Capital expenditure on domestic industry to rise to 64% this year, up 6% from last year - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Monday 19 July 2021

Capital expenditure on domestic industry to rise to 64% this year, up 6% from last year

By Ajai Shukla

Business Standard, 20th July 21


The Ministry of Defence (MoD) has earmarked 64 per cent of the defence capital budget for this year for acquisitions from domestic companies, the MoD stated in Parliament on Monday. This is an increase of six per cent from the last financial year, which was the first time a distinction was overtly made between domestic and overseas defence capex.


“In line with Government of India’s initiative of ‘Atmanirbhar Bharat’, it has been decided to earmark an amount of Rs 71,438 crore for domestic capital procurement out of the total allocation of Rs 1,11,463 crore for  capital acquisition,” said the MoD in a written reply to a question from a member.


The figure of Rs 71,438 crore that the MoD has earmarked for domestic capital procurement does not actually go in full to domestic firms. For example, when the MoD signed a contract in January with Hindustan Aeronautics Ltd (HAL,) worth Rs 45,696 crore for 83 Tejas Mark 1A fighter aircraft, just about half that figure would be spent in India.


(For a breakdown of the Tejas contract value, see Business Standard, January 21, “At $43 mn each, Hindustan Aeronautics' Tejas Mark 1A seeks export market.”)


The MoD also stated: “During last three financial years, i.e. 2018-19 to 2020-21, 102 contracts have been signed with Indian vendors for capital procurement of defence equipment such as aircrafts, missiles, tanks, bullet proof jackets, guns, navy vessels, radars, networks etc.”


In that same period, “Government has accorded Acceptance of Necessity (AoN) to 119 defence proposals, worth Rs 2,15,690 crore approximately, under the various categories of capital acquisition, which promote domestic manufacturing as per the Defence Acquisition Procedure (DAP),” stated the MoD.


The DAP categories that promote domestic manufacturing are: Buy (Indian - Indian Designed, Developed and Manufactured)”, “Buy (Indian)”, “Buy and Make (Indian)”, “Buy and Make”, “Strategic Partnership Model” and “Make” categories.


Amongst the indigenous defence projects the government laid claim to were: The 155mm Dhanush artillery gun, the Tejas Light Combat Aircraft, Akash surface to air missile system, Scorpene submarine, the destroyer INS Chennai, and the anti-submarine warfare (ASW) corvette. Many of these procurements originated well before the tenancy of this government.


The MoD also laid claim to the “SRIJAN” portal that it launched on August 14, 2020 to promote indigenisation of spares and components. “As on date, 10,929 items, which were earlier imported, have been displayed on the portal for indigenisation. The Indian industry has shown interest for 2,890 displayed items so far. Defence public sector undertakings (DPSUs) and Ordnance Factory Board (OFB) are interacting with these industries to facilitate indigenisation,” said the MoD.


“1,776 components and spares have been indigenised in the year 2020-21 as a result of efforts by DPSUs, OFB and service headquarters, through their own processes of indigenisation,” stated the MoD in its reply.

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