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• Validity of Industrial License granted under the IDR
Act has been increased from 3 years to 15 years with
a provision to further extend it by 3 years on a case-to-
case basis.
• To establish a level-playing field between the Indian
private sector and the public sector, anomalies in excise
duty / custom duty (now GST) have been removed.
As per the revised policy, all Indian industries (public
and private) are subject to the same kind of excise and
custom duty levies.
• The Exchange Rate Variation protection has been
allowed on foreign exchange component to all Indian
companies, including private companies in all categories
of capital acquisitions, so as to create a level playing
field between the Indian and foreign industry.
• In order to encourage indigenous design, development
and manufacturing of defense equipment, the Defense
Procurement Procedure 2016 (‘DPP 2016’) introduced a
new category of capital procurement - Buy Indian-IDDM
(Indigenously Designed, Developed and Manufactured).
As per the DPP 2016, preference will be given to ‘Buy
(Indian-IDDM)’, ‘Buy (Indian)’ and ‘Buy and Make
(Indian)’ over the ‘Buy (Global)’ categories of capital
acquisition.
As a further push for increasing private participation,
promoting indigenous production and housing of critical
technologies, the Government has recently released the
‘Strategic Partnership’ model by adding the seventh chapter
under the DPP 2016, thereby allowing Indian private
players to play the strategic partner role for critical Indian
defense programs.
Strategic Partnership: The Model
The strategic partnership model seeks to identify a
few Indian private companies as Strategic Partners
(‘SPs’) who would initially tie up with a few shortlisted
foreign Original Equipment Manufacturers (‘OEMs’) to
manufacture big-ticket military systems. In the initial
phase, the selection of SPs would be confined to only four
segments and only one SP will generally be selected per
segment:
a) Fighter Aircraft.
b) Helicopters.
c) Submarines.
d) Armored Fighting Vehicles / Main Battle Tanks.
The SP is expected to play the role of a system integrator by
building an extensive eco-system comprising development
partners, specialized vendors and suppliers, in particular,
those from the MSME sector.
The Strategic Partnership model enables an Indian
private sector entity to partner with the Ministry of Defense
(MoD), to make necessary long-term investments in
manufacturing infrastructure, an eco-system of suppliers,
N ovember 2017 | L egal E ra | www . legaleraonline . com
Recent initiatives by
the Government
provide India an
opportunity to change
the status quo and
become a key player
in the global defense
industry
skilled human resources, R&D for modernization and
upgrades as well as and other capabilities, besides
production of equipment. The overall aim is to progressively
build indigenous capabilities in the private sector
to design, develop and manufacture complex weapon
systems for the future needs of the Indian Armed Forces.
This will be an important step towards meeting broader
national objectives, encouraging self-reliance and aligning
the defense sector with the ‘Make in India’ initiative of the
Government.
In order to ensure that the chosen platform for
manufacturing meets all the operational requirements of
the Armed Forces and to access advanced and appropriate
technologies, the SP will need to enter into relevant tie-
ups with foreign OEMs to cover manufacturing, transfer of
technology, assistance in training skilled human resources
and other support. Such partnerships or tie-ups between SP
and OEM may take the form of joint ventures (JV), equity
partnerships, technology-sharing, royalty or any other
mutually acceptable arrangement between the companies
concerned, subject to the ownership conditions indicated
above.
As per the Policy, the applicant company has to be an
Indian Company owned and controlled by resident
Indian citizens. The management of the applicant company
should be in Indian hands with majority representation
on the board of directors. Further, a company shall be
considered as ‘Owned’ by resident Indian citizens if more
than fifty percent (50%) of the capital in it is directly or
beneficially owned by resident Indian citizens and/or Indian
companies, which are ultimately owned and controlled by
resident Indian citizens. This implies that the maximum
permitted FDI (both direct and indirect) shall be forty nine
percent (49%). Any subsequent change in shareholding