunities and Challenges

Defence Procurement Procedure has been in vogue for a number of years thus there are a number of opportunities that have emerged as well as challenges flagged to active participation by vendors both Indian and foreign which have come to notice. India’s defence acquisition has created space for conducting business in varied formats from the Buy (Global) one hand to Make Indian through prototype development. This facilitates a participating company to choose a model that best suits competencies and comfort levels including alignment with domestic laws. There are at the same time varied challenges. The opportunities and threats have thus been covered in the Box below. Some of the key issues that have been discussed in various forums from time to time are briefly covered in the subsequent paragraphs.

Opportunities and Threats Box

Opportunities Threats Various categories of capital acquisitions The process is linear thus in case there is a including Buy Indian, Buy and Make Indian mishap in one of the later steps the whole and Make – the requirement of indigenous procedure has to recommence. Thus there are content varies from 30 to 50 percent on cost inevitable time delays. basis thus providing adequate scope for participation by foreign vendors. While the LTIPP is a classified document not Focus remains on self reliance and available in the public domain, the Technology indigenization thus considerations of policy Perspective and Capability Road Map (TPCR) changes favouring indigenous industry arise. derived from the LTIPP is published and provides a good perspective of future technology requirements Request for Information is the first point of Large number of agencies in decision making contact with the industry in this process based process increasing complexities on which the tenders are issued which can be exploited. Management of obsolescence of 30 percent The overall talent and trust pool that is equipment is inbuilt in the system whereas available in the country is seen as a limit to upgradation of 40 percent will also be part of what can be indigenously achieved. the process. Thus at any one time over 50 percent of the equipment would be undergoing some stage of modernization either replacement or upgrade creating opportunities An open transparent system of evaluation at all Rationalisation with the global defence

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stages including frequent interaction with the procurement and industry norms is necessary. vendor Scope for direct provision using the Inter Lack of trust in private sector and foreign Government Agreement or Strategic provision companies, thus time taken in building of critical items and technologies. confidence and credibility.

Challenges

Slow Decision Making Process. The four stages, eleven step defence procurement process are seen by many as extremely slow and cumbersome.

Trial Procedure. The Trial Procedure is seen to be time consuming with trial evaluation carried out on a No-Cost, No Commitment (NCNC) basis, there is no urgency on the part of the government agencies to have time bound trial as the Government does not bear the cost for trials nor is it committed to buy the products.

Transparency and Allegations of Corruption. There is lack of transparency from AON to Award of Contract stage with many allegations of corruption that have delayed programmes and blacklisted internationally recognized companies. The government is however reviewing the policy of blacklisting to make it more realistic. An open transparent system of evaluation at all stages including frequent interaction with the vendor is called for.

Single Vendor Situation. Single vendor situation arising from various factors including one or more vendor pulling out of contract, being blacklisted and so on places the other competitor (s) who has acted fairly at a disadvantage.

Series of Re-bidding. A number of rebidding of contracts has taken place due to change in technical specifications or single vendor situation. The light utility helicopter tender which has been cancelled twice since 2007 is a salient example.

Offsets. Rigorous offset requirement with the process requiring greater clarification in terms of multipliers.

Liability Clause. Current liability is higher (up to 30% of the contract value) than the one commonly applied in defence contracts internationally thus preventing open participation by the vendors.

IPR. Key intellectual property (IP) in the case of Make projects has to be in India to ensure life cycle support and subsequent upgrades of the equipment. This is not as per global norms where defacto IP is held by the governments with sharing with companies who have developed the technologies. Cash Flow Disincentives. Calculation of Discounted Cash Flow (DCF) to selected vendor is seen as disadvantageous to Indian companies as prime lending rates in India are much higher than other countries.

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Transition to the Life Cycle Concept. The Ministry of Defence is transitioning to the Life Cycle Concept thus there are delays in commercial negotiations which are seen to be extensively complex and time consuming. For instance the commercial negotiation for the Rafale Medium Multi Role Combat Aircraft (MMRCA) has been ongoing for over two years now with no end in sight.

Political will and Bureaucratic Inertia. Lack of political will to take tough decisions and bureaucratic inertia has led to bottlenecks. The situation has changed with the present Narendra Modi government far more willing to take decisions which are in the interest of national security and seeking greater accountability from the bureaucracy.

POLICY CHANGES ENVISAGED

Ease of Doing Business. The new government in India is seen to be widely investor-friendly, decisive and keen to improve the eco-system. Prime Minister Mr Narendra Modi himself has announced a number of times determination to improve ease of business index of the country. Practical measures in this respect are expected. This may require incorporating State governments as well for acquisition of land, labour laws and taxation, require legislative action with cooperation of the States and attitudinal change in the bureaucracy. Some of the other major policy changes that are envisaged which may be incorporated in the DPP to be published in 2015 are as follows:- Review of 'Make' procedure. Defence Procurement Board (DPB) is considering, a new procedure for “Make” category procurements. This will simplify and modify the Make procedure formulated in 2011. The Make procedure would bring together Indian companies in designing, developing and building defence equipment with the Ministry of Defence paying 80 per cent of the development costs. Allowing intellectual property rights (IPR) to vest with the companies that develop the intellectual property; laying down clear guidelines for evaluating bids and choosing a company as the development agency (DA); laying down schedules for paying the DA; imposing financial costs on the MoD if equipment specifications are changed during the development process; and writing out the procedure in clear and simple prose are some of the other measures likely.

These moves come after the failure to close the contract for selection of a development agency for the future infantry combat vehicle (FICV) which had been nominated as Make. The rules were unclear on a number of important operational aspects to include formation of consortia, competent authorities for approval and changes to SQRs. Acceptance of failure in Make Procedure would have to be inherently built in the process as programmes under this process are risky. Internationally applicable frameworks as being followed in the US and the EU may be adopted as relevant to undertaking procurement of R&D and innovation. Stringent conditions for selection of companies for Make category is also under review. The DAC may dilute these conditions, opening the door for foreign vendors to enter as

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joint venture companies (JVs) and claim "Make" funding along with norms for selection of Indian companies. Joint Ventures. Joint Ventures will be permitted to participate in Buy (Indian) and Buy & Make (Indian) categories of procurement after the FDI holding has gone up to 49 percent. As export from joint ventures is subject to export control laws of the country rationalization of the norms are essential. In case Spanish laws are harmonized with that of Indian laws, there could be greater scope for joint ventures for exports. This will facilitate taking advantage over countries as the United States where US Code of Federal Regulation mandates that a foreign JV, in which an American company owns more than 20 per cent, is subject to US technology control laws.

Offsets Amendment.

The following amendments for Offsets are under consideration:-

Buyer demanded rather than Vendor-driven Offsets is being planned. This would imply reducing the various categories that have been stated for offset discharge in the relevant Chapter of the Paper. Increasing quantum of offsets from the present 30% is in the offing. Offset trading could be permitted within group companies and under specific categories where buyer benefits are accrued. Removal of clause withholding ‘services’ as MRO, upgradation/life extension and software developed specifically for the equipment contracted by MoD in abeyance is likely. Permitting Tier-I vendors to discharge offset obligation exceeding their work share may be expected. Clarity of issues such as, ‘direct purchase of’ and ‘executing export orders for’ eligible products, under Route 1 for discharging offset obligation is being given. Increasing quantum of offset credit to a vendor if he buys back more than 40% of the product made using the equipment he brings in to discharge the offset obligation could be in the offing. Eligibility of a Joint Venture with a foreign company to become an Indian Offset Partner (IOP) may be under consideration. Empowerment and specialization of DOMW is in the offing so that it can act as a facilitating agency for offsets.

FDI. Ministry of Defence may provide a list of state-of-the-art technologies where foreign direct investment (FDI) of more than 49% can be considered. Though these have been given in the technologies which have been identified for gaining advantage of multipliers in offsets by the DRDO, this may need greater clarification.

IPR. There may be a revision in the IPR for technologies developed as part of “Make” programs which at presents is with MoD. The development agency may also get a holding ownership rights in IPRs as per provisions in the US DFARS (Defence Federal Acquisition Regulation Supplement) and Australian Government IP Manual. More over a strong ownership-

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licensee relationship in India is likely to ensure oversight, control and management of IPRs on part of the government. Defining Liabilities. Laying down the liabilities of vendors for cost-apportionment between MoD and development agencies, as also alignment of sub-project costs to agreed milestones under approved project reports may be defined. In addition, the frequency of financial reimbursement to private partners, and the ability of both contracting parties to walk away from unsuccessful projects without incurring future liabilities, could be explicitly defined under the new contractual framework. The Ministry of Defence is seen as far too risk averse and there is lack of trust on the liabilities that companies would have to bear in case of failure of contracts and processes.

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SECTION 4

DEFENCE CAPITAL BUDGETING AND SERVICES ACCRETION PLANS

Market Opportunity Framework – Budgeting and Capital Accretion Plans

The market opportunity framework in the larger perspective was covered in Chapter 1. This would also be evident on factorial considerations as shown in the framework model at Figure below. First and foremost is willingness of the government to invest in defence and likely availability of funds for this purpose with a structured approach to regular allocation of budget. A large Armed Forces fielded by the country based on the threat paradigm and national goals and objectives and identification of requirements and proposals to make up deficiencies with long term needs for provision of spares, maintenance support and upgadation will also denote an option for investment in this sector. There is basic industrial infrastructure which provides the base with diverse expansion planned. Finally there is a clear identification of needs in terms of technologies and weapon systems required by the services, thus denoting an opportunity framework exploring the back end. Details of these factors are covered as per succeeding paragraphs.

Large Armed Forces Requirements Deficiencies Long Term Needs

Budget Resources for Defence Spending Polically Accepted Regular Allocaons

Industrial Infrastructure Basic exisng Expansion planned

Idenficaon of Needs Technologies Systems

Figure

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CHAPTER 13

BUDGETING AND RESOURCE ALLOCATIONS

Resource Allotment

Defence resources are considered as Non-Plan expenditure in India which covers all expenses of Government not included in the Plan. It may either be revenue expenditure or capital expenditure. Part of the expenditure is obligatory in nature e.g. interest payments, pensionary charges and statutory transfers to State and Union Territory Governments. A part of the expenditure relates to essential functions of the State, e.g. defence, internal security, external affairs and revenue collection. The budgetary requirements for the Defence Services commonly known as Defence Budget include revenue and capital expenditure.

The Revenue expenditure includes expenditure on Pay and Allowances, Transportation, Revenue Stores (like Ordnance stores, supplies by Ordnance Factories, Rations, Petrol, Oil and Lubricants, Spares, etc.), Revenue Works (which include maintenance of Buildings, water and electricity charges, rents, rates and taxes, etc.) and other miscellaneous expenditure.

The Capital expenditure includes expenditure on Land, Construction Works, Plant and Machinery, Equipment, Tanks, Naval Vessels, Aircraft and Aero engines, Dockyards, etc. This includes only expenditure on items that have a unit value of Rs. 10 Lakhs and above. The Budgeted allotments in the Finance Bill are expressed in terms of Budget Estimates (BE). These are revised based on the state of expenditure as Revised Estimates (RE) during presentation of the budget on 27 February each year. Once the budget year (April to March) closes these are expressed in terms of actual expenditure and are reflected as defence expenditure. Thus there are generally three figures which are reflected in all budgetary documents BE, RE and Defence Expenditure.

Defence Budgeting Cycle

The annual defence budget process includes roughly five steps as indicated in Figure below. First the services prepare their projections which include the requirement for revenue and capital budget and process through HQ Integrated Defence Staff to Ministry of Defence (MOD). The revenue budget is generally incremental in nature and takes off from legacy calculations supplemented by envisaged future requirements. The capital budget is worked out based on committed liabilities and plans for new acquisitions. These are then considered by the Ministry of Defence and the projections forwarded to the Ministry of Finance (MOF). In Stage 4 discussion is held in case of a major variation in allotment between the MOD and the MOF including the revised estimate projection for the current budget before final allocations are made. In most years there is a variation between the projections by the services. The variation in projection and allotments could be from 10 to as high as 25 percent. This does create an anomaly in terms of inflated demands by services in the expectation that these are unlikely to be met and an unhealthy fiscal spiral could be set in motion.

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Defence Budgeting Cycle 5. 1. Allocatio Projection ns for by Defence Services

4. 2. Discussio Considera ns MOD tion by and MOF MOD

3. Projection s to MOF

Figure

Defence Expenditure/Budget Evaluation – 2014 Model

Mr Arun Jaitley Minister of Finance and then of Defence as well on July 10, 2014 allocated Rs 2, 29,000 Crore for defence which includes revenue and capital expenditure on Defence Services, net of recoveries and revenue receipts for the financial year 2014-15 (April- March).8 The components are Army Rs 92,669.32 Crore, Navy Rs 13,975.79 Crore, Air Force Rs 20,506.84 Crore, Ordnance Factories Rs 1,275.43 Crore, Research and Development Rs 5,984.67 Crore and Capital outlay on all the above services Rs 94,587.95 Crore for modernisation of Defence forces. This was Rs 5000 Crore above the Interim Defence Budget announced by Mr Jaitley’s predecessor Mr P Chidambaram of Rs.2,24,000 Crore.

8 Though this is normally done in February each year this year due to elections in April May only interim allocations were made in February and the final allocations have been made in July. The Defence Budget for 2014-2015 will be announced in the last week of February 2015.

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DEFENCE BUDGET SERVICES 2014-15 AND COMPARISON [Rs Crore] Actual 2012- Budget Revised Budget Budge Annu Biann 2013 2013-14 2013-2014 2014-2015 t 14-15 al ual Incre Increa ase se Non-Plan Non-Plan Non-Plan Non-Plan US $ From From Total Total Total Total Billion Revis Actual /Rs ed 2012- 60/$ 2013- 13 14 Total 181775.8 203672.1 203672.1 229000 38.17 12.44 25.99 Reven 111276.7 116931.4 124799.9 134412.1 ue 22.40 7.70 20.79 Capit 70499.12 86740.71 78872.23 94587.95 al 15.76 19.93 34.17 Table

Detailed evaluation of the Defence Expenditure/Budget for the last three years 2012-13 to 2014-15 is indicated in Table above. This would denote a steady increase year on year. The total budgetary allocations have increased over the past three years by 25.99 %, wherein the revenue component has gained by 20.79 % and the capital component by 34.17 %. Thus the capital allocations are growing by almost one third over a three year cycle. This is expected to further increase in the coming years. Year on year the overall increase is 12.44 percent from Revised Estimates for 2013-14, while the capital expenditure has seen an increase of 19.93 percent. An almost 20 percent hike in the defence capital acquisitions can be seen to be a major accretion. However an unusual situation for the Ministry of Defence (MOD) in India these years is proposals lined up for financial clearance but not having adequate funds. Whereas in most years there has been surrender of funds to the tune of 5 percent plus this year the situation is the opposite. Thus there is a problem envisaged in overcoming hollowness in the armed forces and particularly the Army by denying cutting edge procurements that was affecting operational efficiency. A detailed evaluation of capital expenditure in terms of procurement of the services is being carried out in Tables below.

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OVERALL CAPITAL BUDGET

Head 2012 13 2013- 2013- 2014-2015 2014-15 Remarks All figures in Actual 2014 2014 Interim Final Variation Rs Crore Budget Revised Budget from Interim Budget 2014-15 Rs Crore Non- Non- Non- Non- Total Plan/ Plan/ Plan/ Plan/Total Total Total Total Land Army 67.76 160 110.75 300 300 Navy 6.55 26.5 30 30 310* + 280 Air Force 22.11 100 3 76 76 Total 96.42 286.5 143.75 406 686* Construction Army 3813.75 4351.29 4039.04 4404 4267.78 -136.22 Navy 527.1 643.75 524.67 600.38 581.81 -18.57 Air Force 1318.02 1409.63 1346.64 1461.5 1416.29 -45.21 Total 5658.87 6404.67 5910.35 6465.88 6265.8 -200.08 Aircraft and Aero Engines Army 2306.94 1527.79 1182.32 2127.99 2127.99 Navy 1695.34 6708.71 7418.4 3330.69 3330.69 Air Force 23572.95 25539.59 28588.85 16271.43 16271.43 Total 27575.23 33776.09 37189.57 21730.11 21730.11 Heavy and Medium Vehicles Army 1773.31 2024.37 1480.94 2128.16 2692.16 +564 Navy 7.45 53.74 3.9 34.27 34.27 Air Force 81.4 2.82 36.1 4 194.29 194.29 Total 1862.16 2080.93 1520.98 2356.72 2920.72 +564 Other Equipment Army 6658.3 9758.86 7889.47 16155.93 15591.93 -564 Navy 2773.06 2192.82 2514.87 4358.1 4358.1 Air Force 7398.65 11505.65 7391.55 15352.17 15352.17 Total 16830.01 23457.33 17795.89 35866.2 35302.2 -564 Defence Rail + 1000 Network 1000

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Naval Fleet 11074.27 11772.26 8757.87 12856.06 12576.06 -280 Naval Dock- 751.87 2011.17 550 1612.87 1612.87 Yards 0 Joint Staff 924.24 740.08 619.27 828.87 1028.87 +200 Special 586.98 650.15 355.16 400 400 Projects 0 Ordnance 349.07 435.96 465.96 529.56 1206.56 Factories +677 Research & 4644.43 5057.6 5257.6 5975.25 9298.25 Development +3323 Inspection 4.94 5.45 12 6.19 6.19 Procurement ...... 81.5 275.07 275.07 of Rolling Stock Ex- 3.83 30 14 20.41 20.41 Servicemen Contributory Health Scheme Rashtriya 133.24 16.02 166.99 213.05 213.05 Rifles National 0.69 5.5 1 5 5 Cadet Corps Prototype ... 1 29.34 35.71 35.71 Development under Make Procedure Others 2.87 10 1 5 5 Grand Total 70499.12 86740.71 78872.23 89587.95 94587.95 +5000

Table Capital Acquisition Armed BE 2013- RE 2013- Under/over Under/over Final % Growth of Force 14 (Rs in 14 (Rs in Spending Spending 2014-15 Interim 2014- Cr) Cr) (Rs in Cr) (%) (Rs in Cr) 15 over BE 2013-14 Army 13327.04 10801.22 2525.82 18.95 20900.20 56.83 Navy 23478.78 19864.31 3614.47 15.39 22940.86 -2.29 Air 37048.06 36016.54 1031.52 2.78 31817.89 -14.12 Force Total 73853.88 66682.07 7171.81 9.71 75738.95 2.55 Table

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Allotment to Services for Land and Construction Service Rs Crore Army 4567.28 Navy 891.81 Air Force 1492.29 Total 6951.38 Table

Allotment to Services for Capital Acquisition Service Rs Crore Army 20900.2 Navy 22940.86 Air Force 31817.89 Total 75658.95 Table

Review of the Capital Budget. There has been a 19.93 percent increase in the allotments to capital budget year on year and 34.17 percent over a period of two years as shown in Tables above. This is the minimum essential increment that would sustain modernization programme of the forces. A notable facet is the substantial accretion in the capital budget allotments to the Army which has almost doubled from Rs 10,000 Crore or so for 2013-14 to Rs 20, 900 Crore in 2014-15. This indicates a considerable push by the Indian Army to gain its share of the defence budget with fructification of programmes in the pipeline. The Indian Navy has gained only marginally whereas allotments to the IAF have gone down. This comes even as the IAF is slated to make some big time acquisitions including the MMRCA, attack helicopters and heavy lift helicopters. A survey of the capital budget would reveal acquisition of equipment distributed for Air- Craft & Aero-Engine, Heavy and Medium Vehicles, Other Equipment, Naval Fleet and Naval Dock-Yards, Procurement of Rolling Stock as well as other heads such as land, construction which have an estimated life of over 10 years. There is also provision for Prototype Development under Make Procedure which has been made to encourage the industry to take on projects in the long term for the services such as the Future Infantry Combat Vehicle.

The overall percentage allotted for equipment acquisition vis a vis other heads is roughly two thirds is to one third. The major head under which capital expenditure is being spent is on other equipment that is artillery guns, air defence systems, and communications and so on. The Army, Navy and the IAF are spending Rs 35302.2 Crore on this head which has surpassed the aero engine and aircraft Rs 21730.11 Core which has been the major consumer of the capital acquisition budget so far. The Army and the Air Force combined will be consuming almost Rs 30,000 Crore of this budget indicating investments in artillery and air defence missile systems as well as the BrahMos. The order book of the BrahMos is full and it is not able to go in for exports primarily due to the large demand by the Army.

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The lower allotment to aircraft and aero engines of which the IAF gets a major chunk may be disappointing for companies as Dassault given that Rs 16,000 Crore plus that has been allotted will go for committed liabilities, whereas at the contract signing stage the IAF would require almost an equal amount or so at Rs 15,000 Crore for signing the Rafale deal as and when it fructifies. Obviously a separate tranche of allotment will have to come if the Rafale deal is to go through in the financial year 2014-15 as former Defence Minister Mr A K Antony had remarked. On the other hand ironically cancellation of the Agusta Westland, VVIP helicopter deal may be good news for the IAF in terms of management of the budget saving an outgo of almost Rs 4000 Crore or so. Apart from the Rafale, the IAF would require to commit approximately Rs 3000 – 4000 Crore for other new acquisitions as contract signing amount including 22 AH-64 Apache attack helicopters, 12 CH-47F Chinook multi-mission helicopters and upgrading the Jaguar aircraft.

The allotment of Rs 9298.25 Crore to the DRDO on the capital account which is 76 percent increase from the RE for 2013 -14 and also a Rs 3323 Crore from the interim budget for 2014-15 denotes that the DRDO has convinced the Ministry of Defence and Finance of the requirement which could be for procurement of strategic systems. A Rs 100 Crore Technology Development Fund is also proposed which could boost R & D in defence. Similarly the Ordnance Factories have got a boost of 158.94 percent from the RE of 2013-14 that is from Rs 465.96 Crore to Rs 1206.56 Crore which is also a jump of Rs 677 Crore from the interim budget. These will be hopefully put to good use in completion of the large number of ongoing projects of the DRDO and modernisation of the Ordnance Factories for capacity and product enhancement.

For acquisition of capital assets the Army has been allotted Rs 20900.20 Crore given the considerable assets that are being planned to be acquired over a period. Details are covered in Table on the following page. The Army has got considerable accretions year on year of 93.49 percent from RE of 2013-14 mainly for acquiring heavy vehicles and other equipment where the increase has been to the tune of 80 to 100 percent, thus providing for capacity for enhanced acquisitions in 2014-15

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Army Capital Acquisition

2013-14 2013-14 2014-15 % Growth of Remarks (BE) (Rs in (RE) (Rs in (Rs in Cr) 2014-15 (I) over Cr) Cr) 2013-14 (RE) Aircraft & Aero- 1527.79 1182.32 2127.99 39.29 (Over BE) Engine H&MV 2024.37 1480.94 2692.16 81.78 Increase in Rs 564 Crore from Interim budget Other 9758.86 7889.47 15591.93 97 Decrease in Equipment Rs 564 Crore from Interim Budget Rolling Stock 0 81.5 275.07 - Rashtriya Rifles 16.02 166.99 213.05 - Total 13327.04 10801.22 20900.2 93.49 Acquisition Expenditure Exp Table

As a percentage of total defence budget as well the Army’s percentage of capital budget is gradually going down from 12.12 percent in 2007 08 to 8.78 percent in 2013-14 that is over 3 percent this is indicating declining focus in the Army on capitalization as per Table. The Parliamentary Committee on Defence has made a very stringent observations based on data supplied by the Ministry of Defence and has recommended that Army should be given more allocation so that there would be increase in capital segment and free fall of capital portion could be arrested for modernisation of Army. This remedial action is not seen during the current budget that is 2014-15 as the ratio of revenue and capital budget of the army has not improved. This would have to be considered by the Minister of Finance in future budgets for the Army and projected by the Ministry of Defence accordingly. Thus it is anticipated that greater allocations are likely for Army capital acquisitions in the future.

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Army Total Army Percentage of Total Defence Capital Defence 2007- 96000 11634.18 12.12 08 2008- 105600 13331.48 12.62 09 2009- 141703 18019.94 12.72 10 2010- 147344 17250.84 11.71 11 2011- 164415.5 19210.69 11.68 12 2012- 193407.3 19237.8 9.95% 13 2013- 203672.1 17883.83 8.78% 14 2014- 229000 25604.2 11.18 % 15 Table

Navy Capital Acquisition.

2013-14 2013-14 2014-15 (I) % Growth of Remarks (BE) (Rs in (RE) (Rs in (Rs in Cr) 2014-15 over Cr) Cr) 2013-14 (BE) Aircraft & Aero- 6708.71 7418.40 3330.69 -50.35 Engine H&MV 53.74 3.90 34.27 -36.23 Other 2192.82 2514.87 4358.10 98.74 Equipment Joint Staff 740.08 619.27 1028.87 66.00 over RE Increase in Rs 200 Crore over Interim Budget possibly for construction of HQ IDS Naval Fleet 11772.26 8757.87 12576.06 43.59 over RE Naval Dockyard 2011.17 550.00 1612.87 -19.80 Total 23478.78 19864.31 22940.86 15.48 over RE Acquisition Expenditure Table

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Capital Budget. For acquisition of capital assets the Navy has been allotted Rs 7723.06 Crore for assets as aero engines and vehicles and Rs 12576.06 Crore for ships with overall details indicated in Table above. The total allotments for capital acquisitions have been increased by a marginal 15.48 percent over Revised Estimates of 2013-14. The Indian Navy has an order of 44 ships in various shipyards in the country, which would require considerable investments including an indigenous aircraft carrier, a number of nuclear submarines and six conventional submarines being built in Mazagon Docks, Mumbai. As per present allocations there is a short fall in the capital allocations for the Navy and this may slow down the process of procurements.

Air Force Acquisition

2013-14 (BE) 2013-14 (RE) 2014-15 (I) % Growth of 2014-15 (Rs in Cr) (Rs in Cr) (Rs in Cr) (I) over 2013-14 (BE) Aircraft & Aero- 25539.59 28588.85 16271.43 -36.29 Engine H&MV 2.82 36.14 194.29 Other Equipment 11505.65 7391.55 15352.17 33.43 Total Acquisition 37048.06 36016.54 31817.89 -14.12 Expenditure Table

Capital Budget. For acquisition of capital assets the IAF has been allotted Rs 31817.89 Crore for assets as aero engines, aircraft and other equipment as shown in Table above. Compared to the Budget Estimates as well as Revised Estimates of 2013-14, the IAF is getting a reduced amount of allocations thus constraining procurement of new equipment. One possibility is the envisaged delay in finalizing various contracts due to which there is no necessity felt of additional allotments, the other option being a possible increase in the Revised Estimates stage in November/December by which the Rafale contract could be finalized.

Parliamentary Committee on Defence has observed as shown in Table below that just like Revenue Budget there has been a general trend of providing lesser allocations than the projected amount against Capital Budget of Air Force during previous years. However the amount of gap between projected and allocated funds, which was varying to the tune of 10 to 20 per cent during the last four years has inflated to the level of almost 40 per cent in case of the 2013-14 capital allocation. Another notable fact is that during the last four years the RE allocation is generally less than the RE projections albeit inflating to the tune of 18 per cent during the year 2012-13. In the year 2012-13, Air Force has utilized 32415.91 Crore till February 2013. So the rest of the requirements had to be met by supplementary grants. In the RE 2012-13, Air Force had made a projection of Rs. 36999.62 against ‘capital head’ while the allocation made available to them was only Rs. 30517.95. On the other hand, Air Force has utilized a sum of Rs. 32415.91 Crore till February 2013, so the rest of the amount has to be met by way of supplementary grants.

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Revenue Budget Estimate Revised Estimate Expenditure Projected Allotted Projected Allotted 2009-10 15215.92 14318.18 15221.86 14681.83 14240.08 2010-11 17483.6 15210.73 15249.01 15003.55 14551.07 2011-12 20015.46 15927.95 16123.16 16137.38 14480.56 2012-13 19887.73 17705.81 20942.36 17103.72 15487.28 2013-14 25922.64 18295.1 Capital 2009-10 22026.09 20114.08 25209.04 18636.55 18550.78 2010-11 31667.56 25251.72 25271.72 24266.79 23625.42 2011-12 36186.1 30282.03 30282.03 27734.78 24171.43 2012-13 36950.52 30514.45 36999.62 30517.95 32415.91 2013-14 64607.84 39208.84 NA NA NA Table

Conclusion on Budgetary Allocations

A review of the details above would reveal that there is a year on year increase in allocations for capital acquisitions for the services. While the Army had been lagging behind in many respects this has now been made up and from 2013-14 there is increased capital allotment which would imply that the programme of acquisition of land systems is likely to gather momentum. The Indian Navy with 44 ships and craft in the pipeline would require sustained allocations to ensure that there is no drop in the overall requirements to maintain an effective presence in the maritime domain. The Indian Air Force allocations remain high over the years and are likely to increase given the number of programmes in the pipeline. All this implies an overall increase in the defence capital budget and in turn the defence budget as a whole in 2014- 15 and beyond.

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CHAPTER 14

MAJOR CAPITAL ACQUISITION PROGRAMMES

General

Some of the major capital acquisitions of the three services in terms of new schemes and committed liabilities are indicated in subsequent paragraphs giving committed liabilities and new schemes separately. These are only indicative as analysed from open sources.

INDIAN ARMY

As was seen in the previous discussion, allocations for capital acquisitions for the Indian Army have been low in the previous years, but this situation is likely to be reversed and more funds are likely in the coming years. The Army has carried out alignment of the acquisition structures by streamlining the evolution of General Staff Qualitative Requirements (GSQRs), establishment of a Contracts Negotiation Committee (CNC) Cell and inclusion of Integrated Financial Adviser (IFA) Capital for delegated financial powers and strengthening of the Request for Proposal (RFP) Cell. All these measures have made the system more robust and efficient.

Thus during the Financial Year 2012-13, a total of 29 contracts (including three of OFB contracts) were concluded. The total value of procurement contracted was Rs 6332.20 Crore (including Rs 6132.17 Crore of OFB procurement) and the total cash outgo was Rs 764.41 Crore. During the Financial Year, i.e. 2013-14, a total of 18 contracts (including two OFB contracts) have been concluded amounting to Rs 11781.13 Crore (including Rs 1632.17 Crore of OFB contracts) and total cash outgo was Rs1265.26 Crore as on December 31, 2013.

In major modernisation programmes that of the mechanized forces is underway to meet requirements of the future battle field. Towards this end, upgradation of aspects of in-service equipment like night fighting capability, modern fire control systems and better power packs has been the thrust area. Concurrently, indigenous development of future combat vehicle platforms is also being progressed.

Procurement of Artillery equipment is focused on conversion of equipment to 155 mm caliber, enhancing surveillance capabilities and acquisition of long range vectors. In a major step towards self reliance in Defence equipment, the indent for electronically upgraded 155 mm Guns has been placed on the Ordnance Factory Board.

Modernisation of the infantry soldier is aimed at enhancing lethality and providing individual protection. To this end, procurement of modern Assault Rifles, Carbines and LMGs is concurrently underway, along with Bullet Proof Jackets and Ballistic Helmets. Specialized equipment of the Special Forces is also being acquired.

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The Corps of Army Air Defence is taking major strides in upgrading its gun and missile systems. A number of quality upgrades and inductions which are in the pipeline would replace the existing vintage equipment. The project for automation of Air Defence Command and Reporting system is also progressing apace. In addition to acquisitions specific to different arms, induction of High Mobility Vehicles, Materials Handling Equipment and critical Rolling Stock for rail movement are in the pipeline. Modernisation of logistics installations with state of the art warehousing facilities, retrieval and accounting systems is also underway.

Committed Liabilities – Ongoing Programmes

Dhruv, Rudra, LCH and Cheetal helicopters. BrahMos missile system and missiles. Arjun Mk II Tanks ordered from Ordnance Factory. T 90 S Tanks ordered from Ordnance Factory T 72 Upgrade T 72 based ARVs contracted from BEML Akash Air Defence Missiles. Air Defence Artillery missiles and guns on order as well as upgrades ordered. 15 Percent of overall price likely to be paid on signing contract. Procurement of 15 Heron UAVs from Israel [Could also be a part of new schemes?] Nishant UAVs additional deliveries are anticipated. Night vision devices for infantry and tank forces.

Procurements in the Offing

414 – Dhanush Bofors design gun being produced by the Ordnance Factory. 145 ultra light howitzers – reports indicate that this deal may be scrapped. The case for procurement of Ultra-Light Howitzer (ULH) guns through US Government has not progressed due to cost issues and because the vendor has not been able to come up with a proposal fully compliant to the offset requirements. 197 Light Utility Helicopters are being procured through the Make route with prototype development by the Indian defence industry through foreign collaboration. Assault rifles and other small arms for the infantry. Trials are ongoing. Spike ATGMs ordered from Israel.

Army Equipment Inductions

17 contracts worth nearly Rs. 11,777 Crore had been signed in 2013-14 and another 23 worth Rs. 12,000 were in the pipeline. The important ones approved are over Rs 2,000 Crore deal for 15,000 3UBK Invar missiles for T-90S tanks and the Rs 1,200 Crore for two additional "troops" of the Israeli Heron spy drones.

There are reportedly 680 procurement projects worth over Rs 2 Lakh Crore for the 12th Plan (2012-17) period which have been vigourously pursued by former Army Chief General Bikram Singh following time worn practices of, "in-house refinements", "streamlining of the

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procurement process" and "prioritization and periodic re-casting of acquisition plans," as reported by the Times of India, a leading news daily in the country. Prioritisation is another means of enhancing pace of modernization with 31 of the 680 projects identified as "Priority-I", which includes assault rifles, howitzers, bullet-proof jackets, tank/artillery ammunition and missiles.

Rs 10,000 Crore project for induction of 1, 78,000 new-generation assault rifles will be the first that is likely to be finalized. 65,000 rifles will be imported from the selected foreign vendor and the rest manufactured by Ordnance Factory Board. 236 additional Russian T-90S tanks (Rs 6,000 Crore) and two "troops" of Israeli Heron spy drones (Rs 1,200 Crore) is in the pipeline.

4,780 thermal imaging sights for the Indian Army’s T-90 and T-72 main battle tanks (MBTs) and the BMP series of infantry fighting vehicles (IFVs) have been approved. The sights will be manufactured by Bharat Electronics Ltd (BEL) with assistance of Israel firm. Elbit Systems. The distribution of the imagers is said to be 2000 for T-72 tanks at Rs 1000 Crore, 1200 for T-90 for Rs 960 Crore and 1,580 for the mix of BMP-1 and BMP-2s for Rs 860 Crore.

In other developments, Army's Northern Command has issued a global tender for procuring 49 miniature unmanned aerial vehicles (UAVs) for gathering intelligence and carrying

Army is also going in for the acquisition of 40 light-weight suitcase-based satellite communication (satcom) terminals for better connectivity.

Some of the other inductions in the pipeline are gunnery simulators, helicopter missile- warning systems, digital control harness and truck-mounted lifting devices. The others which may take some time include bullet-proof jackets, ballistic helmets, new-generation assault rifles with interchangeable barrels, close-quarter battle carbines, light machine guns and third- generation ATGMs all hanging fire for several years.

Armour The Indian army tank profile is likely to include 1657 T 90S of which 1000 will be manufactured at Avadi Heavy Vehicles Factory under licence, 692 T-72 upgraded and 124 of Arjun. 800 of the 1,657 Russian-origin T-90S tanks and 124 indigenous Arjun tanks have been inducted. Preliminary Staff Qualitative Requirement (PSQR) of Future Main Battle Tank (FMBT) has been formulated by the Army. Feasibility study on FMBT is being carried out by the Defence Research and Development Organisation (DRDO). FMBT is likely to be developed by the year 2020. Israel Military Industry (IMI) is likely to be the development partner in this project. Arjun Mark II

The DRDO has reported progress for the Mark-II version of Arjun MBT with 89 "upgrades or improvements". The tank is 45% indigenous as of now, with its main laser guided

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missile being the Israeli LAHAT. Arjun's missile firing control system, laser target designator, engine transmission, suspension unit and running gear (track) are foreign.

The upgraded version include long-range missile firing capabilities, panoramic sights with night vision, enhanced weapon penetration, digital control, better hunter-killer capability, improved auxiliary power unit (APU), better communication equipment and navigation aid. The tank will have frontal explosive reactive armour (ERA) to protect against incoming missiles.

Arjun Mark II can fire missiles, has an enhanced Auxiliary Power Unit (APU) with a capacity of 8.5 KW (against Mark I's 4.5 KW), Explosive Reactive Armour panels, mine plough, Automatic Target Tracking, Advanced Land Navigation System, Advanced Air Defense gun capable of shooting down Helicopters with a 360 degree coverage, digital control harness and advanced commander panoramic sight among other features.

Upgradation of ICVs

Armament and firepower capability are being upgraded with the latest generation Fire Control System, Twin Missile Launchers and Commander`s Thermal Imaging Panoramic sights. These ICVs will also be equipped with the latest generation Anti Tank Guided Missiles and Automatic Grenade Launchers. The ICV proposal for the Armament upgrade of BMP-2/2K to BMP-2M and New Power Pack for BMP-2/2K will cost an estimated Rs. 8000 Crore. The plan is to provide desired offensive capabilities to BMP-II and BMP-IIK infantry combat vehicles, which can carry 10 soldiers, on three fronts: thermal imaging integration, armament upgrade and engine upgrade. It also includes TIFCS (thermal imaging fire control systems) to increase accuracy of weapon systems and panoramic sights for the commanders to be able to look in all directions

950 BMPs have already been fitted with thermal imaging modules while the remainder are due to be fitted with integrated sights for firing ATGMs, auto-canons and PKT machine guns. The existing 285 horsepower engines of the BMPs will also be upgraded to 360 horsepower

India will sustain the $10 billion Futuristic Infantry Combat Vehicle (FICV) and not go in for advanced Russian BMP-3 combat vehicles. The FICV is one of the important opportunities as development cooperation is being sought from foreign companies with Indian partners.

Indian Army Artillery Procurements Progress

Following modern artillery systems have been inducted in the recent past:(i) Pinaka Rocket System. (ii) Smerch Rocket System. (iii) BrahMos Missile System. (iv) Upgradation of 130mm Guns system to 155mm/45 cal gun system. There is proposal to induct the following artillery guns in future: (i) 155mm / 52 Calibre Towed Gun. (ii) 155mm / 52 Calibre Tracked (Self-Propelled) Gun. (iii) 155mm / 52 Calibre Wheeled (Self propelled) Gun. (iv) 155mm / 52 Calibre Mounted Gun System (MGS). (v) 155mm/39 Calibre Ultra Light Howitzer (ULH). The latter will be 145 ultra-light howitzers, 100 self-propelled tracked guns, 814 mounted gun systems and 1,580 towed guns. Programmes for acquisitions are in various stages of development.

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OFB build Bofors Gun.,

Ordnance Factory Board (OFB) has carried out several internal firings of their in house developed 155mm x 45 calibre Artillery Gun and it has met the planned objectives. OFB has received indent for 114 Nos. of 155mm x 45 calibre. The new howitzers have a 38-km range compared to the 30-km of the Bofors gun.

In addition Indian Artillery has held fresh trials for the Ordnance Factory Board (OFB) developed the electronically upgraded version of the original Swedish155mm Bofors howitzer after the barrel burst in Pokhran ranges in August 2013. The designs were obtained under transfer of technology (ToT) provisions in the Rs 1,437-crore Bofors contract in 1986 for 410 howitzers. The fourth and the fifth prototypes have undergone `internal firing tests' in Balasore over the last couple of months. The Army is likely to order 414 such guns. They have been upgraded to 45-calibre from the original 39-calibre to give the new howitzer a 38-km range compared to the 30-km of the original Bofors gun. The OFB has already been given an over Rs 1,260 Crore order to make 114 howitzers as per the Times of India.

Tracked Guns.

Korean company Samsung is jointly developing a howitzer gun with Indian private- sector company Larsen & Toubro. Russia’s Rosoboronoexport is also developing 155 mm/52- caliber tracked guns. Larsen & Toubro-Samsung team is competing with Rosoboronexport, and with state-owned Bharat Earth Movers Ltd. (BEML), which has partnered with Slovakian company Konstrukha, though the latter as per some reports is out of the race. Indian Army wants to buy 100 tracked guns valued at more than $750 million. The tender, issued in 2011, was a rebid of a 2007 tender, which went to India’s Tata Power SED, Larsen & Toubro, BEML and Rosoboronexport.

Mounted Guns

A joint venture with the private sector for 814 mounted gun systems is being progressed while the DRDO is developing a 155mm/52-calibre advanced towed artillery gun system, sanctioned in September 2012 for Rs 248 Crore.

145 M 777 Light Howitzers.

The Indian government had requested a sale of 145 M777 155mm light-weight towed Howitzers with laser inertial artillery pointing systems (LINAPS), warranty, spare and repair parts, maintenance, and training equipment, the US Department of Defense said in a notification. The estimated cost is $885 million up from US Dollars 694 million. However this deal is under negotiation as the cost of the equipment is seen to be far higher than what India is willing to pay for.

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Upgrade of 130 mm Artillery Guns

Proposals to upgrade M-46 130mm artillery guns to 155mm guns have been approved. Proposal for up gunning 300 additional 130 mm M-46 field guns to a 155 mm gun system would also be offered to private sector companies. Of the 480 guns of 130 mm caliber with the Indian Artillery, 180 have been up gunned by Soltam which has since been blacklisted. 300 more are to be up gunned. Catapult Mk II self-propelled gun integrates the hull of the Arjun Mk I main battle tank and the Russian 130 mm M-46 field gun.

Pinaka II

Two PINAKA Regiments have been raised. Pinaka weapon system is an all weather, indirect fire, free flight Artillery rocket capable of engaging enemy up to a range 38 km. It can neutralize an area of 1000x800m in a short period of time with salvo firing. The weapon system has short reaction time to call for fire and also has excellent shoot & scoot capability. The Pinaka weapon system can be used as an effective area weapon. (OFB) Director General and Chairman Sudhir Kumar Beri claimed that manufacturing capacity of 2000 Pinaka missiles per annum will be increased to 5000 missiles per annum by taking over units of central government enterprise HCL units at Hyderabad, Naini (near Allahabad) and Ramnarayanpur.

Pinaka Mark-II rocket system was successfully tested from a defence base off the Odisha coast in December 2013 after earlier tests reported failed in August. The newer version is reported to have an advance range extending from 40 km to over 55 km and is capable of acting as a force-multiplier. The system can be operated in four modes - autonomous, stand-alone, remote and manual. The rocket launcher can fire 12 rockets with 1.2 tonne of high explosives within 44 seconds and destroy a target area of 3.9 sq km at a time.

SMERCH Rocket Manufacture Ordnance Factory Board signed a Memorandum of Understanding for a Joint Venture with M/s Rosoboronexport, Russia and M/s Splav “SPA”, Russia to manufacture five versions of Smerch Rockets based on the technology received from Russia. The Smerch Rockets are technologically superior having a range of 70-80- kms. With formation of this Joint Venture, a new Chapter in the Indo-Russian Friendship will commence. A Memorandum of Understanding duly approved by Raksha Mantri has been signed by three parties in New Delhi. After indigenizing the technology of Smerch Rockets, OFB will attain new heights in manufacturing advanced Rocket system claimed the Report. The Ordnance Factory Board joint venture with Russian Rosoboronexport and M/s Splav 'SPA' for manufacture of five versions of the Smerch rockets will overcome some of the deficiency in Indian artillery systems where originally while India bought SMERCH systems from Russia there were no contracts made for ammunition thus it was not able to effectively utilise this system including carry out training. Thus Army’s three regiments of the 300mm Smerch MLRS, acquired for around Rs 2,600 Crore remained of limited operational use. While the proposal may take some time to fructify it should be a good beginning with indigenising Smerch rocket technology expanding the productivity base of the country. While this would to an extent make up the deficiency in the Indian artillery inventory the urgent need to induct more guns for close support role is paramount and RFI to the effect has also been issued.

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Army Air Defence The Indian ground Air Defence forces are slated to sign contracts worth over Rs 17,000 Crore as 70 percent of the inventory is facing obsolescence. India is acquiring three types of SAMs - medium-range, quick-reaction and man-portable short-range missile systems - to replace Russian-origin Kvadrat, Strela and other systems. Ministry of Defence has cleared 12 regiments of Quick Reaction Surface-to-Air missiles squadrons – SpyDer system. A Spyder-SR battery includes up to six missile launch vehicles (each equipped with four missile launchers), missile re-loaders and a command-and-control Unit that also accommodates the IAI/ELTA Systems- built EL/M-2106NG ATAR 3-D surveillance radar and two operating consoles.

Also underway are efforts to upgrade and enhance the firepower of the Air Defence Artillery by upgrading the fire-control system of 48 ZSU-23-4 Schilka self-propelled air-defence guns (this work being done by BEL teamed up with IAI/ELTA). Once this is achieved, the Schilkas will complement the thirty-six 2S6 Tunguska-M1 gun/missile-equipped self-propelled air-defence guns, 12 of which were acquired in 1993, followed by 24 more worth USD 400 million, in 2006.

The Army is ordering up to nine Regiments of Akash Mk1 E-SHORADS, valued at Rs 125 billion (USD 2.8 billion), approval for which was obtained in June 2010 from the MoD’s Defence Acquisitions Council (DAC). The MoD on March 17 this year cleared the induction of an initial two Akash Mk1 Regiments valued at Rs 14.18 billion each with six Batteries. When inducted into service by the army, the Akash Mk1 is expected to replace the existing 27-year-old NIIP 2K12 Kub/Kvadrat medium-range surface-to-air missile (MR-SAM) systems. The Army- specific variant of the Akash Mk1’s missile launcher and the Rajendra PESA radar will all make use of the hull of a T-72M main battle tank in order to achieve superior cross-country mobility.

Two regiments of indigenous Akash systems, with six firing batteries have already been ordered at a cost of Rs 14,180 Crore. The 25-km-range Akash can neutralize multiple aerial targets. An Rs 750-crore project is underway to upgrade 50 Shilka anti-aircraft armoured vehicles. 30 three-dimensional tactical control radars, which can track airborne targets up to 90- km and over 15 low-level light-weight radars for employment in mountainous terrain, for over Rs 1,500 Crore are also being procured.

Army Aviation

Former Army chief General Bikram Singh launched an aggressive campaign to acquire attack helicopters. Presently the Army is authorized to operate helicopters that weigh less than 5 tonnes. Under the Joint Army Air Instruction of 1986, the Army is empowered to operate light utility helicopters for communication, directing artillery fire etc. All heavier helicopters, including attack choppers and fixed wing aircraft, are to be operated by the IAF. However this is now being reviewed. A permanent cadre is now planned for the Army Aviation Corps which operates around 250 light helicopters like Druv, Cheetah and Chetak.

The Army has plans for one attack helicopter squadron (10-12 choppers) for three "strike" formations - 1 Corps (Mathura), 2 Corps (Ambala) and 21 Corps ( Bhopal). 114 'Rudra' light combat helicopters are to be inducted for the ten 'pivot' or defensive corps. A squadron each

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of attack/armed, reconnaissance/observation and tactical battle-support helicopters for all 13 corps. Six regional or operational commands will have "a flight" of five fixed-wing aircraft for tactical airlift of troops and equipment as per a report in the Times of India. Presently the Indian Army is operating only utility and observation flights that have been carrying out support tasks. The Times of India stated that raising of ``aviation brigades'' for the 1.13-million strong Army's three ``strike'' and 10 ``pivot'' corps has commenced.

Rudra Armed Helicopter

An Advanced Light Helicopter Mk-IV army version `Rudra` the weaponised version of ``Dhruv'' advanced light helicopters (ALH) was handed over by Dr RK Tyagi, Chairman, Hindustan Aeronautics Limited (HAL) to Lt Gen Narendra Singh, Deputy Chief of Army Staff (P & S), Indian Army during AERO India 2013 at Yelahanka Air Base, Bangalore. This helicopter is fitted with Day and Night Targeting systems and can carry a mix of weapons (70 rockets, anti-tank missiles, air to air missiles and 20 mm turret gun), providing the required capability to search and destroy any targets”. ‘Rudra’ is designed indigenously at the Rotary Wing Research and Design Center (RWR & DC) to meet mission specifications and tested extensively over varied terrains and firing ranges in India. Regional Center for Military Airworthiness has provided Initial Operational Clearance for the project facilitating delivery of helicopters to Indian Armed Forces. ‘Rudra’ is all set to redefine battle tactics in modern day conflicts.

The Indian Army is raising the first squadron of ``Rudra'' helicopters in Bangalore and later deploy in the western sector facing Pakistan. Rudra is armed with a chin-mounted 12.7mm canon, 70mm rockets, Magic Matra air-to-air missiles and anti-tank guided missiles (ATGMs). Thus the Rudra will be a hybrid between the heavy attack helicopters which will be held by the Indian Air Force and the armed helicopters having greater punch than the latter. 22 AH-64D Apache Longbow attack helicopters to be acquired from the US for over $1.4 billion will be operated by the IAF. The Army will have six squadrons (10 helicopters each) of the Rudras as per the Times of India. The first two squadrons will have imported ATGMs but the next four will have the indigenously-developed Nag-Helina ATGMs with a four-km range.

Cheetal Helicopters

Indian Defence Ministry and Hindustan Aeronautics Ltd. (HAL) have confirmed on Feb. 22 an order to acquire 20 Cheetal helicopters. Work on Cheetal began after it was found in 2009 that India’s homemade ALH was unable to fly, as intended, at heights above 20,000 feet. The Cheetal can fly up to a height of 25,000 feet, meeting the Army’s logistical needs as per a report in the Defense News. “Cheetal is the re-engine variant of the proven Cheetah helicopter being manufactured by HAL for over four decades.” the HAL statement says. “The Cheetal helicopter is equipped with a Turbomeca TM 333-2M2 free turbine turbo shaft engine, which is more fuel efficient and provides higher payload capability of 90 kilograms at an altitude of 6 kilometers. The Cheetal helicopter can operate up to 7 kilometers altitude and has a range of 640 kilometers with an endurance of 3.50 hours.”

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Battlefield Management System

Indian Defence Ministry has decided to acquire the Army’s new battlefield management system (BMS) based on, “Make India” program, under which only domestic companies are allowed to participate. The BMS, a $ 5 billion programme is part of the Army’s network-centric warfare plan to link infantry troops on the battlefield to command headquarters. Expressions of interest (EOIs) are being accordingly sent to more than a dozen Indian defense companies, private and state-owned, inviting them to participate in the program.

Tactical Communications System Tactical Communications Network is planned for the Indian Army to be dynamic and resilient with multiple redundancies. While the transition to the TCS environment will be gradual, it is important that the soldier in the battle space does not have to deal with multiple communication devices. Instead, what is required are multiple RF equipped devices. Due efforts are needed to create a mobile communications umbrella for the entire forces to develop reliable, mobile, high-speed convergence networks that are inter-operable with even legacy systems and function in a joint services environment. This programme is also in the Make Category. UAVs The Indian Army has outlined plans to beef up reconnaissance capabilities of its infantry battalions with mini unmanned aerial vehicles (UAVs) small enough for soldiers to carry, deploy and recover to equip more than 350 battalions with three mini UAVs each. The requirement for 1,000 mini UAVs could cost as much as Rs. 150 Crore. Israel Aerospace Industries, flagship of the defense sector, is reported to have secured a $958 million contract from India's military to upgrade its IAI-built Heron and Searcher unmanned aerial vehicles. The deal covers some 150 UAVs acquired from IAI since the 1990s that are operated by India's army, air force and navy. The Indian army deploys around 100 Searchers along the country's western, eastern and northern borders. The air force employs Searcher IIs and Herons for reconnaissance and surveillance missions.

Indian Army has issued a global tender for procuring 20 mini- UAVs for formations deployed in Jammu and Kashmir. A tender for 20 mini-UAVs has also been issued by the Army and the Navy for 95 such UAVs. Mini UAVs should be less than 10 kg in weight, be able to fly at the altitude of up to 1,000 metre, controlling range of 5 km and is required to be hand launched

Spike ATGM

Indian Army has planned to buy Spike ATGM after having completed extensive trials of the Israeli 'Spike' ATGM. 2,000 launchers and 24,000 missiles required are planned for production by defence PSU Bharat Dynamics (BDL) after getting requisite ToT from the selected foreign vendor. Presently, infantry units are equipped with second-generation Milan (2- km range) and Konkurs (4-km) ATGMs in a total holding of 81,000 different kinds of ATGMs.

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To make up the deficiency, 443 indigenous Nag missiles and 13 Namicas (Nag missile tracked carriers) have also been ordered. Assault Rifles The Army is seeking new-generation assault rifles with interchangeable barrels for conventional warfare and counter-insurgency operations. 65,000 rifles will be bought directly from the selected foreign vendor, for an estimated Rs 4,850 Crore, to equip the 120 infantry battalions deployed on the western and eastern fronts as per the Times of India. The Ordnance Factory Board (OFB) will subsequently produce over 113,000 rifles after getting transfer of technology (ToT) from the vendor. The new rifles, weighing around 3.5-kg, will come with two barrels, night-vision devices, laser designators and detachable under-barrel grenade launchers. The primary 5.56x45mm barrel will be for conventional warfare. The secondary 7.62x39mm one will be used for counter-insurgency operations due to "their higher rate of fire". Presently trials are in progress. The other small arms procurement underway is an initial purchase of 44,000 CQB carbines for around Rs 3,200 Crore, with subsequent production of another 1, 20,000 by OFB under ToT. "User trials of Beretta, Colt, Sig Sauer and IWI carbines are over now. The induction should begin by early-2014," said the source quoted by the Times of India. The process for LMGs and bipod sniper rifles will also kick off soon. The Army wants over 16,000 7.62x51mm LMGs and 3,500 sniper rifles. In addition in another report, the first contract to acquire 1,568 advanced sub-machine guns for the "ghatak'' platoons of infantry battalions has been inked with M/s B&T Switzerland for Rs 25.84 Crore. PSU Bharat Electronics has been contracted to supply a fresh consignment of 630 hand- held thermal imagers for Rashtriya Rifles, at a cost of Rs 132.38 Crore. Rs 105.45 Crore deal for acquiring laser target designators for the Special Forces has been inked with M/s Alpha Design. 10,000 Konkurs-M anti-tank guided missiles and 25,000 Invar missiles to arm the T-90S tanks, electronic warfare systems for the crucial 4 Corps (Tezpur) and 15 Corps (Srinagar) for Rs 975 Crore are also in the pipeline.

American M-4 assault rifles are being inducted into the Indian Army's 8 special forces battalions for use in counter terrorists operations These will supplement the Israeli Tavor-21, Uzi and mini-Uzi rifles.

Qty. 37,194 of the ammunition for small arms valued at Rs.5.46 Crores was imported from Bulgaria during the last three years. 85% of ammunition for small weapons is indigenously manufactured by the Ordnance Factory Board {OFB}. The OFB does not face any difficulty in indigenization of ammunition for small weapons, for its product range.

Night Fighting Capability The Army will be enhancing night fighting capability with the induction of a new range of image intensifiers. Bharat Electronics Limited has issued a Request for Proposal (RFP) in

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December 2006 to Vendors, for the procurement of 30,634 Image Intensifier based Passive Night Vision Devices (PNVD) with Transfer of Technology (ToT). Daksh Remotely Operated Vehicle (ROV) - `Daksh` has been developed by Defence Research and Development Organisation (DRDO) to defuse Improvised Explosive Devices (IEDs). It has stair climbing capability. It is equipped with a manipulator arm which can handle suspected object upto 20 kg from a distance of 2.5 m. Portable X-Ray system confirms the presence of IED and on-board Water Jet Disrupter is used to defuse it on site. Army has placed a Limited Series Production Order of 20 Daksh, nine have already been delivered. The project Daksh was sanctioned in November 2002 at a total cost of Rs.3.5 Cr. Nag & NAMICA Nag – Anti Tank Missile the fire and forget anti-tank missile with top attack capability is another important missile developed by DRDO. Its helicopter mounted version, Helina, underwent 2 successful flights from ground launcher proving full range of the missile.

Army has sought the following improvements in the Nag Missile Carrier (NAMICA) - Reduction of all-up weight to 15 Tons, Improved Reliability of Missile Launcher Platform drive mechanisms, Provision of Higher-Resolution Target Acquisition Sight for Gunner, Enhanced User friendliness in acquisition of Target through reduced offset between sight and Missile Seeker acquired Target Scene Image, Improved Amphibious performance, Provision of an additional system called "Target Surveillance and Acquisition Sight" for the Crew Commander of NAMICA, NAMICA has been reconfigured accordingly and User trial is scheduled for July 2012. Nishant UAV The Army also recently took delivery of four indigenously designed and developed ''Nishant'' Unmanned Aerial Vehicles (UAV). To be used for battle-field reconnaissance in day and night, surveillance, target tracking and correction of artillery fire, the DRDO-developed UAV can also be utilized for anti-insurgency operations. With an endurance level of four and a half hours, Nishant is designed for safe recovery from a desired place with the help of parachutes.

Armoured Recovery Vehicles.

Bharat Earth Movers Ltd. (BEML) is due to produce 204 armored recovery vehicles (ARVs) under full technology transfer from Polish company Bumar based on T-72 tanks. This is a follow up of the 2003 agreement between BEML and Bumar hence no tender was floated as this is covered under the country’s defence procurement policies. The ARVs valued at about $1.4 million each will be delivered in 3 years. Based on the T-72 tank hull, the ARV will be armed with a 12.7 mm machine gun and a crane that can lift up to 15 tons, a main and secondary winch as well as a front dozer blade.

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INDIAN NAVY

Indian Navy Recent Inductions and Plan

The ships commissioned into the Indian Navy during 2013-14 were INS Saryu (Offshore Patrol Vessel), Trikand (Frigate), Sunayna (Offshore Patrol Vessel), INS Sumedha (Offshore Patrol Vessel) and aircraft carrier Vikramaditya. INS Vikramaditya was commissioned into the Indian Navy at Severodvinsk, Russia on November 16, 2013. With the span of Indian Maritime interests extending across the Indian Ocean, integral air power provided by INS Vikramaditya is expected to be a substantial contributor for credible naval capability.

The Indian Navy’s first MiG 29K squadron, INAS 303 was commissioned into the Indian Navy on May 11, 2013 at INS Hansa, Goa. The aircraft would operate from INS Vikramaditya and significantly enhance Indian Navy’s combat potential. Indian Navy commissioned its first Advanced Light Helicopter (ALH) squadron, INAS 322 on November 12, 2013 at INS Garuda, Kochi. The Naval ALH is being employed for a variety of missions including long range search and rescue missions, special heliborne operations, and armed patrol sniper operations for coastal security.

India’s first Indigenous Aircraft Carrier IAC-1 (Vikrant) was launched at CSL on August 12, 2013. The launch of Vikrant has been a ‘watershed milestone’ in India’s shipbuilding endeavour. India is the fifth country in the world to build aircraft carriers of around 40,000 tonnes. The ship is likely to be delivered to the Indian Navy by 2018. In August, 2013, a major boost to nuclear deterrence capability was achieved with the miniaturized nuclear reactor onboard Arihant having achieved criticality. The achievement of next milestone is the commencement of sea trials of the submarine which would make India only sixth country to build and operate nuclear powered submarines in the world. This is a big step towards making our long awaited dream of achieving “nuclear triad capability” an operational reality.

Indian Naval Aviation received a major fillip with the arrival of the first of eight Boeing P-8I Long Range Maritime Reconnaissance and Anti Submarine Warfare aircraft on May 15, 2013. The second and third P-8I aircraft have also been delivered to the Indian Navy in November, 2013. The remaining five aircraft would be delivered over the next two years. The aircraft is equipped with sensors for Maritime Reconnaissance, Anti Submarine operations and Electronic Intelligence missions. The aircraft is fully integrated with state-of-the-art sensors and highly potent Anti Surface & Anti Submarine weapons.

The contract for supply of 17 Hawk Mk 132 Advanced Jet Trainers (AJTs) was signed between IN and Hindustan Aeronautics Limited (HAL), Bangalore on July 23, 2010. The contract envisaged delivery of 17 aircraft starting from July, 2013 till June, 2016. Five Hawk Mk 132 aircraft have been inducted into the Indian Navy as replacement for the Kiran aircraft to meet the training requirements of IN pilots.

The launch of GSAT-7 satellite (‘Rukmini’) on August 30, 2013, was a significant event

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for the Indian Navy and the Nation. With the launch of ‘Rukmini’, it would provide The Indian Navy a large foot print across the Indian Ocean Region (IOR) and enable efficient conduct of net centric operations and real-time communication.

Committed Liabilities – Ongoing programmes

• Indigenous Aircraft Carrier - The government has reportedly cleared allocation of Rs 19,000 Crore to complete the ongoing construction of 40,000-tonne indigenous aircraft carrier (IAC) INS Vikrant at Cochin shipyard. • Destroyers • Frigates • Corvettes • Nuclear submarines. • 6 - Scorpene Submarines. • OPVs • Survey Ship • 1 follow-on Talwar class frigate • LRMR ASW aircraft (P-81) • 29 MiG 29 K Fighters • 17 Advanced Jet Trainers (Hawk) • BrahMos missile system and missiles. • Barak I air defence missiles

Procurement s in the Offing

• Lease of additional nuclear submarine from Russia • Aviation Assets such as Multi Role Helicopters • Mine counter measure vessels and anti-submarine warfare assets • Stand-off amphibious capability • Sea denial capability • Assets for Coastal Security • Force multipliers • Repair and maintenance facilities for new inductions • Amphibious craft. • Infrastructure in Islands

MCPP –Procurement Plans

The Ministry of Defence contends that proposals for induction of naval ships are based on the Maritime Capability Perspective Plan (MCPP)/Five Year Plan/Annual Plan which stipulates the number and type of vessels required as well as timelines for such inductions. Major warship construction projects of the Navy running behind schedule include Project-15A (P-15A) Destroyers and Project-17 (P17) Stealth frigate. The cost escalation in these two projects has been about 225% and 260% respectively. The major cost escalation & delay has been due to

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uncertainties associated with the complex warship building process. Reasons for delay and cost escalations in respect of P-15A and P-17 are as follows:-

P-15A: The main reasons contributing towards cost escalations are - delay in supply of warship building quality steel by Russia, escalation due to increase in expenditure towards services of Russian Specialists on account of inflation during the build period, impact of Wage revision due from October 2003 and finalization of cost of weapons and sensors.

P-17: The main reasons contributing towards cost escalations are - delay in supply of warship building quality steel by Russia, delay in acquisition of weapon equipment from Russia, and delay in finalization of propulsion equipment in view of complex combined diesel and gas arrangement introduced for the first time in Indian Navy frigate.

A contract was signed with Rosoboronexport, Russia in 2006 for acquisition of three Talwar Class follow-on ships and the delivery schedule for these three ships was April 2011, October 2011 and April 2012. Rosoboronexport has intimated that the delivery of the ships would be delayed as follows: 1st Ship - 12 months, 2nd Ship - 11 months and 3rd Ship - 14 months. The contract for acquisition of these three ships is a fixed price contract.

During the last five years, construction of three ships under P-17, three ships under P- 15A and four ships under P-15B has been assigned to MDL. The 1st ship and the 2nd ship under P-17 have been commissioned in April 2010 and August 2011 respectively and the 3rd ship is expected to be commissioned in early 2012. The three ships under P-15A are scheduled to be delivered by March 2012, March 2013 and March 2014 respectively. Contract for four P-15B ships has been signed in January 2011, with delivery schedule as July 2018, July 2020, July 2022 and July 2024 respectively.

Warships on Order

1 Indigenous aircraft carrier INS Vikrant—Cochin Shipyard 3 Kolkata-class destroyers (Project-15A) — Mazagon Docks (MDL) 4 Guided-missile stealth destroyers (Project-15B) — MDL 6 Scorpene submarines (Project-75) — MDL 7 Stealth guided-missile frigates (Project-17A) — 4 at MDL, 3 at Garden Reach Shipbuilders and Engineers (GRSE) 4 Anti-submarine warfare corvettes (Project 28)—GRSE 8 Landing Craft Utility — GRSE 5 Offshore patrol vessels — Pipavav Shipyard 2 Cadet training ships — Alcock Ashdown Shipyard 3 Double-hulled catamarans — ABG Shipyard 1 Naval offshore patrol vessel — Goa Shipyard [Source - Times of India report]

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INS Vikrant

Imposing ramp of the 37,500 tonne Short Take off but Assisted Recovery (STOBAR) Carrier boasted the indigenous design and build capabilities of the country. The ship has attained its designed length of about 260 m and is almost at its maximum breadth of 60 m. The main landing strip is ready. Over 80% of the structure, containing about 2300 compartments has been fabricated, over 75% has been erected, all the major machinery, such as the two LM2500 Gas Turbines developing a total power of 80 MW, the diesel alternators capable of producing about 24 MW and the main gear box have been fitted. Soon after Vikrant floated perfectly upright, she was launched out into the Ernakulam Channel in a pontoon assisted precision manoeuvre. Vikrant was moved out of the building dock to be positioned in the refitting dock where the next Phase of outfitting will be completed.

Submarines

Indian Navy will be facing a key challenge in terms of shortage of conventional submarines with 13 in number of which only 9 are expected to be deployable at any one time. Two HDW submarines are in the Mumbai dockyards for refit and two Kilo class are at Vishakhapatnam. This state comes about despite the 30-year submarine building plan approved by Cabinet Committee on Security (CCS) in July 1999, which had envisaged 24 submarines manufactured in India with 12 of these initially through the transfer of technology route. Today the plans are restricted to 6 under construction at the Mazagon docks under the Scorpene programme and 6 more RFP for which is likely to be issued in the next few months.

To overcome these challenges now a second midlife upgrade for the Russian-made Kilo- class submarines in order to extend life of its inventory by 15 years is also being planned. Of the 10 Kilo class submarines, 5 have already gone upgradation. The Indian Navy is upgrading the four HDW Type 1500 submarines at a cost of more than $300 million. Two of the German submarines have been upgraded, while the remaining two are under refit at Naval Dockyard Mumbai as brought out earlier.

The $4.2 billion Scorpene project is now likely to see delivery of the first submarine in September 2016 a delay of four years.

The new programme, "Project-75 India'', to construct six advanced stealth submarines, armed with both land-attack missile capabilities and AIP has now been approved by the DAC for tender to be floated to the public as well as private sector shipyards. It will take over a decade for the first submarine to roll out under this project worth well over Rs 50,000 Crore as per a report in the Times of India.

Nerpa Russia handed over much-awaited Nerpa nuclear-powered submarine to India on a 10- year lease at a cost of over USD 900 million at a ceremony in the far eastern port of Primorye. The Nerpa has a displacement of 8,140/12,770 tonnes and maximum speed of 30 knots and is armed with four 533mm torpedo tubes and four 650mm torpedo tubes as per RIA Novosti There

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would be greater impetus now for training by Navy as it will be running a full fledged nuclear submarine fleet in a decade or so as indigenous submarines also join the fray. Thus the Nerpa renamed as Chakra by the Indian Navy would provide valuable experience to naval personnel for handling nuclear reactor on the submarine and ensure that all safety related principles are adhered to. Nuclear Powered Submarines - Arihant The first indigenous nuclear submarine INS Arihant is also set to begin sea trials off Visakhapatnam in February 2014. “It will take at least six months of extensive SATS (Sea Acceptance Trials) and missile trials before the boat is ready for commissioning into Navy,’’ as per a source reported by the media. A miniature 83 MW pressurized light-water reactor powers the 6,000-tonne INS Arihant which has gone critical in 2010. “HATS followed thereafter. Now, things are on track for SATS to begin in end-February,’’ said the source. Three follow-on SSBNs (nuclear-powered submarines armed with nuclear ballistic missiles), named S-2, S-3 and S-4 are also under production. The second SSBN will be named INS Aridhaman (S2). These submarines will be armed with 750-km K-15 and under- development 3,500-km K-4 SLBMs (submarine-launched ballistic missiles). INS Arihant has four silos and can be armed with either 12 K-15s or four K-4s. The Indian Navy plan is to have three SSBNs and six SSNs (nuclear-powered attack submarines) in the long term as per the Times of India

P 17 A Stealth Frigate

Indian Navy has reportedly frozen design and specifications for the P 17 A stealth warships and completed all commercial negotiations for the project. The project is expected to get final clearances from the Cabinet Committee of Security (CCS) for seven modern warships at shipyards in Kolkata and Mumbai. This was valued at Rs 45,000 Crore when it was cleared by the Defence Acquisition Committee (DAC) in 2009. P 17 A class frigates would be in the 6,700- ton category with latest stealth features.

Amphibious Vehicles.

The Cabinet Committee on Security (CCS) has cleared Rs 2,176-crore acquisition of eight specialised vessels or LCUs (landing craft utility). Four heavy amphibious warfare ships, Landing Platform Docks (LPDs) for "stand-off beaching", for around Rs 16,000 Crore are also to be procured. This will considerably enhance the countries amphibious and littoral warfare capabilities. The Army has as per the Times of India three amphibious brigades, “one based in South India, another in West India and the third at Andaman and Nicobar Command (ANC). The Navy in recent years has also inducted other large amphibious warships like INS Airavat and INS Jalashwa (former USS Trenton). Airavat is an LPD with capability to carry 10 main-battle tanks, 11 combat trucks and 500 soldiers.

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The Indian Navy has floated a US $2.6 billion domestic tender for construction of four landing platform docks (LPDs) to Larsen & Toubro (L&T), Pipavav Defence and Offshore Engineering, and ABG Shipyard. State-owned Hindustan Shipyard Ltd. (HSL) then will build two LPDs based on that design and the winning company will build two. This will be India’s first attempt to build the 20,000-ton vessels. To build the LPDs in India, Larsen & Toubro has tied up with Navantia of Spain, while Pipavav Defence has teamed with France’s DCNS and ABG Shipyard has partnered with Alion of the US.

MiG 29 K

Indian Navy on 11 May 2013 commissioned the first-ever squadron of naval supersonic fighters, the MiG-29K "air superiority" jets, which will operate from the decks of aircraft carrier INS Vikramaditya ( Admiral Gorshkov) as well as the indigenous aircraft carrier (IAC). The MiG-29Ks — the first 16 of the 45 fighters ordered from Russia for over $2 billion will constitute the INSAS 303 "Black Panthers" squadron. The MiG-29Ks, with a range of 1,300km and a service ceiling of 58,000-feet, are capable of STOBAR (short takeoff but arrested recovery) operations. They are armed with R-73 and RVV-AE guided air-to-air missiles, Kh-35E anti-ship missiles, KAB 500KR/OD TV guided bombs and S-8KOM rockets.

Naval LCA

The naval variant of India's Light Combat Aircraft (LCA) is to undergo carrier compatibility tests at the shore-based INS Hansa in Goa, according to Aeronautical Development Authority (ADA) which is developing the aircraft. The first prototype completed its maiden flight on April 27, 2012. The ADA has floated tenders inviting expression of interest (EoI) for the design, development, procurement, testing, integration, installation, commissioning and operation of shore-based telemetry facility, an essential component to test LCA-Navy.

ALH Dhruv

The first ALH (Dhruv) Squadron was commissioned at Kochi by Vice Admiral Shekhar Sinha, then Flag Officer Commanding in Chief Western Naval Command. Dhruv is the first indigenously designed and manufactured helicopter at Hindustan Aeronautics Limited and with its multi role capabilities has proven her mettle in all the three services of the Armed Forces, Indian Coast Guard , BSF and in the inventory of foreign countries. The squadron would have the name Indian Naval Air Squadron (INAS) 322.

MRH

Navy’s plans to induct the 16 new multi-role helicopters with potent ASW capabilities from either European NH-90 or American Sikorsky-70B seem to have succeeded with Sikorsky 70 B shortlisted for the contract. This is to be followed by a contract for 123 helicopters — in the 9 to 12.5-tonne class with ASW capabilities as well as customized for amphibious assaults and commando operations — at a cost of over $3 billion.

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Presently the Navy has just 11 Kamov-28 and 17 Sea King ASW helicopters to defend its existing fleet of over 130 warships from enemy submarines. While the Sea Kings are over 20 years old, the Kamov-28s are long overdue for a mid-life upgrade.

The ASW helicopters fly ahead of warships to "dunk" their sonars in the "tropical waters" of IOR to depths like 200-300 metres, listen for underwater electronic and other signals of submarines, track and then eliminate threats to "sanitize" the path for the fleet.

UAVs

The Navy, is looking to raise new UAV squadrons after establishing three at Kochi (Kerala), Porbandar (Gujarat) and Uchipuli (Tamil Nadu).

Barak I Missile

The Indian Navy’s requirement of additional 262 Barak-I missiles at a cost of over $150 million as a, "critical operational requirement," has been ordered. The case for procurement of Barak I missiles has now been cleared but the Ministry of Defence was reluctant to take a decision even though this is a critical operational requirement for the Navy. The alleged case of corruption includes Israeli Aerospace Industries (IAI) and Rafael as per the Times of India report.

SLBM India’s SLBM is called ``K-15’’ and has a 750-km strike range and can carry a one-tonne nuclear payload. This will arm INS Arihant which has four silos to carry either 12 K-15s or four of the 3,500-km range K-4 missiles undergoing tests. INS Arihant, is undergoing ``harbor- acceptance trials’’ before the miniature 83 MW pressurized light-water reactor goes ``critical” which is expected to be achieved in 2013. This will be followed by ``sea-acceptance trials’’ and finally test firing of 10-tonne K-15 as per a report in the Times of India and Hindu. A report in the Hindu in December 2012 indicated that the 11th trial of the pontoon submerged test of the K 15 off the Visakhapatnam coast was successful and the two-stage missile will be integrated with Arihant after a final test. “It is a fantastic system. It is a very powerful and accurate system,” said A.K. Chakrabarti, Programme Director, K-15, and Director of the Hyderabad-based Defence Research and Development Laboratory (DRDL), which designed and developed the missile was quoted in the report. The K 15 will be followed by the K 4 with a range of 3000 kms.

INDIAN AIR FORCE Overall Perspective

Indian Air Force’s (IAF) vision envisages a multi-spectrum force capable of addressing India’s future security challenges. The upgradation of existing fleets, as well as induction of new platforms and weapon systems would enable IAF to tackle threats across the spectrum of conflict and project power in India’s area of interest. Considerable progress has been made in IAF’s

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modernisation plans. Induction of the C-17 Globemaster and C-130 J aircraft has significantly bolstered IAF’s strategic reach capability. The induction of Mi-17 V5 helicopters has significantly enhanced medium heli-lift capability. The induction of Pilatus Basic Training Aircraft (BTA) has given a major impetus to the basic flying training.

The induction of state-of-the-art ground and air borne air defence sensors and systems, has enabled IAF to achieve comprehensive situational awareness over entire Indian air space using Integrated Air Command & Control System (IACCS). Modernisation of the operational and technical infrastructure is being undertaken to provide requisite combat enabling operations. Besides this, emphasis is also being laid on enhancement of the quality of training through increased utilisation of modern simulators.

Operationalisation of additional SU-30MKI aircraft with state-of the art software has enhanced the combat effectiveness of the fleet. MiG-29 and Mirage-2000 upgrade programs achieved major milestones with completion of Design & Development (D&D) phase for MiG-29 fleet and first flight of upgraded Mirage 2000 aircraft towards Intermediate Operational Clearance. Light Combat Aircraft (LCA) and Medium Multi-Role Combat Aircraft (MMRCA) are on the right trajectory for induction into IAF in near future.

Delivery of additional Su-30MKI has commenced. A contract to integrate BrahMos Missile on Su- 30MKI along with procurement of missiles has also been signed. The Air Defence system is being made more robust with the induction of Short Range Surface to Air Missile (SRSAM or SAM), Medium Range SAM, Low Level Quick Reaction Missiles and integration of these weapons with modern sensors. All IAF platforms and ground sensors are planned for upgradation so as to make them capable of Network Centric Operations in a phased manner.

Committed Liabilities – Ongoing Programmes

• Su-30 fighter aircraft • PC-7 MK II Basic Trainer Aircraft • C 17 Globemaster III. • Additional MLH – Mi 17 V5 • New generation Precision guided munitions • Doppler weather Radar • E-maintenance management system

Procurements in the Offing

• Medium Multirole Combat Aircraft (MMRCA) Rafale. • Light Combat Aircraft (LCA) Tejas • Additional C-130, AWACS and Flight Refueling Aircraft. • Design contract for Fifth Generation Fighter Aircraft (FGFA) and Multi Role Transport Aircraft with Russia • Attack, Heavy lift and Recce and surveillance helicopter. • MI-17 upgrade.

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• Additional aerostat. • Short range and very short range surface to air Missile. • Flir cum targeting PODS.

Indian Air Force is also close to inking major deals worth over $2.5 billion for Apache attack and Chinook heavy-lift choppers, $1.4 billion deal for 22 AH-64D Apache Longbow gunships and $1.1 billion one for 15 CH-47F Chinooks. These have been cleared by the DAC in July 2014. The DAC has also given in principle approval for 33 AH 64 D Apache Longbow gunships to be operated by the Indian Army. Six Airbus in-flight refuelling aircraft is likely to be delayed.

Capital Acquisitions

IAF proposes Capital procurements during the Twelfth Five Year Plan (2012-2017) which includes new inductions like Su-30MKI, Light Combat Aircraft (LCA), Medium Multi- Role Combat Aircraft (MMRCA), Very Heavy Transport Aircraft (VHETAC), Attack Helicopters, Heavy Lift Helicopters (HLH), Medium Lift Helicopters (MLH) and different missile systems among others. Funds are allocated specifically for each Financial Year and not for the entire Plan period. The funds demanded by the IAF for the Financial Year 2012-13 was Rs.36,950/- Crore and against this the amount allocated was Rs.30,514.45 Crore. The proposal for procurement of 126 Medium Multi- Role Combat Aircrafts (MMRCA) is presently at contract negotiation stage with M/s Dassault Aviation, France, who emerged as L1 vendor.

The total fleet of Su 30 MKI in the IAF will be 270 which will be concentrated in the 13 to 14 squadrons of the IAF.

Some of the major contracts signed during the last three years include procurement of Su- 30 MKI fighter aircraft, Tejas Light Combat Aircraft, Medium Lift Helicopters, Intermediate Jet Trainers and Hawk Advanced Jet trainers as well as various types of Radars, Airborne Weapon Systems and Air Defence Missile Systems. 252 air-to-ground stand-off weapon systems to the IAF under an Rs 622 Crore project from Israel.

Contract for upgrade of MiG-29 was signed with RAC `MiG` at a cost of US$964 Million. The upgrade is planned to be completed by 2016. Contract for Mirage-2000 upgrade has been signed with M/s Thales and M/s Dassault Aviation, France at a cost of 1470 Million Euros and with M/s Hindustan Aeronautics Limited (HAL) at a cost of Rs.2020 Crores. All the aircraft are scheduled to be upgraded by mid-2021. The Contract for upgrade of Jaguar Aircraft has been signed with M/s HAL at a cost of Rs.3113.02 Crores. The aircraft are planned to be upgraded by December 2017.

Trainers

The IAF operates a trainer fleet comprising Kiran MK-I/MK-II, Hawk-132 and Pilatus PC-7 K-II aircraft. The IAF’s premier Academy located at Dundigal, Hyderabad on 31 May 2013 witnessed the unveiling of Pilatus, PC 7 Mk II, by then Raksha Rajya Mantri, Shri Jitendra Singh thereby formally inducting the aircraft into the service. Three PC-7 MK II aircraft got

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airborne in a vic formation led by Group Captain RS Nandedkar to put up a brief display for the audience. This marked the first formal flight of the Basic Trainer Aircraft over the skies at the Air Force Academy in Hyderabad. India’s defence ministry has issued a request for information for the procurement of an additional 106 Swiss Pilatus PC-7 MK II Basic Trainer Aircraft (BTA). The trainers will be acquired under the ‘Buy & Make (Indian)’ category as per India’s defence procurement policy, says the RFI. The IAF is seeking MoD approval to acquire 10 of the 106 PC-7s in fly-away condition, 28 in semi-knocked-down kit form and to assemble the remaining 68 at its Base Repair Depot in Sulur, southern India.

Air Lift

In the 12th Plan, airlift capability is also expected to increase significantly. The C-17 Globemaster has started operating from Hindan from September 2013 and this platform would take strategic airlift capability to the next level. Similarly, additional 6 X C-130J Special Ops aircraft would add a force multiplier effect in our Op capability. IL-76 fleet will continue to last for the next 15 years along with AN-32 & Dornier.

India and the US inked the $1.01 billion deal for six additional C-130J "Super Hercules" aircraft. Defence ministry sources said the "letter of offer and acceptance" for the six new four- engine C-130Js, which will be delivered within three years, was signed on 27 December 2013 as per the Times of India under the US government's "foreign military sales" (FMS) programme. IAF already has five C-130Js tactical airlift aircraft, ordered for $962 million in 2007. While six were ordered, one perished in an accident in 2013. Six new C-130Js on order will be based at Panagarh in West Bengal. Panagarh will also house the headquarters of the new 17 mountain strike corps.

Helicopter Fleet

Helicopter fleet is planned for a major upgradation both in terms of numbers as well as capabilities. The detailed plan by which helicopter assets, both medium lift as well as attack heptr assets, have been earmarked for supporting each Army command and the individual Strike Corps respectively during any operational contingency has been worked out. The current helicopter fleet of the IAF comprises Chetak, Cheetah, ALH and various Mi-series helicopters. Of these, the Chetak, Cheetah, Kiran MK-I/MK-II, Hawk-132 and ALH are manufactured by M/s Hindustan Aeronautics Ltd. (HAL), which also carries out the Repair & Overhaul (ROH) of these aircrafts/helicopters and their aggregates.

Astra

Extensive carriage trials of 'Astra' with Sukhoi-30 aircraft have been held reportedly in Pune. 'Astra,' the Beyond- Visual-Range (BVR), Air-to-Air Missile, has been indigenously developed by the Defence Research and Development Laboratory (DRDL) under the Integrated Guided Missile Development Programme of India. Carriage trials began on November 29 and continued until mid or last week of December 2013 spread over at least two scores of sorties. Development trials of Astra in December 2012 from Integrated Test Range at Chandipur, Odisha, were successful in targeting, Lakshya, the Pilotless Target Aircraft (PTA).

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MRSAM

Indian Air Force is proposing to buy an additional unspecific number of MRSAM systems to replace its aging Russian-made Pechora surface-to-air missiles from domestic firms. Requests for information have been issued to state-owned Bharat Electronics Ltd., Larsen & Toubro, Tata Power SED, Punj Lloyd, Bharat Forge, Mahindra Defense Systems and Data Patterns India. The MRSAM will be procured using the “Buy and Make India” category, with at least 50 percent of their components produced indigenously. The Indian companies can partner, US-based Raytheon, IAI Rafael of Israel, France-based MBDA, Russia-based Rosoboronexport and the Doosan Group of South Korea as per a Defense News Report.

AWACS

Three Airborne Warning and Control System (AWACS) aircraft are presently operationalized in the IAF. AWACS are meant as force multipliers for specific area cover and not for surveillance of the entire space of our country. All three AWACS are part of Network Centric Operations and are able to provide adequate coverage of specified areas in Net Centric Operations. Enhancement of airborne surveillance and Command & Control capabilities of IAF is sought to be achieved through procurement of additional AWACS.

AEW

To leverage the experience and expertise gained in the design and development of Airborne Early Warning & Control Systems, a project proposal for indigenous development of AWACS (India) by DRDO has been approved by the Cabinet Committee on Security (CCS) on 12th February, 2013. The development of AWACS (India) is envisaged to be completed in 84 months from the date of formal sanction of the Programme.

MTA

India is jointly developing a Multi-Role Transport Aircraft (MTA), in 15-20 ton payload category, with Russia. For undertaking design, development and production of MTA, a joint venture company i.e. `Multi Role Transport Aircraft Limited (MTAL)`, was incorporated with HAL as Indian partner and United Aircraft Corporation - Transport Aircraft (UAC-TA) and Rosoboronexport, jointly, as Russian partners on 1st December, 2010. Preliminary Design Phase (PDP) activities of MTA have commenced on 1st December, 2012.

AN 32

A Radio Ukraine report stated that the country is preparing to send to India a sixth batch of five An-32 light transport aircraft, which were modernized at the facilities of the Ukrainian defence industry on the order of the Indian Air Force. "The technical acceptance by the customer of the next batch of An-32s has already begun. Once it is completed, the transport aircraft are

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due to depart from Kyiv to Kanpur in August," a source in the defense sector familiar with the implementation of the Indian contract told Interfax-Ukraine as per the Report. The present conflict in Russia has ostensibly not impacted the schedule of induction of the AN 32s.

AVRO Replacement

The global tender for the over Rs 13,000-crore acquisition of 56 transport aircraft to replace the ageing Avro fleet of IAF has been issued. First 16 aircraft will be bought off-the- shelf and the rest 40 will be manufactured in India. Hindustan Aeronautics Ltd (HAL), which has a virtual monopoly in the military aviation arena, is being kept out of this project and the tender, or request for proposal (RFP), was issued to eight aviation majors — Embraer, Lockheed Martin, Airbus, Ilyushin, Casa, Saab and Alenia Aeronuatica. Preliminary reports indicate that despite a single vendor situation approval is likely to be given to the Airbus-Tata conglomerate.

Mid Air Refuelling

Meanwhile the Indian Air Force has selected the European Airbus-330 MRTT over the Russian Ilyushin-78 mid-air refuelling aircraft in an Rs 8,500-crore contract as per reports in the media with defence ministry sources calling the European Aeronautics Defence and Space Company (EADS) for final commercial negotiations for acquisition of six Airbus-330 MRTT tankers. However reorganization of EADS has led to some complications

GSAT 7

Launching of GSAT-7, a dedicated communication satellite for the Indian Navy on 30 August 2014 gave a boost to realization of Navy’s network centric war capability based on an indigenous platform. With multiple transponders in various frequency bands, the satellite will provide voice and data communication and hence will help in seamless integration among the various command centres and Naval Units operating across the IOR.

Aero Stat

Two more Aerostat radars worth over Rs. 1,000 Crore have been cleared for the Indian Air Force.

Upgrading Mi 17

A DAC meeting cleared an IAF proposal for upgrading the medium lift choppers of the force including older versions of Mi-17 helicopters at a cost of over Rs. 1,000 Crore for making them more capable including enabling them to carry out night operations.

Akash The Defence Minister Shri AK Antony handed over the first batch of the indigenously designed and developed Surface-to-Air Missile, Akash, to the Indian Air Force at a function in

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Hyderabad on Saturday, Mar 03, 2012. Shri Antony also handed over the advanced light-weight torpedo, TAL to the Indian Navy. The AWS consists of a Launcher, a missile with a 25 km range, control centre, multifunction fire control radar and supporting ground equipment. The missile has a launch weight of 720 kg and carries a 55-kg payload. It can fly at a speed of up to Mach 2.5 and climb up to an altitude of 18 km. A versatile and wholly indigenous weapon system being built by the Defence PSU Bharat Dynamics Ltd (BDL), the Akash SAM systems will be the mainstay for Air Defence of the Country up to the 2030s & beyond. Helicopters The former Defence Minister Shri AK Antony inducted the advanced Mi-17 V5 helicopter into the IAF. Pointing out that the Mi-17 V5 is the best helicopter in its class; the Defence Minister assured that the Government stands committed to provide the latest and best possible equipments to our armed forces. Shri Antony underlined the role of Russia as a dependable partner in the defence sector. The multi-purpose Mi-17 V 5 helicopters will add to the flexibility and operational muscle, as well as capabilities of the Indian Air Force. It will help the IAF in meeting its growing mandate. India’s helicopter acquisitions are huge yet the process of acquisitions seems to be in a limbo. The Times of India states that Indian armed forces are planning to induct 900 helicopters to include, “440 light-utility and observation, naval multi-role (90), light combat (65), heavy- duty attack (22), medium-lift (139) and heavy-lift (15)”. Defence Acquisition Council (DAC) has cleared purchase of Search and Rescue (SAR) equipment for IAF choppers at a cost of Rs 1,000 Crore.

UAVs – Netra

Intelligence Bureau and Cabinet Secretariat are currently testing 'Netra', the defence ministry's internet spy system for capturing dubious voice traffic passing through software such as Skype or Google Talk, according to a DoT’s internal note. The Netra is an Indian, light- weight, autonomous UAV for surveillance and reconnaissance operations jointly developed by the DRDO’s Research and Development Establishment (R&DE), and IdeaForge, a Mumbai- based private firm. Development of systems such as the Netra by the DRDO a light weight drone can provide low cost security solutions in the defence and homeland security domain. The Netra is a versatile and light weight machine. It has no moving parts other than the rotors, motors and transmissions, and hence it requires very low maintenance. The use of carbon-fibre has resulted in a light weight of 1.5 kg (3 lb), which makes the Netra very portable. A backpack case allows operators to carry the system to field locations to serve as the base station. It also contains the power supply, military-grade controller, hand-held operator console and the communication systems. The surveillance and detection package in the same can be variable thus providing immense potential to the usage of the system under varied circumstances. Though the endurance may be low and the area coverage restricted this can provide a degree of assurance and surveillance in the desired area.

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Electronic Warfare

Swedish firm Saab declared that it had got two orders from Hindustan Aeronautics Limited worth Rs 200 Crore for integrated electronic warfare self-protection system for Advanced Light Helicopters of the Army and IAF. "Saab has an unbeaten capability in the field of electronic warfare and self-protection. The IDAS system is one of our flagship products sold to customers around the world," said Michael Johansson, Senior Vice President and Head of Saab's business area Electronic Defence Systems in a press release by the company. "With these orders we continue to build on our very successful partnership with HAL. The fact that HAL and the Armed Forces have continued to show faith in the IDAS system is a testimony of the effectiveness and reliability of the solution," said Lars-Olaf Lindgren, Head of Market Area Saab India.

Arudhra Radar

In the air defence field, Arudhra medium-power radar was inducted at the Naliya air force station of Gujarat Sector in June 2011 and will be deployed in Rajasthan and Gujarat. The S-band solid state active aperture radar can detect and track any airborne targets up to 100 km. The radar has a rotating phased array antenna covering 360°. It also has steering mode with electronic scanning in azimuth and elevation providing range, direction, height and Doppler velocity information of the tracked aerial targets. The radar is reported to possess advanced active array technology, digital processing technologies - Digital Beam Forming and Programmable Signal Processing - to meet operational requirements of air space surveillance covering 100 m to 30 km altitude. Arudhra has been developed by the Defence Research and Development Organisation (DRDO) with support from Israel. Integrated Air Command and Control Systems and connecting all of its modern and legacy radars under one single grid is also in place.

Eight indigenous radars have been inducted by the IAF and most of the forward and strategic air bases like Utarlai, Jodhpur, Jaisalmer, Phalodi ,Suratgarh and Nal (Bikaner)in Rajasthan region are likely to have Arudhra developed by the Electronic & Radar Development Organisation of DRDO and will replace the ageing TRS-2215 and PSM-33 radars.

Development of Fifth Generation Fighter Aircraft (FGFA). A Preliminary Design (PD) contract has been signed between HAL and Rosoboronexport, Russia on 21st December, 2010 for implementation of design & development of Prospective Multi-Role Fighter (PMF) Aircraft programme by Hindustan Aeronautics Limited (HAL) jointly with Sukhoi Design Bureau (SDB) of Russia at a cost of $295 million. The duration of the PD phase is 18 months. Full scale Design & Development work will be taken up under a separate contract, which will be negotiated and signed towards the end of the PD phase. Presently induction of aircraft in Indian Air Force is envisaged from 2018 onwards. Moscow demonstrated two Sukhoi T-50 PAK FA [Perspective Frontline Aviation Complex, the official Russian full name] stealth fighters at the 10th International Aviation and Space Show, MAKS-2011, in Zhukovsky, near Moscow. MAKS 2011 was held from 15 to 21

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August and 800 companies from 40 countries took part in the air show which saw record crowds of 600,000 people plus watching the enthralling displays. The Two fighters T 50 – 01 and T 50 – 02 from the Sukhoi Design Bureau made their first public appearance in the air show maneouvring against the backdrop of azure skies and quietly slipped away as Russian Prime Minister Vladimir Putin and a host of air warriors, manufacturers and analysts watched the command performance. There was no static display given that the Russians want to keep the overall design under the wraps.

UAVs

Israel Aerospace Industries (IAI) is supplying India `Heron' MALE (medium-altitude, long endurance) drones, ground control systems and data terminals. Indian armed forces are operating over 100 UAVs including the Searcher-II, Heron and Harpy `killer' drones designed to detect and destroy enemy radars by functioning like cruise missiles. Navy is slated to add two more Herons to its UAV fleet of eight Searcher-II and four Herons, for maritime surveillance up to 200 nautical miles. The IAI-DRDO project for NRUAVs (naval rotary UAVs) or unmanned helicopters is also ongoing. The Army is going in for two `troops' (8 birds each) of advanced Heron UAVs. IAF is now looking to induct Israeli Harop `killer' UAVs from 2011 onwards which like Harpy is a loiter drone. IAF reportedly issued RFI (request for information) for micro UAVs with "operational endurance in excess of 30 minutes"

Akash The IAF has ordered an additional 750 Akash medium-range surface-to-air missiles (SAMs) from state-run defence behemoth Bharat Electronics Ltd (BEL) at a cost of Rs 42.79 billion ($925 million). "A decision to place this fresh order with BEL was taken after the IAF expressed satisfaction with the performance of the Akash missiles that are deployed in two squadrons," former Defence minister AK Antony said. The IAF will deploy 125 missiles each in six squadrons as and when BEL delivers them. "The first order for 250 missiles was placed last year on a pilot basis. The IAF has decided to deploy the weapon in more squadrons for optimal use," Antony said after inaugurating the digital flight control (DFC) computer facility at BEL. The missile can target an enemy aircraft up to 30 km away, at altitudes up to 18,000 meters and can be fired from both tracked and wheeled platforms

SRSAM

In related developments it was revealed that a Memorandum of Understanding (MoU) has been signed on 18th December 2007 between Defence Research and Development Organisation (DRDO), Department of Defence Production (DDP) and M/s MBDA, France to undertake development of Short Range-Surface to Air Missile (SR-SAM) jointly by DRDO & M/s MBDA and production by Bharat Dynamics Limited (BDL). DRDO has completed development of Medium Range Surface to Air Missile, Akash. Air Force and Army have already

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placed production order with Bharat Electronics Ltd. (BEL), Bangalore and Bharat Dynamics Ltd. (BDL), Hyderabad. There are however reports that this project may have been stalled.

Replacement of Kiran Aircraft

The Intermediate Jet Trainer (IJT) is planned to replace Kiran Mk-I. Due to repeated revisions in the time line set for the Initial Operational Clearance (IOC) of IJT, and also considering the present state of the project regarding induction of the IJT in Indian Air Force (IAF), it has been decided to extend the use of Kiran Mk-I. After the study of the fatigue life spectrum of Kiran Mk-I aircraft, the Regional Centre for Military Airworthiness (Aircraft) has recommended extension of Total Technical Life of the aircraft. This will help IAF to utilize the fleet till 2017-18, though in gradually reducing numbers.

The Development of IJT is in the advanced stages of certification with more than 800 test flights completed so far. The activities are progressing well with completion of Sea level trials, night flying trials, high altitude trials as well as weapon and drop tank trials. The activities left for obtaining Final Operational Clearance (FOC) are the refinement of stall characteristics and spin testing which will be commenced as soon as stall characteristics are refined.

INDIAN COAST GUARD

Coastal Security

Coastal security issues are regularly reviewed at appropriate levels with National Committee on Strengthening Maritime and Coastal Security (NCSMCS), being the apex body for inter- ministerial and inter-agency coordination. Various agencies such as Cabinet Secretariat, Ministry of Defence, Ministry of Foreign Affairs, Ministry of Home Affairs, Ministry of Shipping, Ministry of Agriculture, Ministry of Petroleum and Natural Gas, Indian Navy, Indian Coast Guard, National Security Council Secretariat, Intelligence Bureau and Chief Secretaries of Coastal States and Union Territories, associated with security of the country participate in the NCSMCS meeting. Defence Minister also reviews coastal security from time to time.

Besides the general working of the coastal security apparatus, manpower and assets issues of Indian Navy and Coast Guard, coordination between various security agencies, establishment of surveillance network along the coast and monitoring of shipping vessels were discussed during these meetings. The installation of Coastal Static Radar is reviewed from time to time. The project for establishment of this chain of 46 static radar sensors along the coastline at a cost of Rs.601.77 Crores has been implemented. 34 radars stations on the mainland have been activated.

The registration, movement and tracking of Dhows were also highlighted in view of some recent cases. DG, Shipping confirmed that registration of Dhows is being done under MS Act. Furthermore for all active Dhows, an annual survey certification process is also in place.

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Regarding the issue of monitoring and tracking of Dhows, the same is possible since Dhows have to be fitted with AIS. DG, Shipping has also given directions to all ISPS compliant ports that information on the Dhows is given to Navy and Coast Guard for monitoring/ surveillance purposes. Separately, DG, Shipping has also initiated consultation with coastal State Governments for delegating the work regarding registration of all Fishing Boats.

Profile of Indian Coast Guard – Existing and Plan

At present, the Indian Coast Guard has a force level of 46 Ships, 45 Boats /Hovercraft, 28 Noncommissioned craft and 64 Aircraft to carry out regular surveillance of the Maritime zones of India. One Offshore Patrol Vessel (OPV), 5 Fast Patrol Vessels (FPVs), 6 Inshore Patrol Vessels (IPVs), 6 Air Cushion Vehicles (ACVs), 9 Interceptor Boats (IBs), 4 Interceptor Craft (ICs) and 7 Dornier aircraft have joined the fleet of Indian Coast Guard in 2013-14. The future plans are as follows:-

14 new Indian Coast Guard Stations approved, to augment the existing 28. 21 Coast Guard Stations were commissioned / activated including Port Blair, Kararatti, Gopalpur, Karwar, Gandhinagar, Minicoy, Mundra, Krishnapatnam, Mayabunder and Pipavav. New generation Offshore Patrol Vessel, ICGS Vishwast, built in India by Goa Shipyard, and the Pollution Control Vessel, ICGS Samudra Prahari, built by the private sector ABG Shipyard in Surat in 2013. 79 vessels and boats commissioned into the Indian Coast Guard including two Advance Offshore Patrol Vessels (Sankalp and Samrat), three Offshore Patrol Vessels (Vishwast, Vijit and Vaibhav), two Pollution Control vessels (Samudra Prahari and Samudra Paheredar), four Fast Patrol Vessels (Savitribai Phule, Aadesh, Abheek and Abhinav), 10 Inshore Patrol Vessels (Rani Abbakka, Rajshree, Rajtarang, Rajkiran, Rajkamal, Rajratan, Rajdoot, Rani Avantibai, Rajveer and Rajdhwaj), eight Air Cushion Vehicle (Hovercraft), 21 Interceptor Boats and 20 Interceptor Craft. Under Phase-I of the Coastal Surveillance Network Project installation of 46 radar chain to have a gap free Coastal Surveillance Network (CSN). In the first Phase of the project, the coastal States/UTs were provided with 73 coastal police stations, 97 Check Posts, 58 Out Posts, 30 Barracks, 204 boats, 153 jeeps and 312 motorcycles. 36 Coastal Static Radars in place and 10 more in final stages of completion- which would help in identification and monitoring of maritime traffic. In the phase-II of CSN which will cost Rs. 1580 Crores, we will have another 38 radars chain to cover the rest of the 7,500 Km long coastline. Lakhs per coastal police station to develop its infrastructure. Linking up the National Automatic Identification System Network (AIS) and Vessel Traffic System (VTS) off Gulf of Khambat planned.

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Coastal Radars

Under Phase-I of the Coastal Surveillance Network Project installation of 36 radar chain to have a gap free Coastal Surveillance Network (CSN) was envisaged. In the first Phase of the project, the coastal States/UTs were provided with 73 coastal police stations, 97 Check Posts, 58 Out Posts, 30 Barracks, 204 boats, 153 jeeps and 312 motorcycles. The completion of the phase-I of the project at a cost of Rs. 646 Crores on the Indian mainland took place when MoS, Defence, Mr Jitendra Singh inaugurated the static sensor chain at Visakhapatnam on 23 November. India has already a chain of 36 radars along the Maharashtra, Gujarat and Kerala coast.

In the phase-II of CSN which will cost Rs. 1580 Crores, we will have another 38 radars chain to cover the rest of the 7,500 Km long coastline. For this, the Govt. had signed the contract with the state owned Bharat Electronics Ltd (BEL) in Sept 2011 at a cost of Rs 602 Crores considering the strategic nature of the turnkey project and with an aim to develop indigenous capabilities. Under this scheme, the coastal States/UTs interalia are provided with 131 coastal police stations, 10 Marine Operation Police Centres (MOCPs), 60 jetties, 225 boats of various categories and a lump sum assistance of Rs. 15 Lakhs per coastal police station to develop its infrastructure.

Linking up the National Automatic Identification System Network (AIS) and Vessel Traffic System (VTS) off Gulf of Khambat with the Coastal Security Network would help the security forces in identifying a friend or foe in the Indian waters.

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CHAPTER 15

FUTURE TECHNOLOGY REQUIREMENT OF INDIAN ARMED FORCES

Technology Perspective and Capability Roadmap

Future technology requirements of the armed forces are based on the Technology Perspective and Capability Roadmap published by the HQ Integrated Defence Staff (HQ IDS) in April 2013. The overall philosophy of development of technology is broad-based spanning all defence related sciences. Affordability and superiority are to be balanced in acquisition focusing on, “timeliness, dual use”, and “modular design,” amongst other factors. Focus of the indigenous R &D establishments is on critical technologies that are likely to be denied and efforts concentrated on indigenous development of these as well as newly emerging areas of warfare that have been identified as essential for joint war fighting. A detailed road map to acquire the technologies including funding and research objectives is being worked out with dependence on civilian, private as well as public and government enterprises.

Key Technology Requirements – War Fighting Areas

Battlefield Transparency

Depth of transparency, sustainability and endurance, multi domain penetration and integration are some of the key requirements in the acquisition domain of information obtained from various sensors to enhance situational awareness. Smart decision support tools and information assurance, management to enhanced combat efficiency are the other basic requirements. Fusion of information is also necessary.

Command and Control Architecture

Real-time, robust, reliable and networked command, control, communications, computers and intelligence processing systems are essential for decision making. Integration and fielding of automated sensors for various levels of operations and their integration with requisite fool proof communications with redundancy is seen as essential.

Communication Systems

Voice, data, image, multi-media applications and networking is desired for real-time secure mobile communication links. Smart devices with supporting architecture and infrastructure towards achieving network centricity are aimed at. Defence communication system with encryption with adequate band width is proposed to be put into place with attention to detail including data linking facilities and fractal antenna

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Smart Radios

Intelligent Software Defined Radios (SDR) including man-pack versions which are reminiscent of computers and will alter their properties according to how they have been programmed is seen the need ahead.

Information Dominance

Real time actionable intelligence and domination of the electromagnetic spectrum with a view to secure own combat systems and neutralize the enemy’s information systems in a time bound manner is necessary. Some of the resources across the strategic spectrum will include satellites that produce sub metric resolution and long endurance UAVs.

Electronic Warfare

Electronic Warfare (EW) is expected to be based on space based, remotely controlled and expendable decoys. Employment of UAVs, Wideband SIGINT, COMINT and EW systems are the need for the future.

Nano-Technology/MEMS

Nano-technology is expected to usher in light weight, strong, multifunctional advanced materials for use in combat systems, while enhancing surveillance, protection and connectivity. Nano materials are expected to reduce power and weight requirements, increase protection of platforms and durability and thereby enhance operational effectiveness of platforms. Carbon composites, metal matrix composites, stealth coatings, self healing materials, adaptive camouflage materials and structures and smart skin materials are being looked at. Capability for development of Micro Electro Mechanical System (MEMS) based sensors, actuators, RF devices and focal plane arrays is also one of the areas for the future.

Artificial Intelligence and Robotics

Fuzzy logic, neural networking, evidential reasoning and genetic algorithm into photonic or quantum applications for image interpretation for target identification and classification, expert systems for diagnosis and maintenance of sophisticated weapon systems such as radars and missiles and robotic equipment can be used to provide precision targeting support and carriage of ammunition and accuracy. Camera equipped and shock-resistant platforms to provide fire power remotely are other possible applications.

Chemical, Biological, Radiological and Nuclear (CBRN) Defence

CBRN defence should include technologies to detect and defeat all kinds of CBRN threats, minimise their lethal effects, develop countermeasures, casualty prevention and management. Defence against CBRN will include individual protective equipment, collective protection (both fixed and mobile shelters) and also decontamination systems and equipment.

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Miniaturisation

Microsystem technology in development of navigation systems and warhead guidance is expected to incorporate multiple sensors which work together. Miniature SAR & ISAR technologies are also being sought

Unmanned Systems

Small intelligent, unmanned vehicles capable of working in groups with other vehicles, both unmanned and manned.

Advanced Weapon Systems

Precision to reduce collateral damage, lethality to destroy the target in a counter- insurgency operations, urban warfare, as also normal battlefield operations require diverse approach and include both kinetic and non-kinetic weapons capable of producing the desired lethal or nonlethal effects.

Precision Air-Ground Weapons. Capable of independent, reliable and all-weather day or night delivery to achieve CEP of three meters or less, immune to jamming and should not be fully dependent on any ground, air or space based system, thereby rendering them vulnerable to any sort of data blanking by the enemy. Independent navigation from release to impact while incorporating the fall back option of pilot in the loop control in the terminal stages and launch and control from independent platforms and capable of trajectory shaping to cater to specific target types. Inter-changeable warheads to suit the target types, i.e. blast penetration type, pre-fragmented, pure kinetic energy/ boosted penetration type or general purpose. Weapons should have stand-off launch capability. Air-to-Air Weapons. Beyond visual range, fire-and-forget, active and passive seekers need to be developed. Close combat missiles must incorporate dual seeker capability thereby enhancing their anti-jamming capability and must be capable of full hemispherical launch. Missiles with imaging IR seeker heads, which would defeat present day ECM measures and cued launch from another airborne platform should be possible. Surface-to-Air Weapons (SAMs). Latest EW capabilities, coupled with enhanced ranges and accuracy and SSKP of 90% and better with low level quick reaction capability. Hard Kill Options. Hard kill options, specifically in the field of anti radiation both of the air launched and ground launched variety that incorporate long on-station time hover capabilities, thereby facilitating fire-and-forget capability.

Electro-Magnetic Pulse (EMP) Weapons

The High Pulse Magnetic (HPM) weapon could become the heavy artillery in the age of network based defence. HPM weapons knock out electrical equipment rather than people and in future, could be used to counter incoming anti-ship/anti-aircraft/ anti-tank missiles or to prevent other ships/aircraft from approaching too closely.

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Adaptive Warheads

Intelligent warheads to select and direct effects for optimum lethality and combine a range of different Capabilities may be called for. They should also blind the enemy’s warning and countermeasures systems so that the lethal parts of the warhead reach the target undisturbed.

Weapon Guidance

Global Positioning System and or Inertial Navigation Systems (INS) that includes RLG/FOG with minimal drifts, redundancy built-in and difficult to jam is the need of the hour. Miniaturising the gyros would also play an important role.

Space-Based Radars

Quantum leap in radar technology and increasing trend towards the physical separation of the radar’s transmitters and receivers by placing the transmitter in space and the receivers on the ground is envisaged

Stealth

Stealthy design features, absorbent materials, noise suppressors will be needed. Own military sensors must be improved to beat the stealth effect of the enemy and should be able to respond more rapidly; otherwise the weapon systems will be unable to engage the targets.

Digital Systems

Capability for low power dissipating high capacity digital computing elements and advanced DSP techniques and hardware design is required.

Adaptive Antenna Signatures

Future smart antenna systems should consist of electrically controlled active antennae that can handle a number of different targets at the same time and control their own signatures to avoid detection. Such antennae will have greatly increased capabilities which would be based on constantly improved and refined subsystems and individual components. Common aerial working systems also need to be developed to remove top deck clutter on ships.

SAGW

Augmentation of SAGW both static and in the Tactical Battle Area would be critical component of maneuver warfare.

Sensors

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Critical sensor technologies are envisaged to be (a) Advanced EO and IR sensors with optical correlation and IR imaging capabilities for targeting and weapon seekers. (b) Emerging radar technologies such as AESA (Active Electronically Scanned Array) Radar with multi-mode capabilities and Non-Cooperative Target Recognition (NCTR) facility. (c) Synthetic Aperture Radar (SAR) and Inverse SAR (ISAR) capabilities with enhanced processing features and capabilities. (d) Development of High Frequency Surface Wave Radar and Low Probability of Intercept (LPI) radars. (e) LASER based systems for detection and imaging of targets. (f) Night vision devices incorporating state-of-the-art thermal imaging technology. (g) Ground based sensors, both attended and unattended.

Sensor Fusion

Sensor fusion, to ensure that only the relevant data is provided to the operator in the appropriate form, facilitating timely and correct decision-making, improve the quality and the filtering of the data through a centralised agency for appropriate action by the operators is a must.

AVIATION

Aircraft Structures. Increasing use of composites, platform design and employment of advanced CFD tools in the field of Finite Element Analysis and structural optimisation are required.

Propulsion Technology. High performance turbo fan engines for the fighter and transport fleet is desired. The next generation fighter aircraft should invariably have three- dimensional thrust vectored nozzles. Development of variable bypass engine would need to be commenced within the next ten years. Fundamental engine technologies such as single crystal blade design, high temperature materials, combustion chamber design, and CFD programs. All the aircraft engines must incorporate Full Authority Digital Engine Control (FADEC) systems, with full manual back up.

Avionics

Display Systems. Optical thin films, thin TFTs, collimators for wide angle holographic HUDs, head/ helmet mounted sighting systems and head level or head down displays are necessary Smart electronic displays, which can be easily re-configured as the situation demands, Multi-Function Displays (MFDs) overlaying and displaying a variety of data from a multitude of sensors, with suitable clarity and resolution, Mission Computers (MC) and Digital Map Generators (DMGs), which will be a part of the entire package, must be capable of providing a 3-dimensional image of the terrain over-flown along with enemy radar ORBATS displayed, thereby facilitating independent fly-through capability by the aircraft. The MCs must be reliable, Electro-Magnetic Pulse (EMP) proof, dual redundant and capable of independent operation in the event of one MC failure.

Navigation Capability. Independent, jam proof, reliable and redundant navigation capability from a portable data loader and uploading the mission directly from the ground via the data

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link. In addition, the navigation systems must be coupled with recovery aids like VOR/ILS and TACAN for all fixed and rotary wing aircraft. These aids will also aid in other aircraft missions like Air-to-Air Refuelling. Corresponding ground infrastructure would also need to be developed and inducted.

Auto-Pilot. To include all modes of horizontal and vertical navigation and aircraft recovery linked to the aircraft Flight Management System (FMS). Terrain Following (TF), height recovery, approach, aircraft automatic recovery and horizon/ wings level modes etc.

Airborne sensors including UAVs operating at high and medium attitudes with extended endurance periods, capable of withstanding adverse conditions like high winds or jet stream phenomenon.

Night/All-weather Capability. Night vision and all-weather capabilities, facilitating full mission operability with devices such as NVGs (Fourth Gen) and IR systems like next generation FLIRs.

Flight Control Systems. Fly-By-Wire/ Fly-By-Optics Technologies with full authority, multi-redundant systems and battle hardy, enabling recovery even in the event of multiple channel failure are required. In the case of helicopters, incorporation of these flight systems would be focused on the medium term perspective.

Aircraft Safety Systems. Aircraft safety systems, akin to Traffic Collision Avoidance System (TCAS) and Enhanced Ground Proximity Warning Systems (EGPWS) are desired. All aircraft would need to incorporate Reduced Vertical Separation Minima (RVSM) capability, as all aircraft operating above FL 150 need to be RVSM compliant.

Aircraft Survivability. Multi-spectral signature control, active / passive vulnerability reduction technologies, damage-tolerant aircraft structures; defensive avionics and counter SAM capabilities, including missile and laser warning systems, expendables, and passive and active countermeasures; defence against MANPADS; and multi-spectral threat warning. There must be sufficient redundancy in all critical aircraft systems, facilitating positive aircraft recovery and, if possible, mission accomplishment even in the event of a dual system failure.

Data Linking/Transfer. Rapid, near real-time data acquires critical importance. All airborne platforms thereby must have the facility for secure data linking for the real-time transfer of data between themselves and also with any ground-based agency. Commonality of the data linking abilities is essential.

Information Operations (Low-cost Computer Network Monitoring Capability). Airborne network attack capabilities; improved communication network exploitation, including jamming.

Electronic Attack. Develop airborne sensors to detect hostile electronic emissions with improved noise and deceptive jamming capabilities. These sensors would need to incorporate better techniques, more power, improved reaction, increased performance in dense threat

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environments and broader spectrum coverage. Develop airborne EA technologies that can effectively deceive or degrade advanced search and tracking radars, effectively disrupt modern communication and data links (both conventional, military and asymmetric) and disrupt asymmetric, non-traditional targets such as RF triggering devices. The aim should be to achieve reduced cockpit workload and automated signal correlation.

Information Electronic Warfare (IEW) Systems. Modern day RWRs giving high detection ranges of up to 200 km need to be inducted on all aircraft. HADF (High Accuracy Direction Finder) must be incorporated, capable of providing very high angular detection resolution, facilitating identification of specific emitters even in a cluster of emitters. RWRs must operate over the full range of the utilised electronic spectrum. All airborne platforms should be integrated with MAWS (Missile Approach Warning Systems) and LWS (Laser Warning Systems). Coupled with the detection capability the possibility of incorporating a workable Directed Infrared Countermeasure (DIRCM) system must be considered.

Persistent Target Detection. Develop technologies to detect, identify and track surface combatants in all-weather conditions, in both day and night operations, over long standoff ranges (beyond projected surface threat envelopes). The systems should have high probability of mission kill and low probability of collateral damage, to support the engagement of surface combatants, landing craft, and other high value surface assets in the most challenging scenarios.

Target Identification and Discrimination. Develop technologies to enable automatic detection and discrimination of small targets (eg. periscope) from all altitudes and/or standoff ranges, and improve active/passive/multi-static identification algorithms to minimise false targets.

Anti Air Warfare. Develop targeting, engagement systems and weapons technologies to detect, track, identify, and engage advanced air threats outside of their projected sensor ranges and the kinematic range of emerging missiles in an Electronic Attack environment.

Strike Missions. Develop technologies that enable all-weather endurance over a large area of responsibility and neutralisation of a range of time critical targets over multiple locations, including maritime and all types of shore targets in the most challenging scenarios, with little collateral damage.

Enhancing Legacy Weapons. Enhance capability of legacy weapons and armament to provide improved ranges, ability to be deployed in all-weather conditions and precision attack.

Support to Missions. Develop technologies that permit new missions to be rapidly planned and ongoing missions to receive flexible logistic support in response to unanticipated changes in the operational tempo. Integrate operational, maintenance, and logistic planning and distribution systems to reduce or eliminate the operational pause and enable persistent combat operations.

Communication and Networks. Develop technologies to improve aircraft communications and network connectivity performance (speed, range, observability,

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communications) throughout the battle space. The communications should cover a large band width and provide a high data rate for voice, data, and imagery and video transmissions. There should be a high level of network security with encryption / decryption capability.

Safety, Availability and Affordability. Develop, integrate and transition technologies to improve system safety, increase availability, extend useable service life, and reduce maintenance actions and environmental impact on operations, basing and training. Niche technologies like solid-state technology and Gallium Nitrate T/R modules must be utilised for enhanced system effectiveness.

Training. Development of full-motion aircraft simulators for existing and future aircraft inductions, rear cockpit trainers for mission training, aero-engines and aircraft system simulators for technicians to provide better and realistic training are desired.

UAVs

The size as well as modern stealth technology should make them difficult to detect. They should also be able to make own assessment of the surroundings and use it as a basis for autonomous smart decisions relating to, for example, its choice of route and the use of sensors.

Enable unmanned, highly autonomous strike capabilities against the full spectrum of potential targets. Flexibility of UAVs to operate from multiple platforms would rationalise manning and financial effects. In addition, control of multiple UAV platforms from remote locations would incorporate flexibility in basing and operational deployment. Automated flight control and take off/landing systems are desired to enhance redundancy.

The pay load and sensors need to be upgraded with changing technology. Gradual shift towards greater utilisation of these vehicles in all spheres of military operation is desirable

Long Endurance UAVs.

High Altitude Long Endurance (HALE) UAVs. The Armed Forces require HALE UAVs having all-weather capability to operate at altitudes of 36,000-65,000 ft with endurance for a minimum endurance of 96 hrs with a payload upto 1500 lbs.

Medium Altitude Long Endurance (MALE) UAVs. The MALE UAVs required should have all-weather capability to operate at altitudes of 25,000-36,000 ft with endurance of 36-48 hrs at a cruising speed of atleast 90 knots.

Tactical UAVs. UAVs, operating up to a maximum altitude of 15000 ft and having an endurance of 24 Hrs with a payload of IR/EO sensors.

Mini/ Micro UAVs. These may be hand-launched UAVs in the weight category less than 30 kgs and should have a min endurance upto 120 mins.

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VTOL UAVs.

The Vertical Take-Off and Landing (VTOL) UAVs should have the capability to carry a payload of upto 2000 lbs, endurance upto 12 hrs and a range of atleast 100 nm. The payloads should include a Synthetic Aperture Radar (SAR), EO/IR sensors, communication relay, COMINT, SIGINT, ELINT payloads.

Unmanned Combat Air Vehicles (UCAVs). UCAVs should evolve into full mission capable platforms, with the ability to carry and release precision guided munitions. These would minimise collateral damage which will be an important criteria in all future conflicts. These weapons should have a CEP of 3 metres or less.

Aerostats. Mobile Aerostats, a smaller system of aerostats, which act as communication, relay facility for a network of sensors. Aerostats with Electronic Intelligence (ELINT) and Communication Intelligence (COMINT) payloads are essential.

Aerospace

Satellites. Miniaturisation, future trends should be towards smaller satellites operating as, a network of satellites capable of working together, capable of seeing a moving target on the ground or at sea anywhere in the world. With the advent of anti-satellite weapons (ASAT) a concept of ‘watchdog satellites’ to guard other satellites could also be explored.

Communications. SATCOM would be the conjoint medium using technology for broadband communication. Such a system is to also cater for critical redundancies (during contingency).

Meteorology. Near real-time high resolution weather data are required. Data processing facility within IAF for processing Met data from KALPANA, INSAT 3D, OCEANSAT and MEGHA TROPIQUE meteorology satellites and generating various meteorological products would be required for weather forecasting.

Satellites with improved sensors, resolution and revisit schedules.

Environment Friendly Technologies

The Armed Forces are looking for eco-friendly solar, wind and electric power and propulsion systems as well as Hybrid Marine Power (HMP) systems (for the maritime domain) which are capable of lowering fuel consumption, reduce pollution and better energy efficient while helping vessels to operate quietly.

LAND WARFARE

Future Combat Systems. Highly maneuverable and have enhanced protection against various forms of threats, namely, tanks, anti-tank guided missiles, armed attack helicopters and anti-armour mines.

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Mobility. Compact power packs and electro mechanical drives and advanced suspension systems remain the primary concerns with amphibious capability.

Lethality. (i) Development of electronic guns exceeding muzzle velocities of conventional tubes. (ii) High velocity Kinetic Energy ammunition along with chemical, High Explosive Anti Tank and thermo-baric munitions/missiles.(iii) Trajectory Correction munitions systems that would provide enhanced accuracy and lethality. (iv) Advanced fire control systems.

Survivability. Smaller and more compact armoured vehicles coupled with effective signature management to enhance survivability along with protection and counter-measure systems.

Guns, Rockets and Missile Systems. The need is for long range systems with higher accuracies and lethality. Radar based Trajectory Correction Systems with inertial navigation systems remain essential features. Anti-missile active and passive seeker defence technologies for supersonic cruise missiles, short range missiles and long range sub-sonic cruise missiles are also sought.

Robotics. Robots to assist troops in combat for tasks such as surveillance, reconnaissance, anti mine and anti IED role, urban area combat and casualty extraction etc are desireable.

Bio-Technology. The bio-technological R&D should be extended to development of biodegradable ammunition which causes minimum damage to the environment, lighter food and fuel for carriage by individual combatants, and bio production mechanisms to enable soldiers to generate food, fuel and materials from raw materials in the field, allowing for extended operation in remote areas.

Non - Lethal Weapons. Sub-lethal or disabling military technology suitable in an urban or complex environment are necessary. (a) Stun Grenades. Low impact grenades which can stun or immobilize adversaries. (b) Optical Weapons. Optical munitions to cripple sensors and dazzle, if not blind, soldiers. (c) Acoustic Weapons. Weapons that emit sonic frequencies to cause sensations as disorientation, debilitating dizziness and motion sickness or nausea, as also generating vibrations of body organs, resulting in extreme pain or seizures.

MARITIME SPHERE Technologies Sought

Ship launched / recovered UAVs and UCAVs with integrated radars/IR/LASER/video surveillance system. LASER based wake detection capability. Low frequency transducers for underwater detection. Surface-to-Subsurface strike capabilities comprising development of long, short and medium range super-cavitating torpedoes, with active homing heads.

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Development of ship fitted guns and mountings with limited surface attack capability to engage unarmed merchant shipping, beach softening, Anti Air Defence, Including the CIWS gun mounts capable of engaging the low flying sea skimming missiles, with Fire Control Systems for target acquisition and target identification. Improved ammunition with limited precision guidance for increasing the range and lethality of SR/MR guns. Towed array, variable depth and seabed surveillance sonar systems. Development of higher accuracy RLG based INS systems.

Laser Communications. To achieve two-way real-time communications with submarines at operational depths laser communications are necessary. This technology would also offer exchange of data at very high rate.

Amphibious Aircraft. These need to be developed for missions like intelligence gathering, HADR, SAR, logistics and communication duties in fleet support, along with conventional aircraft carrier.

Unmanned Underwater Vehicles (UUVs).Small, high-speed submarine hunters, mine clearance would be another suitable application for them capable of penetrating shallow rivers or canals while the mother submarine lies safely out in deeper water. The UUVs could also be used as forward sensors, as a means to detect minefields or as weapon carriers.

Underwater Surveillance. The thrust in future should be towards development of advanced sonars. In the longer term, it may be possible to depict objects in three dimensions using laser technology. Underwater radar for close range surveillance is also being considered by some advanced navies.

Airborne ASW. Improved underwater multi-spectral detection, localisation, and identification with an emphasis on passive methods; remote interrogation and propagation of unattended ASW sensor fields; and improved data-link capability for sharing ASW information and data with submarines and surface ships.

Air-Launched Weapon against Undersea Threats. Develop advanced precision delivery ASW weapons for all-altitude attack of target at any depth and at long ranges with high success criteria. The weapons would need to be light-weight, perform engagements at high speeds and be equipped with intelligence, loiter and self detection capabilities.

Training. Development of simulators and 3D walk-through model of ships using virtual reality to provide ship’s crew better and realistic training.

Tethered and Expendable Buoy. This technology needs to be developed to achieve tactical communications with underwater platforms.

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Marine Engineering

Main Propulsion Equipment. Prime Movers for Power Generation Equipment. Auxiliary Equipment. Machinery Control Systems/Equipment. Miscellaneous Equipment

Gas Turbines. Gas turbines, in the range of 11-15 MW and 20-25 MW are required for fitment onboard future ships as main propulsion units and develop indigenous gas turbines.

Diesel Engines. Diesel engines in the range of 1-7 MW are used as main propulsion units. Low noise levels, high availability and reliability. (a) Motor Boat Engines. The Survey motor Boats (SMB) and the Rigid Inflatable Boats (RIBs) are powered by diesel engines in the power range of 100-250 HP. These engines are required to be lightweight and rugged in design and having a high Mean Time between Overhaul / Failures(MTBO/MTBF).

Non Magnetic Engines. The minesweeping vessels are fitted with non-magnetic 250HP engines. Presently, no indigenous diesel engine manufacturer is manufacturing non-magnetic engines. Indigenous manufacturers could enter into strategic tie-ups with reputed foreign manufacturers of Non Magnetic diesel engines to develop indigenous competence and capability in this field for meeting requirements of the Navy.

Gearbox. Ultra low noise gearbox to achieve quieter operations is the need of the hour.

Diesel Engines, Steam Turbines and Gas Turbine Prime Movers. Indigenous development / licensed production of diesel engine and gas turbine prime movers in the higher power range (1 to 3 MW).

Machinery Control Systems. Open architecture standards to ensure indigenous availability of core hardware as well as software of machinery controls on all new construction ships. For existing ships, conversion to indigenous equivalent designs have been planned for a few class of ships in the next 10 years and identification of suitable designs is in progress.

Engineering Instrumentation. Indigenisation and standardisation of all engineering instrumentation (Pressure gauges, 4-20mA gauges, pressure / temperature switches etc).

Auxiliary Equipment

Shafting/ Controllable Pitch Propellers (CPP). Critical components such as Propeller, Stern Tube Bushes, ‘A’ Bracket Bushes, Plummer Block bearings

Propeller Shaft Sealing Arrangements. Shaft sealing devices are required to prevent ingress of seawater through the stern tube.

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Stabilisers/Steering Gears. These constitute hydraulically powered stabilizers / steering systems with digital controls adapted for Naval warship applications. The systems include high pressure hydraulics including variable delivery pumps, hydraulic manipulators and rams having predominantly high precision high reliability hydraulic components.

Propulsion System Integration. Propulsion system machinery selection, design and integration studies are necessary. Diesel-electric propulsion of ships and Integrated Electric Propulsion Generator are critical areas where the technology needs to be harnessed by the industry in future.

Air Conditioning and Refrigeration Plants. Air conditioning plants in the navy range from 30 tons to 500 tons capacity. In the light of IMO regulations for phasing out of ozone depleting CFCs, there is requirement to convert existing R-11 plants to operate on R- 22 refrigerant. Screw compressors for higher capacity AC plants.

Air Conditioning and Ventilation Systems for Ships. HVAC system design implementation on turn-key basis onboard IN ships, which necessarily involves the work on trunkings, installation, trials, commissioning, proving of system and post-commissioning support.

HP Air Compressors. Compressors of varying discharge pressure (200 to 400 bar) and capacity (upto 100 cubic mt / hour).

Control Air Compressors. Servo air compressors.

Desalination and RO Plants. All marine vessels, large and small, require equipment for producing potable water for domestic consumption.

Centrifuges. Lube Oil and Fuel centrifuges of capacity 1000 to 4000 litres per hour as replacement for Soviet-origin centrifuges.

Centrifugal Pumps. Fire pumps, AC and Ref plant seawater pumps, dewatering pumps, and fresh water pumps of discharge pressure ranging from 2 kgf/cm² to 12 kgf/cm² and capacity 10 tons per hour to 250 tons per hour.

Gear/ Screw Type Pumps. Gear and Screw pumps for conveying POLs and combustible fluids due to their less turbulent pumping action are the need.

HP Air and Hydraulic System Valves. Air and hydraulic system valves for high- pressure application (up to 400 bar)

Sea Water System Valves. Navy has specified Nickel Aluminium Bronze (NAB) valves for sea water systems. This is a relatively low technology but high volume field.

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Fire Fighters Thermal Imaging Camera. Canned Motor Pumps of 02Kgf/Cm2 to 12Kgf/Cm2 and capacity 02 TPH to 250 TPH.

Magnetic Bearing Compressors AC Plant. Magnetic bearing compressor chillers (AC plants), using environment friendly 134A (non CFC) refrigerants for new construction ships and existing platforms as replacement of conventional AC plants from 60TR to 250TR capacity.

Screw Compressors. Capacity range of 40 TR to 200 TR are desireable.

Protective Suits. Of reusable type with preferably, spherical carbon absorbed based technology. Also suits with non-woven / woven carbon fibres are acceptable subject to the condition that they meet all user requirements.

Fire Fighters Protective Clothing. There is a requirement to develop Nomex based fire fighters approach suits for use onboard ships during fire fighting operations. The Nomex based protective suit should meet the Naval requirements, which are based on EN 469, an International Standard for fire protective clothing.

Acoustic Enclosures. Suitably marinised versions of COTS acoustic enclosures can be readily adapted for auxiliary machinery.

Infrared (IR) Suppression Devices. There is a need to develop IR suppression devices to reduce IR signatures of the ships and increase their survivability. These include suppression devices for exhaust gases from Gas Turbines and Diesel Engines and active hull cooling systems for reducing solar heating of the hull.

Hull Systems. The futuristic technologies for hull systems must incorporate stealth design, long lasting paints, preservation technologies and improved hull signature management.

Electrical Engineering

Gyros. Ring Laser Gyros (RLG). Logs. Logs are required to give a high accuracy for integration with various weapon control systems and for navigation. Echo Sounder. Navy is looking for modern indigenous Echo Sounders, which can be networked with ship’s data bus system for real-time information availability. Microprocessor Based ACBs. Microprocessor based release mechanism for the ACBs. Static Frequency Converters. New Generation Zero Maintenance Batteries. Advanced generation maintenance free batteries with high cranking amps & high deep discharge capability need to be introduced as suitable replacement for lead acid batteries. Automated Power Management System (APMS). Modems. Electronic Chart Displays. There is a need to have production of the ECDIS systems in India along with training to enhance navigational safety of ships.

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Command & Control System. (i) Reconnaissance and Surveillance. (ii) Environmental Observation and Forecasting. (iii) Intelligence Analysis. (iv) Electronic Warfare. (v) Navigation. (vi) Integration and Management. (vii) Strategic and Tactical Weapons Deployment. (viii) Logistics and Supply. Development of Indigenous High Speed Data Link for CAIO for U/VHF and L Band operations. Multifunction Consoles (MFC). LBTS. Development of test beds where ship borne systems could be integrated and de-risked prior to attempting integration onboard.

Submarines

Submarine Equipment and Systems. Stealth like RCS reduction by RAM/RAP, noise reduction, signature management etc have a large application on the submarines and affect their operations. There is also a need to develop the capability for manufacture of submarine propulsion systems as well as the Fire Control System and its integration with the torpedo tubes.

Anti-Air Weapons. Submarine Launched Surface-to-Air missiles for defence to a submarine from ASW Helos. Similarly a hoistable, mast-mounted gun for submarines could be a vital part of a submarines weapon fit in the future.

Super-Cavitating Torpedoes. Developments in the domain high speed Super-cavitating torpedoes are likely to define the realm of underwater warfare in the future. Connected to this will also be the development of countermeasures against the super-cavitating weapons.

CRITICAL TECHNOLOGY AREAS BEING SOUGHT BY DRDO

The DRDO has published a separate list of the critical technology areas that it has sought which is also applicable for meeting offset obligations. The List is as given below.

1. MEMs based sensors, actuators, RF devices, Focal plane arrays. 2. Nano technology based sensors and displays. 3. Miniature SAR & ISAR technologies. 4. Fiber Lasers Technology. 5. EM Rail Gun technology. 6. Shared and Conformal Apertures. 7. High efficiency flexible Solar Cells technology. 8. Super Cavitations technology. 9. Molecularly Imprinted Polymers. 10. Technologies for Hypersonic flights (Propulsion, Aerodynamics and Structures). 11. Low Observable Technologies. 12. Technologies for generating High Power Lasers. 13. High Strength, High-modulus, Carbon Fibers, Mesophase pitch-based fiber, Carbon Fiber Production Facility. 14. Pulse power network technologies. 15. THZ Technologies.

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CHAPTER 16

DEFENCE RESEARCH AND DEVELOPMENT ORGANISATION

TECHNOLOGY CENTRES AND LABORATORIES

Armament Aeronautic Missiles Naval Electronics & Micro Life & Combat al & Systems Communicatio Electronic Science Engineerin Systems Strategi & ns Devices & s g c Material Systems Computation Systems Systems s al Systems ARDE ADE ASL NMRL DARE ANURAG DEBEL CFEES ADRDE DRDL NPOL DEAL CAIR DFRL DTRL CABS ITR NSTL DLRL MTRDC DIBER HEMRL GTRE RCI DLJ IRDE SAG DIHAR PXE TBRL DMRL LASTEC SSPL DIPAS CVRDE CHESS DMSRD LRDE JCB DIPR E R&DE(E) DRDE SASE DRL VRDE INMAS

Defence Research and Development Organisation

Defence Research and Development Organisation (DRDO) is the Research and Development arm of the Ministry of Defence, created with the mandate of providing technological solutions for India’s Armed Forces. DRDO has maintained a constant focus on incorporating latest technologies so as to keep systems contemporary and comparable with the best in the world. All this has been achieved with a committed workforce of approximately 7,600 Scientists supported by about 10,000 technical staff, who have worked tirelessly to overcome the challenges of developing cutting edge technologies and systems. DRDO’s mandate covers the following broad activities:-

Design and development of products, systems and technologies for India’s Armed Forces

Providing advice to Raksha Mantri (Defence Minister) on matters of technology with respect to acquisitions and production

Creating a strong Science and Technology base in the country in coordination with Indian academia

Building infrastructure as required for projects and programmes

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The DRDO is developing large number of missile projects as Agni and Prithvi, Nag, Akash, BrahMos and Astra. Light Combat Aircraft-Tejas; UAVs NISHANT and Lakshya, Bridging systems Sarvatra & BLT T-72; Autonomous Underwater Vehicle; Torpedoes; and Decoys. Military Communication equipment; Electronic Warfare systems, Night Vision Devices: Microwave Devices; NBC protective systems; BrahMos 2, Kaveri aero engine. Micro Air Vehicles (MAVs), Unmanned Ground Vehicle, Electro-Optic Fire Control System, Lightweight Laser Target Designator cum Imager, Compact Lightweight Mobile Satcom Terminal, Laser Ordnance Disposal System, Grenades, Plastic Bullets, Combat Net Radio (CNR), S-Band Briefcase Satcom Terminals, Combat Identification of Friend or Foe Systems for Armed Fighting Vehicles (AFVs), Laser Dazzler, Small Arm Systems, NBC Protection System, Performance Enhancement Drugs, etc.

International Cooperation: One of the objectives of DRDO is to evolve partnership with the best defence technology available worldwide. DRDO is engaged in International Cooperation in the areas of Defence Research, Technology Acquisition and Consultancy, to enhance technological strength in key areas and resolve issues related to export regulation. At the same time, new avenues of cooperation are being explored with friendly countries with a technology edge and strong industrial base. In 2013, DRDO has held bilateral meetings with Russia, Israel, USA, Belarus, Czech Republic, UK, Singapore, South Korea, Canada, Kyrgyzstan, Kazakhstan, Sweden, Hungary, Bulgaria, Ukraine, France, Germany, Italy, Poland and Brazil. A MoU was signed with Hungary in October 2013 for collaborative research in the field of ‘Defence Aspects of Microbiological and Radiological Detection and Protection’. MOU on CBRN Security Co-operation has also been signed with UK Home Office in February 2013. International cooperation by various agencies is feasible directly with the technology centres or laboratories.

Principal functionaries

Secretary and Director Generals. DRDO is headed by the Scientific Adviser to Raksha Mantri (SA to RM) who is also the Secretary, Department of Defence Research and Development and Director General DRDO (DG DRDO). Shri Avinash Chander is the present Secretary Department of Defence R&D, DG R&D and SA to RM. The Directors General cover each technology stream and are as follows:-

Shri AM Datar, Director General - Armament & Combat Engineering Systems (ACE) Dr. K Tamilmani, Director General - Aeronautical Systems (Aero) Dr. V G Sekaran, Director General - Missiles and Strategic Systems (MSS) Dr. V. Bhujanga Rao, DS & Director General - Naval Systems and Materials (NS & M) Shri S S Sundaram, Director General - Electronics & Communication Systems (ECS) Dr. Keshav Dattatreya Nayak, Director General - Micro Electronic Devices & Computational Systems (MED & CoS) Dr. Manas K Mandal, Director General - Life Sciences (LS)

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Chief Controllers. The Chief controllers cover functional areas of the organization and these are as follows:-

Dr G Malakondaiah, DS & CC R&D (HR) Dr. Sudershan Kumar, DS & CC R& D (PC & SI) Dr. Satish Kumar, DS & CC R&D (TM) Lt Gen Anoop Malhotra, CC R&D (R&M) Ms. Vandana Kumar, Integrated Financial Adviser R&D

Programmes And Projects DRDO projects are dictated basically by two major considerations- the Services Long Term Integrated Perspective Plan (LTIPP) and its own technology forecasting based on global developments. DRDO projects are classified into four main categories-Mission Mode (MM) based on Services immediate requirements, Technology Demonstration (TD) projects which are DRDO initiatives, S&T projects which address futuristic technologies and Infrastructure (IF) projects for specific customized requirement. In addition, a new category i.e. Product Support (PS) has been added to cater to the need for extending production/ToT support to production partners. Major projects with feasibility of cooperation with foreign companies are covered in subsequent parts of this Chapter.

As on March 31, 2014, DRDO has 339 ongoing projects costing approximately Rs 45,554.73 Crore. Twenty Six (26) per cent of this project cost is shared by the User. 223 projects are in the final stage of completion and are under technical/ administrative closure. Out of the 339 active projects, 37 large projects (cost > Rs 100 Crore) account for a total cost of Rs 38,613.89 crore which is approximately 85% of the total cost of these active projects. In the period January 1, 2013 to March 31, 2014, 52 new projects were sanctioned at a total cost of Rs 1,651.59 Crore. Besides, 13 projects costing Rs 134.08 Crore were completed/ closed in 2013- 2014. There are currently 12 major programmes approved by the Government amounting to Rs 32,019 Crore. These projects include the Long Range Surface-to-Air Missiles (LRSAM), Medium Range Surface-to-Air Missiles (MRSAM), Beyond Visual Range Air-to-Air Missile (BVRAAM) ‘Astra’ and PJ-10 (BrahMos). The flagship projects in the field of Aeronautics are: Light Combat Aircraft (LCA) Ph 2, LCA AF Mk-II, LCA Navy Ph 1, LCA Navy Mk-II, Air- borne Early Warning & Control (AEW&C), Kaveri Engine, Unmanned Aerial Vehicle (UAV) ‘Rustom-II’, and Electronic Warfare Suite for Fighter Aircraft (EWSFA).

Details of some of the major ongoing projects where there is scope for foreign collaboration has been covered in subsequent parts of the paper.

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Technology Centres and Labs Aeronautics

Aeronautical Development Establishment (ADE), Bangalore Aerial Delivery Research & Development Establishment (ADRDE), Agra Centre for Air Borne Systems (CABS), Bangalore Defence Avionics Research Establishment (DARE), Bangalore Gas Turbine Research Establishment (GTRE), Bangalore Center for Military Airworthiness & Certification (CEMILAC), Bangalore

Armaments

Armament Research & Development Establishment (ARDE), Pune Center for Fire, Explosive and Environment Safety (CFEES),Delhi High Energy Materials Research Laboratory (HEMRL), Pune Proof & Experimental Establishment (PXE), Balasore Terminal Ballistics Research Laboratory( TBRL),Chandigarh

Combat Vehicles & Engineering

Combat Vehicles Research & Development Estt. (CVRDE), Chennai Vehicle Research & Development Establishment (VRDE), Ahmednagar Research & Development Establishment (R&DE), Pune Snow & Avalanche Study Estt (SASE), Chandigarh

Electronics & Computer Sciences

Center for Artificial Intelligence & Robotics (CAIR), Bangalore Defence Electronics Application Laboratory (DEAL), Dehradun Defence Electronics Research Laboratory (DLRL), Hyderabad Defence Terrain Research Laboratory (DTRL), Delhi Instruments Research & Development Establishment (IRDE), Dehradun Laser Science & Technology Centre (LASTEC), Delhi Electronics & Radar Development Establishment (LRDE), Bangalore Scientific Analysis Group (SAG), Delhi

Human Resource Development

Defence Institute of Advanced Technology (DIAT), Deemed University, Pune Institute of Technology Management (ITM), Mussorie

Life Sciences

Defence Bio-Engineering & Electro Medical Laboratory (DEBEL), Bangalore Defence Institute of Bio-Energy Research (DIBER), Haldwani

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Defence Food Research Laboratory (DFRL), Mysore Defence Institute of High Altitude Research (DIHAR),Leh Defence Institute of Physiology & Allied Sciences (DIPAS), Delhi Defence Institute of Psychological Research (DIPR), Delhi Defence Research Laboratory (DRL), Tejpur Institute of Nuclear Medicine & Allied Sciences (INMAS), Delhi Defence Research & Development Establishment (DRDE), Gwalior

Materials

Defence Laboratory (DLJ), Jodhpur Defence Metallurgical Research Laboratory (DMRL), Hyderabad Defence Materials & Stores Research & Development Establishment (DMSRDE), Kanpur

Missiles

Defence Research & Development Laboratory (DRDL), Hyderabad Institute of Systems Studies & Analyses (ISSA), Delhi Integrated Test Range (ITR), Balasore Research Center Imarat (RCI), Hyderabad

Naval

Naval Materials Research Laboratory (NMRL), Ambernath Naval Physical & Oceanographic Laboratory (NPOL), Cochin Naval Science & Technological Laboratory (NSTL), Vishakhapatnam

Micro Electronics and Computers

Advanced Numerical Research & Analysis Group (ANURAG), Hyderabad Defence Scientific Information & Documentation Centre (DESIDOC), Delhi Microwave Tube Research & Development Center (MTRDC), Bangalore Solid State Physics Laboratory (SSPL), Delhi

Major Projects Feasibility of Collaboration Development and/Production Supersonic Cruise Missile BrahMos: This is a universal missile capable of being launched from multiple platforms based on land, sea, sub-sea and air against both sea and land targets. BrahMos has a range of 290 km with a speed of more than 2.8 Mach. This is a collaborative project with Russia. A hyper sonic missile is under development.

Akash Missile System (AMS): Akash, a medium range (25 km) Surface-to-Air Missile (SAM) system developed by DRDO is under production and is being inducted into IAF and Indian Army. DRDO is engaged in giving support to the production agencies BEL (for IAF) and

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BDL (for Indian Army). Development of next generation Akash can provide opportunities for cooperation.

Beyond Visual Range Air-to-Air Missile ‘Astra’: Astra is a Beyond Visual Range Air to-Air Missile (BVRAAM) being developed to engage and destroy supersonic aerial targets. This weapon system is intended for platforms like Su-30 MKI, Mirage 2000 of the Indian Air Force (IAF) and Light Combat Aircrafts (LCAs) developed by DRDO. Successful completion of Captive Flight Trials (CFT-II) in April-May, 2013 proved the avionics interfacing of Astra with Su-30 MKI. A total of 17 sorties with the missile using 2 Su-30 MKI aircraft were conducted up to January 31, 2014. A total of 20 successful simulated launches were carried out to evaluate various technologies and Radar accuracies. A new Astra launcher has been designed and developed to suit blast-tube configuration of Astra for use on Su-30 MKI aircraft. Development of next generation Astra can provide opportunities for cooperation. Long Range Surface-to-Air Missile (LRSAM): LRSAM is a joint development programmed of DRDO, Indian Navy and Israel Aerospace Industries (IAI), Israel. It has a range of 70 km using dual-pulse rocket motor and active Radar seeker in terminal phase and inertial/ mid-course update for guidance. The weapon system would provide a point and area defence for three ships of Indian Navy against a vast variety of aerial threats. Co development is in progress with Rafael, Israel. Medium Range Surface to-Air Missile (MRSAM): Medium Range Surface-to-Air Missile (MRSAM) is one of the major mission mode programmes taken up by DRDO as a joint development programme with IAI, Israel. Design of various sub-systems and major elements has been completed. Co development is in progress with Rafael, Israel. HELINA: HELINA is a 7 plus km third generation Anti-Tank Guided Missile (ATGM) for Advanced Light Helicopter (ALH). Critical sub-systems have been realised for the missile system and flight performance has been evaluated through ground flight trials. The autonomous ballistic test has also been conducted from ALH. The land-to-land preliminary trials of ELINA were carried out in September 2013. Helicopter trials of HELINA Fire Control System (FCS) were conducted in December 2013. Propulsion systems have also been tested for HELINA. Flight trials with the reconfigured missile system were conducted which proved the redesigned propulsion, aerodynamic and control performances. Development has opportunities for cooperation with foreign companies. New Generation Anti-Radiation Missile (NGARM): A project has been initiated for development of an air launched missile designed for destroying a variety of radar targets on ground. It is planned to have an interception range of 15-100 km from launch altitudes of 100 m to 15 km from Su-30 MKI aircraft. Preliminary Design Review (PDR) of sub-systems and mission review have been completed. Hardware fabrication including rocket motor fabrication is in progress. Development has opportunities for cooperation with foreign companies. Light Combat Aircraft (LCA), Tejas: The LCA Tejas is India’s first indigenous multi- role fighter aircraft designed and developed to meet requirements of the IAF. Initial Operational Clearance (IOC II) for the aircraft was achieved on December 20 which is a major milestone in DRDO history. Tejas attained another milestone on December 27, 2013, by flying the 500th sortie. The last of the Limited Series Production aircraft i.e. LSP 8, took its maiden flight on

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March 31, 2013. A total of 2519 flight tests have been completed on LCA by March 31, 2014. Envelope expansion and weapon release tests have also been successfully carried out. Development of subsequent levels has opportunities for cooperation with foreign companies. LCA Navy: Testing of LCA Naval Prototype (NPI) was resumed from October 2013. LCA NP2 is under system integration. The Shore Based Test Facility (SBTF) meant for testing of LCA Navy is nearing completion. Development has opportunities for cooperation with foreign companies.

AEW&C Programme: The indigenous Airborne Early Warning and Control (AEW&C) system programme encompasses design and development of a number of systems viz. long range surveillance electronically scanned array radar for detection and tracking of targets, secondary surveillance radar for identification of friend and foe, LOS & SATCOM Data link and systems for signal intelligence. These systems developed by various labs of DRDO have been ground tested, flight qualified and integrated on the AEW&C aircraft which has been modified specifically for the purpose. Development has opportunities for cooperation with foreign companies. Medium Altitude Long Endurance UAV Rustom-II: Rustom-II is being designed to operate at 30000 ft altitude with an endurance of 24 hrs carrying Electronic Warfare, Electro- Optic and Synthetic Development has opportunities for cooperation with foreign companies. Aperture Radar (EO & SAR) payloads. It can carry a variety of other payloads weighing up to 350 kg. Ground Control Station (GCS) and other sub-systems are also being developed. Rustom-II is a platform designed to perform intelligence, surveillance and reconnaissance missions for Army, Navy and IAF. Development has opportunities for cooperation with foreign companies. Abhyas: High-Speed Expendable Aerial Target (HEAT) offers a low cost, realistic threat scenario for practice of weapon systems. HEAT – ABHYAS is an expendable high speed unmanned aerial target, being developed by DRDO. The first experimental flight successfully demonstrated the launch and configuration capabilities. With an endurance of 25-30 min, Abhyas will be fitted with sensors and is GPS-enabled. It will have onboard actuators, a flight control computer and a miss-distance indicator. All the three services have also indicated their requirement for Maneuverable Expendable Aerial Target (MEAT). Development has opportunities for cooperation with foreign companies. Aerostats: Following the successful demonstration of Akashdeep, a new aerostat system, Nakshatra is being developed to track a 450 km radius that is approximately four times the present 110 km radius surveillance track of Akashdeep. The surveillance system which is 17,000 cubic metres volume can rise up to 4.5 km with a payload capacity of IT. Development has opportunities for cooperation with foreign companies. Main Battle Tank ‘ARJUN’: The development and production of ARJUN MBT Mk-II was planned in continuation of Mk-I, incorporating a number of upgraded features and system improvements. Improvements have been carried out on Chassis and Automotive System, Advanced Running Gear System and Turret Weapon System. Some of these have been

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integrated on Arjun MBT Mk-II prototype and trial validated by Users. First phase of Missile firing trials has been completed. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Catapult Gun System: DRDO has been entrusted by the Artillery Directorate of the Indian Army with the responsibility of developing a 130 mm Catapult Gun System on Arjun Mk- I Chassis. Milestones achieved by DRDO in this direction include modification of Arjun MBT tank based on the feasibility study and trial evaluation, developmental trials evaluation after improvements in Mk-II. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Multi Barrel Rocket Launcher (MBRL) System – PINAKA Mk-II: Pinaka weapon system developed by DRDO is all weather, indirect fire free flight artillery rocket system, capable of neutralizing a variety of area targets. Production for two regiments is ongoing at different agencies namely Ammunition at Ordnance Factories; Loader and Replenishment Vehicle at M/s BEML, Bengaluru; and Launcher and Battery Command Post at M/s Tata Power and M/s L&T. Production of launchers and other ground support systems of first two regiments have been completed. To enhance the range of the existing Pinaka rockets from 39 km to 60 km, development of Pinaka Mk-II rocket has been taken up. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Advanced Towed Artillery Gun System (ATAGS): DRDO has taken up the task of design and development of 155m/52 Cal Advanced Towed Artillery Gun System for Indian Army. The sub-system level design, documentation and review of the gun structure, automation and control system have been completed. Predictive ballistic solutions have been worked out, design and review of all components of ordinance and recoil system has been completed. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Unmanned Ground Vehicles: DRDO has undertaken a project to design and develop a tele-operated and autonomous unmanned tracked vehicle for NBC Recee, mine detection and surveillance payloads. Technologies used in this project are vehicle dynamics, power management, mission payload, manipulator, path planning, localisation, drive by wire, perception, Human Machine Mechanical Interface/ Operator Console Unit (HMMI/OCU). The vehicle has demonstrated tele-operation of tracked BMP for 5 km range. Drive-by wire capability for operating MUNTRA-S at a maximum speed of 20 kmph has also been demonstrated. Unmanned operation of surveillance payload mission has been done. NBC sensors have been modified for remote operation and NBC payload integration has been completed. Development has opportunities for cooperation with foreign companies. 46m Military Load Class (MLC) 70 Modular Bridge: The aim of the project is to develop a 46m MLC-70 modular bridge to be laid in single span for gaps varying from 14 m to 46 m. 46m MLC-70 modular bridge will be based on high mobility in-service vehicles. Development has opportunities for cooperation with foreign companies. Flight Rotary Engine (FRE): Flight Rotary Engine (for UAV) development has been undertaken with an aim to develop/ manufacture 15 rotary engines for flight trials on Nishant UAV. The following are the achievements of project: First two engines i.e. FRE-1 and FRE-2

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have completed endurance testing of more than 150 hrs. Two flight trials (total 05 hours) were carried out after provisional flight clearance from CEMILAC. Development has opportunities for cooperation with foreign companies. Advance Torpedo Defence System ‘MAAREECH’: The Advance Torpedo Defence System consists of towed array, DRDO has undertaken a project to design and develop a teleoperated and autonomous unmanned tracked vehicle for NBC Recee, mine detection and surveillance payloads. Development has opportunities for cooperation with foreign companies. Ship Launched Heavy Weight Torpedo ‘VARUNASTRA”: The ship launched anti submarine heavy weight electrical torpedo has made significant progress. The project has completed its development cycle and all technical trials have been conducted successfully including four user associated trials. Several User Evaluation Trials (UETs) were conducted in 2013-14 and all the dynamic parameters were proven. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Advanced Light Weight Torpedo (ALWT): ALWT is a project undertaken by DRDO for both ship and air borne applications. Launch platforms for ALWT are rotary and fixed wing aircraft. Six dynamic trials were completed during the year. Preliminary static trials of Homing system have been completed. Vehicle stabilisation trials are in progress and development of 120 kW battery has been successfully tested. All components required for practice torpedo configuration are ready. Practice torpedo has been integrated with 60 kW motor and 70 kW batteries. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Air Independent Propulsion (AIP): This is a land based prototype for fuel cell Air Independent Propulsion (AIP) for submarines. The activities related to Pre Production Floor Model (PPFM) hardware system, control system for PPFM and 300 kW simulated load facility to test PPFM have been completed this year. Hydrogen generation prototype has also been integrated and tested. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. ALTAS: The advanced Light Towed Array Sonar (ALTAS) is an efficient sensing system for detection and classification of submarines. The trials to verify the performance of receiver system was conducted onboard INS Sharda in November 2013. The system development and lab integration was completed in January 2014. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. USHUS Submarine Sonar Simulator: The aim of the project is to develop and supply two USHUS Sonar Simulators for submarine schools to facilitate training of USHUS sonar operators for ensuring optimum and effective exploitation of sonar in all its operating modes and regimes. USHUS Sonar Simulator (Phase-I) has been installed and handed over for training at INS Satavahana; Eastern Naval Command Vizag and INS Vajrabahu, Western Naval Command, Mumbai. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. MOHINI: DRDO has taken up a Technology Demonstration (TD) project ‘MOHINI’ which includes development of a mobile decoy, rocket launched decoy, submarine fired decoy,

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integrated ship launcher for launching mobile decoy and rocket launched decoy and system evaluation software for escape tactics simulator studies. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Electronic Support Measures (ESM) System VARUNA: This is a Modern ESM System capable of interception, detection, classification and identification of pulsed, CW, PRF Agile, Frequency Agile Radars including LPI Radars over wide frequency bands. The engineered model has been installed onboard a naval platform and is under rigorous user trials after its successful sea acceptance. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. SAMUDRIKA: DRDO has undertaken indigenous development of a family of seven EW systems customised for different platforms as per Naval Staff Qualitative Requirements (NSQR). Navy has given commitment for further production and induction of these systems. PDR for all the seven systems has been completed. System installation feasibility studies and RF mapping on identified platforms have been carried out. Configurations of all systems have been finalised and sub-systems development is in progress. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. GIRISHAKTI: Indian Army is in the process of procurement of integrated EW system for mountainous terrain (HIMSHAKTI) under the category “Buy Indian (BEL) with DRDO Technologies”. Development of Target Tracking System for Jammer Interceptor Mobile (JIM) station has been completed. Core system technology modules incorporating homodyne Rx, Quad Superhet Rx, Digital Rx in Radar segment have been integrated. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. KAUTILYA for Space Borne ELINT System: Programme KAUTILYA involves development of Electronic Intelligence (ELINT) payload for integration on an indigenous mini Satellite. Preliminary Design Review (PDR) and Detailed Design Review for ELINT payload have been completed. Baseline Design Review with ISRO has also been completed. System feasibility study has been completed and system configuration has been finalised. Hardware development is in progress. Development has opportunities for cooperation with foreign companies. HIMRAJ: The role of the system is to intercept, monitor, analyse and locate adversary’s Radar transmission in 70 MHz to 40 GHz band. DRDO is responsible for the system design, development of critical sub-system, and realisation of a truncated reference version of the engineered system for Ground Base Mobile ELINT System (GBMES), which are being pursued towards production at BEL. The entire system configuration has been finalized and realisation of engineered system is in progress. Development has opportunities for cooperation with foreign companies. EW Suite: Advanced EW suite for LCA is under development as a joint development programme between DRDO and MoD, Israel. The system has been installed in Tejas PV1 aircraft and Ground Acceptance Test (GAT) has been completed.

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Internal EW System for MiG-29 Aircraft: DRDO has developed a state-of-the-art Unified Electronic Warfare System (UEWS) for MiG-29. This system provides all round azimuth coverage and high accuracy directional capability for both reception and jamming. EW Suite on MLH – Mi-17: EW Self Protection Suite, developed and integrated on Mi-17 helicopter is an integrated Radar Warning Receiver (RWR) and Missile Approach Warning System (MAWS) with BDL-CMDS. The systems were individually flight evaluated for verification of their respective functional parameters and also evaluated in the integrated mode. After trials the system has been recommended for the entire fleet of Mi-17 helicopters. Medium Power Radar (MPR) ‘Arudhra’: Prototype Radar has been developed and demonstrated to the User i.e. IAF at Kasauli. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Active Electronically Scanned Array Radar (AESAR) ‘UTTAM’: DRDO has taken up the development of flight control RADAR for Fighter Aircraft with 100 km range and multimode operation. Realisation and calibration of prototype Active Aperture Array Antenna Unit (AAAU) has been completed with indigenous TR modules. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Commander’s Non Panoramic TI Sight: Transfer of Technology (ToT) for production of Thermal Imaging (TI) based Commander Sights for combat vehicles to OFB and BEL has been cleared for Commander TI Mk II sights for T-72, T-90 and BMP-II. Electro-Optical Fire Control System: Six numbers of Electro-Optical Fire Control System (EON-51) have been realised and delivered to Navy. Light Weight Portable Laser Target Designator: DRDO developed Light Weight Portable Laser Target Designator (LWPLTD) for IAF was found to be compliant with ASR and recommended for induction into Service with M/s BEL being production agency. Vehicle Mounted High Power Laser Directed Energy System ‘ADITYA’: The system aims to cause structural damage to RPVs/UAVs/DRONEs and disable electro-optical systems, employing CO2 gas dynamic laser source with required beam control technologies. Software Defined Radio (SDR): The objective of the project is development of network enabled, interoperable and modular Software Defined Radio (SDR) to provide wireless secure communication capability to both mobile and static forces required for Indian Navy. Three SDR-NC prototypes (2 V/UHF channels) and three SDR-TAC functional prototypes (2 V/UHF channels) with necessary Software Communication Architecture (SCA) operating environment and radio management functionality have been developed. Developer Sea Trials of SDR-NC and SDR-TAC in AM, FM, Link- II and secure Low Data Rate (64 Kbps) waveform have been carried out. Two SDR-AR prototype hardware modules and chassis have been realised. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. S-band Hub & Ground SATCOM Terminals: The project includes design and development of four types of Secure MSS Terminals (along with accessories) namely, Handheld Satcom Terminals (HST), Man-pack Satcom Terminals (MST), SATCOM

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Messaging Terminals (SMT) and SOTM Terminals (ST). It also includes augmentation of the existing experimental HUB with necessary RF and scalable baseband hardware and software for efficient networking of user terminals. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Development of Application Software and Security solutions for Maritime Domain Awareness (MDA) and Maritime Operational Knowledge System (MOKS): Application software and security solutions for maritime situational awareness have been developed. The application software was deployed and has been operationalised. Security solution for communication was designed and developed in house and transferred to the Production Agency. Deployment of these systems across Navy was tested and evaluated in major naval exercises and the application software performed satisfactorily both at sea and inshore establishments. Technologies for TacC3I Integration: Technologies and solutions that can be used for integration of various TacC3I systems aimed at providing “Force Multiplier” effect to Battlefield Commanders, have been developed. These technologies were demonstrated during an Op Exercise and has been appreciated by Indian Army. The ToT for production has been completed.

Technologies for Cyber Security Solutions: A number of technologies were developed for providing security solutions to meet various requirements of Users. A large number of systems developed and assessed in line with Government norms have been deployed in tactical and strategic environments.

Single Crystal Blades and Vanes for Aero- Engine applications: DRDO has developed single crystal casting process for high pressure turbine blades (HPTB) and high pressure turbine vanes (HPTV) with intricate cooling channels for use in advanced aero engines. Improved Kanchan Armour: DRDO has designed and developed improved Kanchan Armour for MBT Arjun Mk-II for enhanced protection against large calibre kinetic energy ammunition. The new armour uses advanced materials and new designs without any increase in weight. Armour modules replicating Mk-I and Mk-II designs have been fabricated and user trials have been carried out on these modules Titanium sponge: The 500 tons per year commercial titanium sponge plant jointly set up by DRDO, VSSC and M/s Kerala Minerals & Metals Limited (KMML), Chavara, Kollam, Kerala has been regularly producing titanium sponge in 3.5 MT batches. The first lot of finished titanium sponge of aerospace purity was supplied to Midhani, Hyderabad during May 2013. Subsequently another lot of aerospace grade titanium sponge has been supplied to VSSC. Life extension of AI20D Aero-engine: IAF in collaboration with DRDO and RCMA (Engines), Koraput has undertaken the task of establishing a systematic methodology for lifting review of aero-engines of AN-32 aircraft. The revision of Total Technical Life (TTL) would generate additional 300,000 h of flying time. Development has opportunities for cooperation with foreign companies.

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Flame Retardant Aircrew Survival Jacket: A total of 2700 Flame Retardant Aircrew Survival Jacket (FRASJ) which is worn as the outermost garment over normal flying overall has been inducted into the IAF. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Flame Retardant Anti G Suit: Anti G Suit is a counter pressure garment worn over the abdominal and lower limb portions of the body by fighter pilots. These suits have been accepted for high performance aircraft and are being inducted into IAF. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Flame Retardant Gloves: The flame retardant dual material gloves incorporate inherently FR meta aramid fabric on the dorsal side and on the palm side which provides flame retardancy and better resistance to wear and tear. The gloves have been developed in two versions and 10550 pairs have been inducted into IAF. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Activated Carbon Spheres (ACS) coated CBRN Suit (Mk V): DRDO has developed advanced version of CBRN suit for effective protection of personnel in NBC scenario. The ACS process technology has been transferred to industry for bulk production and for developing indigenous suit so as to meet the requirement of 6.5 Lakh suits required by Users. Development has opportunities for cooperation with foreign companies for subsequent generation of systems. Nuclear Biological and Chemical (NBC) Defence Programme: This comprises of 12 Mission mode projects and 24 Science and Technology Projects with participation from 10 DRDO labs and has a strong interface with academia and industries. Products and technologies have been developed to sense, shield and sustain military operations in NBC environment. The entire NBC inventory of the Services is almost indigenous with a large number of products developed or at various stages of User trials. Some of the significant products and technologies of this programme are NBC recce vehicle, mobile decontamination system, integrated field shelter, NBC suit, hazard prediction software, evacuation bag, portable gas chromatograph, automatic chemical agent detection, CBRN Suit (Mk V) individual protection equipment, antidotes, bio sensor etc. Development has opportunities for cooperation with foreign companies. Normobaric Hypoxia Chamber: Modern military operations frequently require rapid deployment of personnel into high altitude with little or no time for physiological acclimatization. Normobaric Hypoxia Chamber has been developed to provide Intermittent Hypoxic Exposure (IHE) as one of the recent approaches to accelerate altitude acclimatization. Air Traffic Controller Cognitive and Non cognitive Assessment System: Based on the demand of IAF, the project to develop an Air Traffic Controller Cognitive Assessment System based on Cognitive Aptitudes was initiated. Cognitive Task Analysis to identify the cognitive processes involved in Air Traffic Controlling was carried out among 96 Senior Air Traffic Controllers. AMCA: India has postponed development of Advanced Medium Combat Aircraft (AMCA) program till the completion of Light Combat Aircraft (LCA). AMCA was conceived in 2006 as a twin-engine, stealth/multirole fighter weighing 20 tons and fitted with air-to-air missiles and other precision weapons. AMCA development budget is $3 billion, a senior ADA

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scientist said, under which a prototype would be developed after 2020. Eurofighter consortium and US-based Lockheed Martin have offered to tie up with ADA in the development of the AMCA project as per a report by Defense News. Development has opportunities for cooperation with foreign companies.

AURA – DRDO’s UCAV: AURA is a plan to develop the UCAVs for IAF in seven to eight years (2018-2020). “With Rs 50 Crore as seed money, a full-fledged project team with 15- 18 scientists has already begun work on the UCAV's preliminary design and technology. With on-board mission computers, data links, fire control radars, identification of friend or foe, and traffic collision avoidance systems, they will be highly intelligent drones," DRDO's chief controller R&D (aeronautics) Dr Prahlada said in mid 2013. "Capable of flying at altitudes of 30,000 feet and weighing less than 15 tonnes, the UCAVs will have rail-launching for the missiles, bombs and PGMs (precision-guided munitions) they will carry," he added. These are expected to be advanced design UCAVs with low radar cross section to evade enemy sensors. The DRDO will be looking for foreign collaboration in fields like stealth as well as autonomous short-run take-off and landing. Aeronautical Development Establishment (ADE) at Bangalore is the main nodal DRDO lab for the AURA project, along with Defence Avionics Research Establishment (Bangalore), Defence Electronics Application Lab (Dehradun) and Gas Turbine Research Establishment (Bangalore). Development has opportunities for cooperation with foreign companies for subsequent generation of systems.

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Appendix Details of Technology Centres/Laboratories

Lab Address Email Fax Telephone no. ANURA Advanced Numerical director 040- 040-24347630 G Research & Analysis @anurag.drdo. 24347679 Group Kanchanbagh in PO, Hyderabad-500 058 ADRDE Aerial Delivery director 020 - 25893274,25885007 Research & @adrde.drdo.i 25893102 Development n Establishment Station Road, Post Box No. 51,Agra Cantt - 282 001 ADE Aeronautical director 080 - 25057037 ,25248603 Development @ade.drdo.in 25283188, Establishment Suranjan 25280248, Das Road, CV Raman 25057002 Nagar Bangalore - 560 093 ARDE Armament Research & director 020 - 25893274 ,25885007 Development @arde.drdo.in 25893102 Establishment, Armament PO, Pashan, Pune - 411 021 CABS Centre for Air Borne director 080 - 25225121, 26572638 Systems , Belur Yemlur @cabs.drdo.in 25222326 Post Bangalore - 560 037. CAIR Center for Artificial director 080 - 2524 25342646,25244298,Ext Intelligence & Robotics @cair.drdo.in 4298 n: 2270/2271 28532880 DRDO Complex CV Raman Nagar Bangalore - 560 093 CEFEES Center for director 011 - 23813239,23907102,239 Fire,Explosive and @cfees.drdo.in 23819547 19555 Environment Safety Brig SK Magumdar Marg, Timarpur, Delhi - 110 054

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CEMIL Center for Military director 080 - 25230680, 28517272 AC Airworthiness & @cemilac.drdo 25230856, Certification Ministry of .in 25234781 Defence, Defence R&D Organisation Marthahalli Colony PO; Bangalore - 560 037 CVRDE Combat Vehicles director 044 - 26385112 26385410 Research & @cvrde.drdo.i 26385112, Development Estt. n 26383661 Avadi, Chennai - 600 054 DARE Defence Avionics director 080 - 2528 080 - 2505 7346, 2505 Research Establishment @dare.drdo.in 1018 7281 Post Box No : 7537, New Thippasandra Post, Bangalore - 560 075 DARL Defence Agricultural director 05964- 05964-225564,256434, Research @darl.drdo.in 225564 223386, 224601 (R) Laboratory Post Bag No. 6 Pithoragarh , Uttaranchal - 262 501 DEBEL Defence Bio- director 080 - 25280692, Engineering & Electro @debel.drdo.i 25282011 25058325, Medical n 23446987 Laboratory Post Box No.9326,CV Raman Nagar,Bangalore - 560 093 DEAL Defence Electronics director 0135 - 2787224 ,2787012 Application @deal.drdo.in 2787265, Laboratory PO Box 54, 2787290 Raipur Road, Dehradun-248 001 DLRL Defence Electronics director 0135 27871 24440061 24530264 Research @dlrl.drdo.in 61, 2787128 Laboratory Chandrayan gutta Lines, Hyderabad - 500 005 DIBER Defence Institute of Bio- director 05946 - 232532, 232040 Energy @diber.drdo.in 232719 Research Haldwani - 263 139 DIHAR Defence Institute of director 01982 - 252096, 252224 High Altitude Research @frl.drdo.in 252096 (DIHAR), Leh

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DFRL Defence Food Research director 0821 - 2472953,2473783,24743 Laboratory Siddharth @dfrl.drdo.in 2473468 88 Nagar, Mysore - 570 011 DIPAS Defence Institute of director 011 - 23946257, 25079601 Physiology & Allied @dipas.drdo.i 23932869, Sciences Lucknow n 23914790, Road,Timarpur, Delhi - 23983149 110 054 DIPR Defence Institute of director 91+11- 91+11-23923560 Psychological @dipr.drdo.in 23916980 Research , Lucknow Road, Timarpur, Delhi - 110 054 DLJ Defence Laboratory director 0291 - 2510275 ,2511057 Jodhpur, Ratanada @dlj.drdo.in 2511191, Palace, 2510260 Jodhpur-342 011 DMSRD Research & director 0512 - 2450695 E Development @dmsrde.drdo 2450404, Extn.103,2453597 Establishment .in 2404774 (DMSRDE) DMSRDE Post Office GT Road, Kanpur-208 013 DMRL Defence Metallurgical director 040 - 24340233,24340681,243 Research @dmrl.drdo.in 24340683, 40155 , 24345116 Laboratory Kanchanbag 24341439 h PO, DMRL, Hyderabad-500 058 DRDE Defence Research & director 0751- 2341550, 2341856 Development Establish @drde.drdo.in 2341148 ment , Tansen Road, Gwalior-474 002 DRDL Defence Research & director 040 - 24340511,24340546 Development @drdl.drdo.in 24340109 24583000,24583010 Laboratory , 27208045 Chandrayangutta Lines, Hyderabad-500 005 DRL Defence Research director 03712- 03712-258508, 258836 Laboratory Post bag @drl.drdo.in 258534 No.2 Tezpur, Assam - 784 001 DESIDO Defence Scientific director 011 - 23812252 ,23986680 C Information & @desidoc.drdo 23813465, Documentation .in 23819151,

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Centre Metcalfe House, 23813591 Delhi - 110054 DTRL Defence Terrain director 011 - 23811599, 24648566 Research Laboratory , @dtrl.drdo.in 23812494 Metcalfe House, Delhi -110 054 LRDE Electronics & Radar director 91-80-2524 91-80-2524 3873, 91-80- Development @lrde.drdo.in 2916 2524 3816 Establishment CV Raman Nagar, Bangalore - 560 093 GTRE Gas Turbine Research director 080 - 25240698 ,25241892 Establishment , PO Box @gtre.drdo.in 25241507 9302, CV Raman Nagar, Bangalore-560 093 HEMRL High Energy Materials director 020- 020-25869303 Research Laboratory @hemrl.drdo.i 25869316 Sutarwadi, Pune - 411 n 021. DIAT(D Defence Institute of director 24389411, 24389426, 24389427, U) Advanced Technology @diat.drdo.in 24389509 24389428, (Deemed University), imhagad Road, Girinagar, Pune-411 025 INMAS Institute of Nuclear director 011 - 23942418, 23981910 Medicine & Allied @inmas.drdo.i 23919509 Sciences Lucknow n Road, Timarpur, Delhi - 110 054 ISSA Institute of Systems director 011 - 23812639 Studies & Analyses @issa.drdo.in 23819033 Metcalfe House, Delhi - 110 054 ITM Institute of Technology director 0135- 0135-2632267, 2632814 Management Landour @itm.drdo.in 2632279 Cantt, Mussoorie - 248 179 ITR Integrated Test Range director 06782- 272033,272304 Chandipore, Balasore- @itr.drdo.in 272072 756 025 IRDE Instruments Research & director 0135 - 2787169,2787126,27871 Development @irde.drdo.in 2787161, 29 Establishment Raipur 2787128 Road, Dehradun - 248 008

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LASTE Laser Science director 011 - 011- 011-23811242/6901 C & Technology Centre @lastec.drdo.i 23811319 Metcalfe House, Delhi - n 110 054 MTRDC Microwave Tube director 080 - 28386801,23450099 Research @mtrdc.drdo.i 28381750, & Development Center n 28386809, BEL Complex, Jalahalli, 28386804 Bangalore - 560 013 NMRL Naval Materials director 0251- 0251-2621837 Research Laboratory @nmrl.drdo.in 2620604 Shil Badlapur Road, Ambernath, Dist. Thane - 421 506 NPOL Naval Physical & director 0484 - 2424878, 2422004 Ocenographic Laborato @npol.drdo.in 2424858, ry , P.B.No.6 2423931 Thrikkakara, Kochi- 682 021 NSTL Naval Science & director 0832 - 2530801, 2541636 Technological @nstl.drdo.in 2530800 Laboratory Vigyan Nagar, Visakhapatnam - 532 007 PXE Proof & Experimental director 06782 - 06782-272045 / 272122 Establishment , @pxe.drdo.in 272126 Chandipur - 756 025 RCMA C/o HAL, (Nasik director 0522 - Division) Ojhar @rcma.drdo.in 2350022 Township PO, Nasik-422 207 RCI Research Center Imarat director 040 - 24306001 ,27567419 (RCI), Vigyanakancha, @rci.drdo.in 24306086 Hyderabad-500 069 R&DE Research & director 020 - 27150305, 27150653 development @rde.drdo.in 27150783, Establishment ,Pioneer 27150330 & Lines Dighi, 27150437 Pune-411 015 SAG Scientific Analysis director 011 - 23819828 ,23963939 Group, Metcalfe House, @sag.drdo.in 23812683, Delhi - 110 054 23818798

SASE Snow & Avalanche director 0172 - 2699801, 2701374 Study Estt Himparisar, @sase.drdo.in 2699802, Sector 37-A, 2699970

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Chandigarh - 160 017 SSPL Solid State Physics director 011 - 23818041 ,27521828 Laboratory Lucknow @sspl.drdo.in 23913609, Road, Timarpur, Delhi - 23984285, 110 054 23921652 TBRL Terminal Ballistics director 0172 - 2657659,2657674,26517 Research Laboratory @tbrl.drdo.in 2657506 23 Sector-30,Chandigarh - 01733- 160 003 253495 VRDE Vehicle Research & director 0241- 2548400 ,2548411 Development @vrde.drdo.in 2548410, Establishment 2548449 Vahannagar (PO), Ahmednagar (MS) – 414 006

SCOPE FOR COLLABORATION WITH DRDO

Technical Technology Development Producon Experse

Part Development Modernisaon Sale Development to Producon of Lab

Provision of Development Work Share Producon Equipment

SECTION 6

DEFENCE PRODUCTION AGENCIES

General

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The overall Industrial Policy of the country had kept defence production in the public sector since first outlined in the Industry Policy Resolution of 1948. The Industries (Development & Regulation) Act, 1951 gave statutory base to the Industrial Policy. Under this policy, the Defence Industry, which required heavy investments, strong R&D backing and on which there could be total reliance because of its criticality, remained under Government Control at all times which made licensing compulsory. As a consequence of then industrial policy, a large infrastructure for Defence production consisting of 39 Ordnance Factories, 8 Defence PSUs and 50 Research & Development laboratories was created in the country some of which was a carryover from the British Period. This has been the backbone of defence production in India so far. At the same time large number of Indian private sector companies were working with Defence Public Sector Undertakings and Ordnance Factories and supplying input materials to them. Private Sector was mainly performing the role of Tier 1 and 2 sub contractors and ancillary industry and involved in supply of raw materials, semi-finished products, parts and components to Defence PSUs and Ordnance Factories and to Base Workshops of Army and Base Repair Depots of Air Force and the Dockyards of the Navy. Defence PSUs and Ordnance Factories were outsourcing their requirements from private sector (mainly SMEs) in the range of 20-25%. While economic liberalization in India happened 1991 onwards, liberalisation of defence production has been slow, however the same is expected to take off with the present government keen to provide greater role to the private sector in defence production to generate efficiency and introduce competition. This is expected to upgrade and improve functioning of the defence industry. The ongoing transformation is outlined as per figure below. At the same time the government and public sector will remain dominant for some years to come. A survey of the defence industry is as per succeeding chapters. There are a number of possibilities for undertaking collaboration by Spanish companies in the government as well as public sector, to include modernization of production and processes and assistance in technology these have also been covered in the relevant Chapter.

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Public • MSMEs • OEM • MSME. • JV • JV • IOP

Government Private

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CHAPTER 17

GOVERNMENT /PUBLIC SECTOR

General

The Department of Defence Production (DDP) under the Ministry of Defence is responsible for developing a comprehensive production infrastructure to produce the weapons/ systems/ platforms/equipments required for defence. Over the years, the Department has established wide ranging production facilities for various defence equipments through the Ordnance Factories and Defence Public Sector Undertakings (DPSUs). The products manufactured include arms and ammunition, tanks, armoured vehicles, heavy vehicles, fighter aircrafts and helicopters, warships, submarines, missiles, ammunition, electronic equipment, earth moving equipment, special alloys and special purpose steels.

The Main production agencies under the DDP are as follows:-

Ordnance Factory Board (OFB)

Hindustan Aeronautics Limited (HAL)

Bharat Electronics Limited (BEL)

Bharat Dynamics Limited (BDL)

BEML Limited (BEML)

Mishra Dhatu Nigam Limited (MIDHANI)

Mazagon Dock Limited (MDL)

Garden Reach Shipbuilders & Engineers Limited (GRSE)

Goa Shipyard Limited (GSL)

Hindustan Shipyard Limited (HSL)

In addition other agencies are also under the DDP to include, Directorate General of Quality Assurance (DGQA), Directorate General of Aeronautical, Quality Assurance (DGAQA), Directorate of Standardisation (DOS), Directorate of Planning & Coordination (Dte. of P&C) Defence Exhibition Organisation (DEO) and National Institute for Research & Development in Defence Shipbuilding (NIRDESH)

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The DPSUs and Ordnance Factories have, as a policy, been outsourcing many of their requirements and have over the years developed a wide vendor base which includes a large number of medium and small scale enterprises apart from large industries. In addition, the DPSUs and OFB are also striving to increase indigenous content in equipment and products, manufactured by them. All agencies are open for collaboration through Joint Ventures as per policy laid down and covered in the relevant chapter.

Ordnance Factory Board (OFB)

There are 39 existing factories operating under the OFB. Two new ordnance factories are coming up at Nalanda in Bihar and Korwa in UP. OFB has about 93519 personnel at present. The turnover of OFB during the financial year for 2013-14 (March to April) was Rs 11234 Crore (Provisional). The value of issue (turnover) per employee in OFB has gone up from 6.4 in 2007- 08 to 11.9 in 2013-14 i.e. an increase of 86% over a period of six years. As on March 31, 2014, about 5603 vendors were registered with OFB.

OFB has taken up a number of projects to provide state of the art battle field equipment to the Services. OFB along with DRDO has initiated a number of R&D projects to improve self- reliance in some important arms and ammunitions required by forces. OFB is formulating proposal for amending its Procurement Manual to make it more effective.

OFB has also identified technologies for future R&D projects. Action has been initiated for Advanced Artillery Guided Shell Systems with research assistance from IIT Kanpur and Future Combat System i.e. FICV with DRDO, Defence PSUs and Indian Industry technology partners.

OFB has taken initiative and achieved 85.3% of indigenization in terms of Value of Production in financial year 2013-14. Important achievements are indigenization of Commander Hatch control Unit, a critical unit of T-90 tank, indigenous production of 50 types of critical optical components of T-90 tank, indigenously developed 5 types of cable harness for T-90 tank and set of cables for bridge laying tank (BLT), indigenous development of Rocket practice through reverse engineering. Other achievements of OFB include: (i) OFB Gun ‘Dhanush’ was positioned in January, 2014 for trials by the User. The trials have been successfully completed. (ii) T-72 modified chemistry barrel manufactured by OFB has successfully completed the life cycle test conducted at Armoured Corps Centre & School Ahmednagar. (iii) Engine Factory Avadi has successfully repaired the first engine of MBT Arjun in association with CVRDE (DRDO).

Ordnance factories have been continuously upgrading their infrastructure with induction of state-of-art technologies to meet futuristic requirements of users. Details of ordnance factories and products manufactured are as per Zip Folder 2.

The details of arms / equipment manufactured by Ordnance Factories is as per Table below:-

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Sl. Factory Name/Location Major Product (s) No. Ordnance Factory, Medak, Infantry Combat Vehicle 1. (OFMK). Ordnance Factory, Nalanda, For production of Propellant Bi-modular 2. (OFN)-Project Charges System. Ordnance Cable Factory, Cables of various types 3. Chandigarh (OCFC) Ammunition Factory, Kirkee, Small Arms ammunition. 4. Pune (AFK). High Explosive Factory, Pune Explosives, Initiatory Explosives, Acids and 5. (HEF). Chemicals etc. Ordnance Factory, Chandrapur, Tank Ammunition, Mortar ammunition and 6. (OFCH). Rockets. Ordnance Factory, Varangaon, Small Arms ammunition. 7. (OFV). Ordnance Factory, Bhandara, Propellants and Commercial Explosives. 8. (OFBa) Ordnance Factory, Dehu Road, Various Pyrotechnic compositions. 9. (OFDR). 10. Ordnance Factory, Ambajhari, Ammunition hardware for various (OFAJ). ammunitions. 11. Ordnance Factory, Ambarnath, Brass and Guilding Metal cups of various (OFA). Calibre for small arms and other ammunition. 12. Machine Tool Prototype Factory, Design, development and manufacture of Ambarnath, (MTPF). special purpose machine tools and equipment, components and sub-assemblies for A&B vehicles. 13. Ordnance Factory, Bhusawal, Drums, Barrels, Ammunition boxes. (OFBH). 14. Ordnance Factory, Khamaria, Small arms ammunition, anti aircraft gun Jabalpur (OFK). ammunition, Heavy calibre anti tank ammunition, bombs, mines, ammunitions for Air Force and Navy. 15. Ordnance Factory, Itarsi, (OFI). Propellants of various types, Acid, Sulphuric Acid, Picrite etc. 16. Ordnance Factory, Katni, Non-Ferrous Rolled and Extruded sections, (OFKAT). cups for small arms ammunitions, heavy calibre cartridge cases. 17. Gun Carriage Factory, Jabalpur, Carriages for Artillery Guns, Tank Gun (GCF). Recoil System, Anti aircraft Gun, Mortars. 18. Vehicle Factory, Jabalpur, (VFJ). Army Transport vehicles. 19. Grey Iron Foundry Jabalpur, Automobile casting of Grey and Malleable

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(GIF). Iron. 20. Ordnance Factory, Badmal, Tank and Artillery ammunition. Bolangir (OFBDL). 21. Heavy Alloy Penetrator Project, Empty Shots for Kinetic Energy ammunition. Tiruchirapalli (HAPP). 22. Ordnance Factory, Tiruchirapalli Small Arms. (OFT). 23. Heavy Vehicle Factory, Avadi Tanks. (HVF). 24. Engine Factory, Avadi (EFA). Engines for Battle Tanks and Infantry Combat Vehicles. 25. Ordnance Clothing Factory, All Combat Clothing and Parade Garments, Avadi (OCF). Parachutes. 26. Cordite Factory, Aruvankadu Propellant of various types. (CFA). 27. Ordnance Factory, Dehradun, Sighting and Fire Control instruments for (OFD). tanks, Fire Control instruments for Guns and Mortars, Binoculars. 28. Opto Electronic Factory, Precision Opto Mechanical / Electronic Dehradun, (OLF). Instruments for sighting and fire control for vehicles. 29. Ordnance Factory, Muradnagar, Plain Carbon and alloy steel castings for (OFM). Tanks, ammunitions, Steel forgings. 30. Ordnance Factory, Kanpur, Medium & High calibre guns, Shell empties. (OFC). 31. Small Arms Factory, Kanpur, Small Arms. (SAF). 32. Field Gun Factory, Kanpur, High Calibre Ordnance & Barrels, .32” (FJK). Revolver. 33. Ordnance Equipment Factory, Leather items, textile items, engineering Kanpur, (OEF). equipment including mountaineering items. 34. Ordnance Parachute Factory, Parachutes of different types. Kanpur (OPF). 35. Ordnance Clothing All Combat Clothing, Textile andTentage Factory,Shahjahanpur (OCF). items. 36. Ordnance Equipment Factory, Tents & other clothing items. Hazratpur (OEF). 37. Ordnance Factory, Korwa, For production of carbines. (OFPK)-Project. 38. Gun & Shell Factory, Cossipore, Medium Calibre Guns, Shells &Fuzes, (GSF). pistols and Rocket Launcher. 39. Rifle Factory, Ishapore (RFI). Small Arms. 40. Metal and Steel Factory, Various Ferrous and non-ferrous castings & Ishapore, West Bengal (MSF). extrusions, Light / Medium / Heavy Steel Forgings including Gun Barrel Forgings.

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41. Ordnance Factory, Dum Dum, Various Precision Machined and Fabricated West Bengal (OFDC). items for Defence Forces.

COLLABORATION POSSIBILITIES FOR SPANISH COMPANIES WITH ORDNANCE FACTORIES

Plant Product Producon Process Modernisaon Modernisaon Modernisaon • Technology • Technology • Process • Equipment • Sale • Training

DEFENCE PUBLIC SECTOR UNDERTAKINGS (DPSUs)

Hindustan Aeronautics Limited (HAL)

Hindustan Aeronautics Limited (HAL) is the largest DPSU under the Department of Defence Production. It has positioned itself as a comprehensive solution provider to the Indian Defence Services in the field of aviation with products consisting of fighter aircrafts, trainer aircrafts and helicopters. Around 90% of the sales of HAL are on account of sales to the Indian Defence Services. HAL has 19 Production Divisions, 10 R&D Centres and one Facility Management Division spread across the country.

Major aircrafts/ helicopters in the current production range are:- SU-30MKI multirole fighter, Hawk – Advanced Jet Trainer, Light Combat Aircraft (LCA), Intermediate Jet Trainer (IJT), Dornier 228 – Light Transport Aircraft, Dhruv (Advanced Light Helicopter), Chetak, Cheetah and Cheetal helicopters. The Company has achieved a turnover of Rs 15180 Crore in 2013-14. Some of the ongoing programmes are as follows:-

The indigenously designed and developed frontline fighter aircraft. Light Combat Aircraft (LCA), achieved an important milestone on December 20, 2013 by getting Initial Operational Clearance and entered the stage of induction into IAF.

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The Indian Navy inducted the first fully Indian manufactured Hawk Advanced Jet Trainer produced by HAL at INS Dega, Vishakhapatnam on November 6, 2013.

Mars Orbiter Mission spacecraft was launched on November 5, 2013 by the ISRO. HAL has contributed to this mission by supplying seven types of riveted structural assemblies and four types of welded propellant tankages for the Polar Satellite Launch Vehicle (PSLV- C25). The Company had also delivered bare satellite structure and deck panel to ISRO.

Future Programmes include Medium Multirole Combat Aircraft (MMRCA), Multi-role Transport Aircraft (MTA), Fifth Generation Fighter Aircraft (FGFA), Indian Multi Role Helicopters (IMRH) and Naval Multi-role Helicopter (NMRH), etc. Preliminary Design Phase of Fifth Generation Fighter Aircraft (FGFA) has been completed. Preliminary Design Phase of Multi-Role Transport Aircraft (MTA) has also been completed and all reports (except book on Finance) in both languages have been submitted at UAC-TA for acceptance by customer. Sea level trials have been completed on Light Combat Helicopter (LCH).

HAL has taken up the Design and Development of Light Combat Helicopter (LCH), Light Utility Helicopter (LUH), Upgrade of Jaguar Darin-III and Mirage 2000 aircraft. The Design and Development of LCH and LUH along with the already supplied Chetak, Cheetah, Cheetal and ALH will place HAL as a total Indigenous Solution Provider in the Light helicopter category, to the Indian Defence Forces. HAL has so far produced 15 types of aircrafts from in-house R&D and 14 types under license.

HAL intends to gradually shift from being the main manufacturer to being a system integrator by outsourcing about 50% of its workload in terms of Standard Man-hours by 2030. HAL has participated in 15 vendor development programmes in the country in the year 2013- 14.

Bharat Electronics Limited (BEL)

Bharat Electronics Limited (BEL) has 9 Strategic Business Units (SBUs) spread over the country. The turnover for FY2013- 14 is Rs 6180 Crore. The company’s core competencies in defence sector are Radars & Weapon Systems, Sonars, Communication, Electronic Warfare Systems, Electro Optics and Tank Electronics, etc. For 2013-14 supplies to defence contributed to around 82% of turnover. In the non-defence sector BEL’s product range include electronic voting machines, tablet PCs, integrated circuits, solar cells and semiconductor devices.

BEL achieved 100% on-time delivery to the Services in all three parameters of the Results-Framework Document (RFD) viz. ULSB Mk II for Army, Passive Night Vision Devices (PNVD) and RADARS & Fire Control Systems during 2013-14. BEL is a technology driven company with a well established R&D structure, on which it spends 6 to 8% of its annual turnover. The company has a long association with Defence Research and Development Organisation (DRDO) Laboratories, National Laboratories and reputed academic institutions like IITs, IISc etc., to adapt various indigenous technologies into its products or jointly develop products for the Defence Forces. BEL is introducing around 10 new products on an average, every year. BEL ranks 69th among top 100 companies in the world in defence revenue as

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published by Defence News, USA. To improve outsourcing activity the Company has well established procedures for procurement (Production & non-production items), sub-contracting and services. The same is updated periodically in line with government guidelines. Another important feature of BEL’s product basket is that about 85% of its turnover consists of indigenously developed products. The company has formulated a comprehensive 5-year plan for indigenization in line with Technology Perspective & Capability Roadmap (TPCR).

Some of the major modernization programs include Expansion of RF/MW Super Components facility, Test facility for Stabilizer and Automatic Loading Gear for T90 Tanks, Near Field Antenna Development Test Range Facility etc. For FY 2013-14, modernisation expenditure was Rs 258 Crore.

Bharat Dynamics Ltd. (BDL)

Bharat Dynamics Limited (BDL), is a pioneer in the manufacture of Anti-Tank Guided Missiles (ATGM), BDL has evolved as a conglomerate manufacturing ATGMs of new generations, Surface-to-Air weapon systems, strategic weapons, launchers, underwater weapons, decoys and test equipment. A Contract worth about Rs3000 Crore for delivery of Invar missiles was signed by BDL on August 19, 2013. BDL’s present order book position is around Rs19,000 Crore.

BDL has taken steps for indigenization of ATGMs being manufactured by it. Indigenization of products like Konkurs-M, Invar ATGM and Milan-2T upto 90%, 65% and 71% respectively has been achieved. During 2013-14, BDL’s vendor base increased by about 12.4% over the previous year. Some of the technologies being introduced under modernization programme are: Robotic Welding of Motors, Automatic loading and Progression of jobs in electro plating production line, Unification/ Automation of Cold and Hot conditioning of missiles/ subsystems including Thermal Shock capability etc.

BEML Limited (BEML)

BEML, has 4 manufacturing complexes with 9 production units located in Bangalore, Mysore, Kolar Gold Fields and Palakkad engaged in the design, manufacturing, marketing and after sales service of Mining & Construction equipment, Defence & Aerospace products and Rail & Metro products. BEML achieved a Turnover of Rs 3254 Crore during FY 2013-14. The Company’s International Business covers over 58 countries in Asia, Africa, and Latin America. Exports during 2013-14 were Rs 81 Crore. BEML’s Defence business is mainly in production and supply of High Mobility Vehicles (HMV) and Armoured Recovery Vehicles (ARV) for requirements of Armed forces. The major activities of R&D include design and development of new products and aggregates for products such as Dozers, Dumpers, Excavators, Loaders, Graders& other Defence and Railway Products. It also includes technology absorption and indigenization, while continuously working on up-gradation of existing products. R&D of Defence equipment is taken up at KGF and Bangalore Complexes. The Company spends around 3% of its turnover towards R&D, which has resulted in development of new products. The new/ upgraded products have contributed an average of over 25% of the total turnover in

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the last 5 years. A 3 year R&D plan has been drawn in line with the changing technology trends to match global standards and customer needs covering all 3 verticals.

The Modernization Programme ensures enhancement in productivity by upgradation of technology, quality, reduction in cost, reduction in rework by improvement in process, adherence to environment and safety norms, expansion of manufacturing capacity, and de- bottlenecking to ensure continuous production.

Mishra Dhatu Nigam Limited (MIDHANI )

MIDHANI was established to achieve self reliance in the manufacture of a wide range of Superalloys, Titanium alloys, Special Purpose Steels etc. for the critical sectors, with technical knowhow from foreign collaborators. Thereafter, MIDHANI has developed, manufactured and supplied more than 105 grades of high performance alloys in different shapes, sizes, forms towards programmes of national importance in the Defence, Space and Atomic Energy sectors. Midhani has successfully manufactured and dispatched 2 sets of Composite Armour Panels (Ceramictitanium bonded encapsulated panels) to Air Force 3BRD, Chandigarh for armouring of MI-17 Helicopters. Each set comprises 28 different shapes and sizes of panels. Technology for manufacturing these panels was developed by DMRL, Hyderabad. MIDHANI gives emphasis on achieving higher level of indigenization. While processing of its products, it is necessary to use many imported raw materials viz. pure nickel, chromium, molybdenum, cobalt etc as these are not available in Indian market. The company is continuing its efforts to reach the targeted capacity level of about 7000-8000 MT/ year, from its existing level of 4000 MT/year in about a time frame of 3 years.

Mazagon Dock Limited (MDL)

Mazagon Dock Limited is the leading Shipyard amongst all Defence PSU shipyards engaged in construction of Warships and Submarines for the Indian Navy. The shipyard has all the capabilities and strengths to navigate through the challenges presented by the complexities of building frontline warships and submarines. The Value of Production for the year 2013-14 is Rs 2790 Crore as compared to Rs 2290.64 Crore in 2012-13. With a view to reduce the build period of Ships & Submarines, higher block level, preout fittings, improvising the level of automation to improve productivity and also to ensure quality at par with international standards has been undertaken.

The shipbuilding and submarine building infrastructure has been gradually ramped up to enhance output and improve productivity. The Mazdock Modernisation Project (MMP) is nearing completion.

Garden Reach Shipbuilders and Engineers Ltd. (GRSE)

Garden Reach Shipbuilders and Engineers Ltd (GRSE) is recognised as a leading Shipbuilding yard. GRSE is presently constructing four Anti Submarine Warfare Corvettes (P 28class), eight Landing Craft Utility, Offshore Patrol Vessels and four Water Jet Fast Attack Crafts. GRSE also bagged the prestigious export order for supplying Offshore Patrol Vessel to

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Mauritius. The vessel has been launched on August 2, 2013 and has been delivered in September, 2014. Two Inshore Patrol Vessels (IPVs) were delivered to Indian Coast Guard during this year. GRSE has achieved the all time highest turnover (VOP) (Provisional) of Rs 1550.83 Crore in the Financial Year 2013- 14. The modernisation plan of GRSE, which aims to augment infrastructure to enable modular construction concept, has been completed in May 2013. Integrated Shipbuilding Facility under phase II Modernisation programme enables GRSE to construct ships using latest Modular Shipbuilding Technology where 200 Ton Mega Hull- blocks with pre-outfitting can be used. This would lead to significant reduction in ‘Build Period.’

Goa Shipyard Ltd. (GSL)

GSL is a competitive Shipyard capable of indigenously designing and building sophisticated high technology ships for the Indian Navy and Coast Guard. The VOP for GSL for the year 2013-14 is Rs 512.24 Crore. During the calendar year 2013, GSL delivered the second OPV to Indian Navy in September 2013 (the first was delivered in December 2012) and the third is also ready for delivery. One OPV was delivered to Indian Coast Guard. GSL has also delivered one Fishing Research Vessel to Central Marine Fisheries Research Institute, Kochi in July 2013. GSL also delivered four ship berthing pontoons to Indian Navy. GSL undertakes R&D of its product range and new shipbuilding projects are based on the in-house design. GSL’s indigenously developed designs of Patrol Vessels have saved the country considerable amount of foreign exchange by avoiding import of ship designs.

In order to meet the country’s defence requirements as well as anticipated demand in the international market, in-house R&D for new platforms, OPV, ASW Shallow Water Craft & Interceptor Craft is in progress. GSL has diversified its business activities. Some of the projects undertaken by GSL are : Shore Based Test Facility for Indian Navy, GRP Survey Motor Boats for Indian Navy, Supply, installation and service support for Stern Gear Systems. GSL’s modernisation program with the objective of doubling its shipbuilding capability and for construction of Mine Counter Measure Vessels(MCMVs) is being executed in four phases at an estimated outlay of Rs 800 Crore. Phases 1 and 2 of the modernisation project have been completed and construction work for next phase is in progress.

Hindustan Shipyard Ltd. (HSL)

Strategically located on the East Coast of the Indian Peninsula, at Visakhapatnam, Andhra Pradesh, HSL is the Nation’s Premier Shipbuilding organisation to cater to the needs of Indian Maritime, Defence and Oil Sectors in shipbuilding, ship & submarine repairs and onshore and offshore structures. The yard was brought under administrative control of Ministry of Defence in February 2010. In December 2011, MoD has sanctioned Rs 457.36 Crore for Refurbishment and Replacement of Machinery and Infrastructure (RRMI) under the LPD Project.

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Directorate General of Quality Assurance (DGQA)

Directorate General of Quality Assurance (DGQA) is a Quality Assurance Organisation functioning under the Department of Defence Production in the Ministry of Defence. DGQA is responsible for second party Quality Assurance of all defence stores and equipment, both imported as well as indigenous, for the Army, Navy (excluding Naval Armaments) and common user items for the Air Force procured from Private Sector, Public Sector Undertakings and Ordnance Factories. It has, therefore, a vital role to play in defence preparedness of the country.

DGQA Organisation is structured into eleven Technical Directorates, each responsible for a distinct range of equipment. The Technical Directorates are structured in two tiers for functional purposes, comprising of Controllerates and Field Quality Assurance Establishments. In addition, there are Proof Establishments in Armament Discipline for carrying out proof of weapons and ammunition.

Directorate General of Aeronautical Quality Assurance (DGAQA)

The Directorate General of Aeronautical Quality Assurance (DGAQA) is a regulatory authority under Department of Defence Production for Quality Assurance and final acceptance of military aircraft, associated accessories/ stores including Air Armament & Unmanned Aerial Vehicle (UAV) during design/development/ production/repair and overhaul/up gradation. DGAQA also has an important role in providing technical consultation to Ministry of Defence, Service HQs, and the Main contractor during various stages of procurement and in-house manufacture of Defence Aero stores. It ensures conformance of the product/services to the laid down specifications/standards thereof and effective Quality Management Systems at the premises of suppliers of such products, enhancing the safety of military aircraft/ airborne systems. DGAQA functions from its HQ at New Delhi through a network of 34 Field Establishments/ Detachments spread across the country.

DGAQA is also the nodal agency for Missile Systems Quality Assurance Agency (MSQAA) and Strategic Systems Quality Assurance Group (SSQAG). These are Tri-service (DGAQA, DGQA & DGNAI) organizations for ensuring quality and reliability during design, development and production of indigenous missiles.

Directorate of Standardisation (DoS)

Directorate of Standardisation (DoS) was established with an aim to control item proliferation within Defence Services. Foremost objective of DoS towards establishing commonality in equipment and components among the three Services to ensure that the overall inventory of the Defence Services is reduced to the minimum, is being progressively realised through: (a) Preparation of various Standardisation documents. (b) Codification of Defence Inventory. (c) Entry Control.

Directorate of Planning & Coordination

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The International Cooperation Division in the Directorate of Planning & Coordination under Department of Defence Production is the nodal point for activities relating to International Cooperation in Defence Production. The International Cooperation Division handles all matters relating to defence industry cooperation with various countries with which India has cooperation agreements in defence production.

Defence Exhibition Organisation (DEO )

The main function of DEO is to organise and co-ordinate Defence exhibitions in India and abroad, primarily with a view to promote the export potential of defence oriented products and services, developed and manufactured by the Indian Defence Industry. DEO maintains a permanent Defence Exhibition at the Defence Pavilion, Pragati Maidan, New Delhi. The Defence Public Sector Undertakings (DPSUs), the Ordnance Factory Board (OFB), the Defence Research and Development Organisation (DRDO), the Directorate General of Quality Assurance (DGQA) and the Directorate General of Aeronautical Quality Assurance (DGAQA) are displaying their products, innovations and services in this Exhibition.

National Institute for Research and Development in Defence Shipbuilding (NIR DESH)

NIRDESH Institute has been set up at Chaliyam, Kozhikode, Kerala with the objective of achieving self-reliance in Ship building. The Institute has been envisaged as the nerve centre for India’s futuristic Ship Building programmes. The thrust areas of NIRDESH would be R&D, ship design, technology development, industry interfacing, training and project management. NIRDESH would have active participation from the MoD, Indian Navy, Indian Coast Guard, DPSU Shipyards, DRDO, leading technical organizations/ Institutes etc. Collaboraon Spanish Companies with DPSUs

Technology Joint Ventures Upgradaon

Provision of Producon Investment Equipment

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CHAPTER 18 DEFENCE INDUSTRY PRIVATE SECTOR

General

While the overall Industrial Policy of the country had kept defence production in the government and the public sector ever since the first Industrial Policy outlined in the Industry Policy Resolution of 1948, the entry of Private sector has been continuously expanding over the years. A very large number of Indian private sector companies were already working with Defence Public Sector Undertakings (DPSUs) and Ordnance Factories (OFs) and supplying input materials to them performing the role of Tier 1 and 2 sub contractors and ancillary industry. The private sector was also involved in supply of raw materials, semi-finished products, parts and components to Defence PSUs and Ordnance Factories and to Base Workshops of Army and Base Repair Depots of Air Force and the Dockyards of the Navy. Defence PSUs and Ordnance Factories were outsourcing their requirements from private sector (mainly SMEs) in the range of 20-25%.

Economic liberalization in 1991 opened up Indian Industry with tremendous growth in the private sector. Government decided in May, 2001 to open defence industry for private sector participation up to 100% with FDI permissible up to 26% - both subject to licensing. Defence related items were thus removed from Reserved Category and transferred to the licensed category, as a result of which private sector could manufacture all types of defence equipment after getting a licence. Consequent to the Government’s announcement about the policy change, Department of Industrial Policy & Promotion (DIPP) in consultation with Ministry of Defence, issued detailed guidelines regarding the modalities for consideration of applications for grant of Industrial Licence.

This led to a paradigm shift and more number of large industrial houses in the country began to enter into the defence sector transforming from the role of supplier of raw materials, components, sub-systems to manufacture of complex advanced equipment/system. India’s key private sector industrial houses such as the Tata, Mahindra and Godrej and Boyce amongst others began to show interest in the defence sector committing themselves to same stringent standards that were demanded from public and government industrial establishments. This has led to exploitation of management, scientific and technological skills of the private sector to advantage and supplement the public sector efforts. Providing access to the private sector in defence production introduced an element of competition so that defence industry as a whole upgrades and improves its functioning.

The path however has not been smooth and there has been resistance from public sector companies who were until some time back preferred choice for placing orders apart from enjoying tax benefits More over steady income to the government year on year through dividends generated through supply to a captive customer – the armed forces has meant that there was a degree of vested interests in perpetuating the non private industry. This has however changed and today the government is putting into place a number of policies that are giving a

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preference in some cases to the private sector such as the recent decision to issue tender for replacement of 56 Avro transport aircraft exclusively to these companies. Foreign Direct Investment (FDI) limit has been increased though sub optimally to 49 percent to encourage partnership and joint ventures with foreign companies.

In recent developments, 19 proposals for grant of Industrial License were approved in October 2014. These included applications for defence production from major players like, M/s Reliance Aerospace Technologies Limited, M/s Bharat Forge Limited, M/s Mahindra Telephonic Integrated Systems Limited, M/s Punj Lloyd Industries Limited, M/s Mahindra Aero Structure Pvt Limited and M/s Tata Advanced Materials Limited. Approval was possible as a consequence of simplification of FDI policy vide Press Note 7 which has raised the FDI cap in defence from 26% to 49% and permitted portfolio investments upto 24% of the total equity of the investee / joint venture company under automatic route and doing away with requirement of 51% equity ownership by a single Indian investor/company.

There is a gradual investment in defence R & D by the private sector. Thus the response far has been encouraging and many private companies have successfully developed and even produced products in limited numbers to meet requirements of conducting tests and trials by the DRDO. The terms and conditions for such development of products are laid down on the basis of a mutually agreed contract depending upon type of the sub-systems and components to be developed. Wherever infrastructure and expertise are available in private sector, they are approached for development work by the DRDO. Details of private sector companies operation in the defence sector is covered as per succeeding paragraphs.

Industry Bodies and Chambers

The main industry bodies and chambers in the country, Federation of Indian Chambers of Commerce & Industry, The Associated Chambers of Commerce & Industry of India, Confederation of Indian Industry and PHD Chambers of Commerce have dedicated cells or departments to cover the defence sector. These are providing a number of guidelines and a platform for interface between the private sector and the government as well as the defence industry. The industry chambers as FICCI advocate synergetic engagement of both public and private sector in defence sector development. For instance FICCI’s defence desk has been consistently working on the issues and policies related to Indian defence sector. It played a pivotal role in the evolution of a holistic defence policy framework conducive for the integration of public sector, private sector and users through its participation and contribution. Industry bodies were in the forefront to propose liberalization of the FDI in defence and it was through a major debate that this was approved from 26 to 49 percent. Thus Industry bodies and chambers have played an important role.

Private Sector Survey of Companies

While there are over 5000 companies who have been registered as vendors with various defence organisations including the DRDO and the DGQA, a survey of major private sector companies who integrated into the defence sector has revealed 1264 Companies, R & D

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establishments and business and industry associations who have proven capability in terms of manufacture of weapon systems, electronics, aerospace, munitions and general stores and clothing which has come up to the standards required by the armed forces. Sector wise the distribution of the companies are distributed as shown in Table 1 below. To provide a total view of the industry these also include PSUs and some of the Ordnance Factories as well as DRDO establishments.

A detailed list indicating product expertise, registeration with the defence authorities and holding of licence is as per Appendix. While a majority of these are engaged in manufacturing (432), there are also a large number of companies who are operating in the electronics (144), aerospace (93), Chemicals (36), Arms and Munitions (24) and related categories. The subsector expertise will be evident from the detailed list at Appendix. A separate folder of profile including contact details is included alphabetically for ease of reference and retrieval.

Sub Sector Wise Details of Companies Sub Sector No of Companies Aerospace and 93 Aviation Arms and Munitions 24 Automation and 7 Robotics Batteries 17 Chemicals 36 Clothing 26 Communications 14 Electrical Items 23 Electronics 144 Manufacturing 432 Metallurgy 28 NBC 10 Opto Electronics 7 Protective Material 25 Ship building and 10 Shipping System Integrators 26 Vehicles 21

There are 937 firms who are registered with the Defence Production or Research and Development Agencies. 173 companies have a licence for defence production in various spheres. While details provided by the DIPP and other agencies would indicate that there are over 200 licences issued from time to time, but these are for multiple products to the same company thus the numbers listed is less. What is important is that these 937 establishments are, “Ready to Go,”

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in terms of collaboration for any joint venture with foreign companies and this can be effectively exploited by Spanish firms keen on early entry in the defence sector.

Major Private Sector Defence Groups

A list of major private sector defence companies that have a strong footprint in a particular domain or operating in multiple disciplines from land systems to aerospace, maritime, electronics, Communications and C4I Systems and Weapons, firearms & ammunition is as given below. There are a number of companies operating in a single domain and having a well established profile which is covered in the list at Zip Folder 2.

Discipline Company Electronics ALPHA DESIGN TECHNOLOGIES PVT LTD Simulators Ship Building ABG SHIPYARD LTD. Systems Integrator MAHINDRA GROUP OF COMPANIES Systems Integrator TATA GROUP OF COMPANIES Systems Integrator –Precision GODREJ & BOYCE MFG.CO. LTD Engg Systems Integrator LARSEN & TOUBRO Systems Integrator- PIPAVAV DEFENCE AND OFFSHORE ENGINEERING Shipbuilding COMPANY L TD Systems Integrator PUNJ LLOYD LTD Systems Integrator KALYANI GROUP Electronics and ROLTA INDIA LTD. Communications Aerospace, Manufacturing RELIANCE AEROSPACE TECHNOLOGIES PVT.LTD., Components

Tata Group

An overview of some of these companies would reveal their strengths. The Tata Group, comprising of a number of companies operating in the defence sector has considerable infrastructure dedicated to defence. Tata Power SED a subsidiary of the Tata Group is the only company in India to have an in-house ballistic test facility, used to test ammunition. Fourteen Tata companies are engaged in providing support to the Indian defence sector. The key players include TAL Manufacturing Solutions, Tata Advanced Systems, TCS, Tata Elxsi, Tata Industrial Services, Tata Motors, Tata Power (Strategic Electronics Division) and Titan Company. Tata companies have been involved in the defence space for close to 60 years. They have tried to address the defence requirements both by bringing in critical technologies through appropriate partnerships and indigenous developments. The Tata group has increased its footprint in integrating and supplying systems of strategic importance in the areas of mobility solutions, aerospace, missiles, radars, network-centric warfare enablers, electronic warfare systems, manned and unmanned platforms (land, aerial, marine and submarine), integration of C4I

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(command, control, communications, computers and intelligence), command and control systems for air defence and naval combat, battlefield transparency systems, information assurance and home land security systems. Tata Motors a group company has been exporting Rs1 billion worth of military vehicles annually for the past three years Tata Power SED has emerged as one of the largest prime contractors in the Indian defence sector. It has executed programmes of national importance including the Pinaka launcher for Akash missiles and also undertaken modernisation of airfield infrastructure.

Tata Advanced Systems is focusing on seven areas — missiles, aerospace, radars, unmanned aerial vehicles, optronics, command and control, homeland security. The company produces sub-systems for Indian customers and global OEMs and operates 10 production facilities across three cities.

Larsen and Toubro (L & T) L & T is another major conglomerate that has been issued industrial licenses for a wide range of products. The licenses issued cover design, development, construction/ manufacturing and assembly of Warships, Submarines, Weapon platforms (off-shore, floating and submerged), High-speed boats and crafts etc, Radars, Sonar systems, associated subsystems, Electronic Warfare equipment and System Sensors. Arms and Armament including Weapon Launchers. Armored and Combat vehicles, including associated systems, sub-systems such as Turrets, Turret mounts, Bridge laying systems on tanks, etc. Airborne assembly systems & equipment for Aircrafts, Helicopters and Unmanned Aerial Vehicles (UAV) and equipment for aviation sector The main products of L & T include Integrated Naval Combat Systems, Weapon, Delivery Systems, Universal Vertical Missile Launcher (BrahMos), Stabilized Multi-barrel Rocket Launchers (WM18A), Stabilised Launch Platforms for missile, ASW Systems ASW Rocket Launcher (IRL), Twin Tube Torpedo Launcher (ITTL) for 21” torpedoes, Triple Tube Torpedo Launchers (TTL) for 13” torpedoes, Winch & Handling Systems for Towed Array Sonars, Combat Management Systems, Integrated Platform Management System (IPMS), Dual Multi Function Consoles, Stabilized Platforms for Radar Systems. Similarly the L & T is manufacturing a number of products in the Naval Engineering and integrated land systems. L & T has also participated in India’s nuclear submarine programme and is expected to be a key contender for building the 75 I submarines. Godrej and Boyce Godrej Precision Systems (GPS), a division of GODREJ is engaged in manufacture of Aero structures for Air-borne Defence Systems, Space and Aircraft Systems. This includes manufacture of Liquid Propelled Engines, Assembled Aggregates, Solid Propelled Motor Casing for Space Launch Vehicle and Precision machined, fabricated components and assembled aggregates for LRU & Aircraft/Aircraft Engine Assembly and other Space applications | NADCAP certified for Chemical processing (Anodisation Type I, II, III, Passivation, Alodine Coating, Zn – Ni Plating, Hard Chrome plating, Electro Polishing, Electroless Nickel Plating, Cadmium Plating, DFL, Black Oxide Coating), NDT (FPI, MPI & RT), Welding (TIG, MIG, Spot) & Heat Treatment & Brazing | Manufacturing facility of 10,000+ sq mts is equipped with precision machines including 3 & 5 axis milling machines, VTL, Turning machines, Welding Robots, Inspection and testing facilities.

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Punj Lloyd Punj Lloyd has established itself as a credible player for defence equipment, focusing on state of the art technology. The objective is to indigenously develop genuine force multipliers that will contribute to providing a decisive edge to the Indian Armed Forces and to develop capability and infrastructure which can be effectively leveraged for defence programmes. The Group has a multi pronged defence strategy with an objective to become a supplier of choice to the Indian armed forces and a preferred partner for transfer of technology from Global primes by setting up manufacturing facilities in India as well as a part of the global defence equipment supply chain. Undertake maintenance, repair and overhaul of defence equipment. Capabilities include Product Design and Development, Simulation & Analysis, Prototyping & Manufacturing, and ICT Ship Building Ship building is one of the strengths of the Indian private sector defence industry. There are four main players in the private sector, Pipavav Offshore Defence and engineering, L & T, Bharati and ABG Shipyards. Amongst these Pipavav is well-known and has the ambition to grow in other areas of defence as well. Pipavav has signed a Technical Partnership Agreement (TPA) with Saab, a continuation of an ongoing co-operation between the companies covering details about the format for continued relationships and relevant projects. The various orders under execution by private shipyards are as per Table on following page. Micro, Small and Medium Entrepreneurs (MSME)

Traditionally in India, a large number of MSMEs have been serving as suppliers to defence PSUs and Ordnance Factories but have a relatively low profile. These are mini powerhouses in terms of manufacturing and services be it precision components, electronics or software. The Indian government is providing large number of incentives to MSMEs including funding. MSMEs are provided multiplier advantage in offsets. A number of MSMEs have been covered in the list of 1264 companies and provide ample opportunity for joint ventures, outsourcing, sub-contracting and ancillarization of the products as Tier 1 or 2 suppliers which should be taken advantage of.

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Name of Shipyard Project Contract Date Price (Rs. in Crore) M/s Pipavav Defence and 5XNOPV 27.5.2011 2974.58 Offshore Engineering Co. Ltd. (PDOECL), Gujarat. M/s ABG Shipyard 3XCTS 27.6.2011 1453.14 02 x Battle Practice Target 18.10.2013 40.81 M/s Tebma Shipyard Pvt. Ltd. 01xGrab Hopper Dredger 29.6.2011 35.81 M/s Bharati Shipyard Ltd. 03x200T Non Propelled 2.12.2010 12.4 Water Barges 06xSewage Barges 30.3.2012 102.67 01xTank Cleaning Vessel 8.10.2012 16.04 03x200T Self Propelled 2.12.2010 44.72 Water Barge M/s Modest Infrastructure 02x500T Fuel Barge 7.12.2011 39.16 Limited M/s Shalimar Works Ltd. 03x200T Fuel Barge 8.9.2009 46.59 02x50 Men Ferry Craft 14.3.2008 20.9 07x250 Men Ferry Craft 29.10.2010 145.2 Inland Marine Works Ltd. 01x250 Men Ferry Craft 23.11.2010 20.21

Foreign Majors in India

Details of some of the foreign majors who have established a presence in India is as given below. It would be seen that the companies such as Boeing, EADS, Lockheed Martin are multi domain systems integrators operating in a number of locations globally. They have established an India office and have established joint ventures with various public and private sector companies in India. The Joint Ventures of some of the companies are covered in subsequent section.

Sector Products/Sub Company Regn with Lic Joint Sector Indian Defence enc Venture agency e Aerospace Helicopters Agusta Westland No No Under Investigat ion Aerospace Helicopters Bell Helicopters No No No Aerospace Manufacturing Cessna/Textron No No Yes and Repair Aerospace Systems EADS Company No No Yes Integrator Information Battlefield L3 No No Yes Technology Management COMMUNICATIONS Systems INDIA PVT LTD

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Missiles MBDA Liaison Office NA NA Yes Systems Integrator BAE SYSTEMS No No Yes INDIA Systems Integrator BOEING No No Yes Systems Integrator Cassidian Yes No Yes Systems Integrator Finmeccanica Yes No Under Investigat ion Systems Integrator HONEYWELL Yes No Yes Systems Electronics INDRA SISTEMAS Yes No Yes Integrator SA Systems Integrator Lockheed Martin India Yes No Yes Private Ltd Systems Integrator NORTHROP No No Yes GRUMMAN Aerospace Pilatus Yes Yes Yes Systems Integrator Raytheon Yes Yes Yes Systems Integrator SAAB India No No Yes Technologies Pvt Ltd Aerospace IAI Yes Yes Yes Systems Integrator Rafael Yes Yes Yes Government Export Agency Rosoboronexport Yes Yes Yes Aerospace Dassault Aviation Yes Yes Yes Electronics Elbit Systems Yes No Yes

Joint Ventures

Given liberalization of policy on Joint Ventures as indicated in the Policy Section of the Paper and provision for FDI, a number of these have been formed. For Buy and Make India with our without TOT, joint venture is the basic mode that is adopted. Thus DPSUs as HAL have a number of joint ventures that are presently ongoing as indicated in Table below.

JOINT VENTURE COMPANIES OF HAL Sl Name & Address of the Purpose of JV JV Partners & Shareholding No. JVC Pattern 1 BAeHAL Software Ltd, Design, develop & BAe Systems PLC,UK - 11% HAL Estate, Airport Lane, market Software, BANGALORE – 560 017. Firmware and BAe HAL Employees - 40% Phone : 2522 6992, Computer Welfare Trust, India Fax (080) 2522 2595 programmes and systems HAL - 49% incorporating them and to provide

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consultancy in the field of computer technology. 2 Indo Russian Aviation Ltd, Supply of all types Russian Firms HAL Administrative Block, of Aircraft (Russian RAC- MiG, - 31% Ojhar Township, NASIK – Origin) Engines, Ryazan SIP, - 10% 422 207. Accessories, Aviazapchast Plc, - 6% Phone (02550) 275823 Aggregates, Fax 275499 Systems & Spares Indian Firms of all kinds of ICICI Bank - 5% aviation equipment. HAL – 48%

3 Snecma HAL Aerospace To establish a Snecma, France - 50% Pvt. Ltd, Center of 140/1, Hoody – White filed Excellence for HAL – 50% Road, production of Whitefield Industrial Area, Precision Aero BANGALORE – 560 066. Engine components Phone (80) 40223005 and assemblies as an Export Oriented Unit. 4 Samtel HAL Display Manufacture of Samtel Group, - 60% System Ltd, MFD / HUD / India Registered Office : HMDS for Aircraft 6th Floor, 7 TDI Centre, of Indian Defence HAL – 40% District Centre - JASOLA, services. Later NEW DELHI – 110 025 diversify into Civil Phone (011) 42424000 Aeronautics & Fax (011) 42424099 Industrial Sector in India & abroad. 5 HALBIT Avionics Pvt. Ltd, Design , Elbit Systems, - 26% HALBIT Avionics Pvt. Development & Israel Limited Marketing of Old Airport Lane, P.O. aircraft simulators Merlin Hawk - 24% Vimanpura, & all related Associates, India Bangalore – 560 017. applications for Phone 40491001 Indian & HAL – 50% Fax (080) 41605000 International markets. Integrated logistics support & maintenance services throughout the life cycle of products to the customers in Indian

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& International markets. 6 HAL Edgewood Application through Edgewood Ventures - 26% Technologies Private Ltd, development / LLC, USA 3rd Floor, Old ADB acquisition of Building, cutting edge Edgewood Technologies Pvt Ltd, HAL Main Factory, technologies. Phase India - 24% Next to Departure Lane of I 3D technology for: HAL Airport, i) Memory modules HAL Air Port Road, ii) System in HAL – 50% Bangalore – 560 017 package modules Fax : 25085005 iii) DC / DC Converters IV) Charge-coupled Device (CCD) / Cameras for space application 7 Infotech HAL Limited, Design / Software Infotech Enterprises - 50% Registed Office : development for Ltd, India 4th Floor, Phase – I , Aero Engines, “INFOTECH PARK” Technical HAL – 50% Electronics City, publications and Hosur Main Road, anticipated work BANGALORE – 560 100. from various OEMs Phone (080) 2518 6000 under offset Fax – 2852 9219 programme

8 HATSOFF Helicopter To provide military CAE Inc, Canada - 50% Training Pvt Ltd. and civil helicopter Survey Nos. 3&4, pilot training HAL – 50% Opp. ARDC Main Gate, services through HAL Vibhuthipura, operation of a flight Marathahalli Post, training devices to Bangalore – 560 037. be operated by the Fax: 080 25226481 company

9 Tata HAL Technologies Work packages TATA Technologies - 50% Ltd, related to Ltd, India Vintage Building 1st floor, engineering design 1/1 Kalyan Mantappa Road, services in aero HAL – 50% Jakkasandra, Koramangala structures and also 1st Block, the captive offshore Bangalore 560 034 and onsite workload (080) 6583 7174 / 7175 from OEMs including offset programme

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10 International Aerospace Manufacturing Rolls-Royce Overseas Holdings Manufacturing Private compressor rings, Ltd, UK - 50% Ltd, turbine blades and Administrative Office : nozzle guide vanes. “Convate”, 2nd Floor, HAL – 50% # 41, Airport Road, (Opp. TOTAL), Murgeshpalya, Bangalore – 560017. Fax (080) 40609702

11 Multirole Transport Co-design / develop UAC-TA } Aircraft Limited and Co-produce & } 50% 15/1, Cubbon Road, Multirole Transport Rosoboronexport } Bangalore – 560001. Aircraft . Russia }

HAL – 50%

Selected Major Joint Ventures

Bharat Electronics (BEL) has signed an MoU with US-based Textron Systems Corporation for providing the Textron Systems Micro Observer Unattended Ground Sensor (UGS) system to Indian security agencies. The MicroObserver UGS system brings a new level of covertness, ease of use and performance for border security, surveillance and critical infrastructure protection missions. Textron Systems reports that its MicroObserver system has been fielded around the world in support of these applications. Bharat Electronics Limited (BEL) and Thales announced that the Ministry of Corporate Affairs, Government of India, has approved the incorporation of their joint venture company, BEL-THALES Systems Limited, in August 2014. This joint venture (JV) Company will primarily focus on the design, development, marketing, supply and support of civilian and select defence radars for India and the global markets. The first board meeting of BEL-THALES Systems Limited took place on 26 September 2014.

Bharat Electronics Limited (BEL) has also signed a Memorandum of Understanding (MoU) with Sagem (Safran), France, to explore co-operation in the production and supply of navigational sensors, inertial navigational system and optronic masts to the Indian Navy for its various platforms under consideration for future induction.

Tata-Sikorsky JV, for supply o f S-92 helicopter cabins to Sikorsky. This is one of the major success stories as the JV is the sole supplier of such cabins across the globe and has thus plugged into the global supply chain.

GE BE Pvt Limited (GEBEL) was set up in 1997 as a joint venture between Bharat Electronics Limited and General Electric Medical Systems. The facility based at Whitefield, Bangalore, manufactures CT Max and other state-of-the-art X-Ray Tubes. Mazagon Dock

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Limited (MDL) has signed Share Holders' Agreements with M/s Pipavav Defence & Offshore Engineering Company as well as M/s Larson & Toubro Limited for construction of surface ships and conventional submarines respectively.

Cassidian and Indian engineering giant Larsen & Toubro (L&T), Mumbai have joined in 2011 in the field of defence electronics. The Indian authorities approved the formation of a joint venture company between L&T and Cassidian. L&T holds 74 per cent in the JV whereas Cassidian's share is at 26 per cent.

Data Patterns Group and SELEX Galileo, a Finmeccanica Company, have signed a Head of Terms agreement with a view towards forming a Joint Venture (JV). The joint venture will be located in Chennai, India and will focus on a broad range of defence electronic products and state-of-the-art technology developments. The two companies will leverage their strong development and manufacturing capabilities and their advanced product ranges.

Saab and the Kalyani Group have entered into a strategic alliance to partner and address key Indian Army air defence projects, including the VSHORAD and SRSAM requirements. The teaming combines Saab’s many decades as a leading developer and supplier of proven high- technology radar and missile systems, with the rich engineering and manufacturing capabilities of Kalyani. Saab announced strategic investment in the listed Indian company Pipavav Offshore and Defence Engineering Ltd (Pipavav). The investment of MSEK 250 has been made in shares issued through a, to Saab, directed share issue. After the investment, Saab holds approximately 3.3 per cent of the capital and votes in the company. Saab has signed a distribution agreement with the Indian company Indianeye Security Pvt Ltd for marketing and distribution of Agile Tactical Engagement Simulation (ATES) equipment to Indian Armed Forces, Paramilitary, Special Forces and Police. Equipments covered under the agreement for distribution include BT47 Personnel Detection Device (Helmet Halos), Small Arms Transmitter, Urban Operations TES equipment, Grenade & booby trap simulators and Gamer Manpack - Exercise Control Console. Saab has also received two orders from Hindustan Aeronautic Limited (HAL), India, for serial production of an integrated electronic warfare self-protection system for installation on the Indian Army’s and Air Force’s Advanced Light Helicopter. The orders have a total value of approximately SEK 216 million (USD 33 million).

Tata Advanced Systems has collaboration with US-based Lockheed Martin for assembly of aero-structures that include centre wing box and empennage for defence aircraft. The joint venture has a 100 per cent buyback arrangement with foreign partner, Lockheed Martin. Reliance Aerospace Technologies that has a joint venture with French Aerospace giant, Dassault Aviation and another tie up with US-based Boeing, will be able to commence production facilities in Andhra Pradesh as the defence deals stipulate 30 per cent domestic sourcing of equipment, spares and indigenous material for the Rafale combat jets, Falcon jets and Boeing’s P81 aircraft.

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Bharat Forge, Mahindra Telephonic Integrated Systems, Punj Lloyd, Mahindra Aero Structure are other major Indian companies that will benefit from the industrial licences for defence joint ventures with foreign collaborators. Honeywell Aerospace has signed a licensing agreement with Tata Power's Strategic Engineering Division (SED), enabling it to produce Honeywell's Tactical Advanced Land Inertial Navigator, or "TALIN" in India. This Honeywell-patented technology enables vehicles and artillery to navigate very precisely, even where GPS satellite guidance is not available, to increase troop safety and maximize mission success. Centum Group, a Bangalore-based provider of aerospace and defence electronics has tied up with US-based defence solutions provider Thales by being nominated as a Tier 1 supplier thus Centum can now supply directly to any of the 70-plus sub-groups that make up Thales's diversified business, from military communications in combat management systems for ships to integrated air defence systems for the US military.

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