It is a article written about the expected change in Indian government policy of allowing 100% FDI in defence production. It showcase the comparison how the change will be of benefit and create a WIN-WIN opportunity for both Indian manufacturing and Foreign Companies. It has been written in a fairly simple language so that a layman can also understand.

1. How proposed 100% FDI in Defence manufacturing will help Indian Manufacturing
and the Aerospace Companies and their Teir 1 suppliers for meeting their offset
obligation ?
Story till Now:
Till now the options available for foreign companies
were:
1. Purchase or sub-contract the
product/job from Indian Manufacturers.
2. Form JV with an Indian firm.
Lets discuss both of them:
1. Purchasing or sub-contracting the
product/job from Indian manufacturers
is an easier and faster method, but the
value is very small. Mostly the
mechanical frames, structures etc can be
made. And very few products can be
purchased, as a sufficient gap exist
between western and Indian
Technology.
1
I was involved in both of these types
of transactions from Indian Suppliers
side. We made few mechanical
assemblies for Hamilton Sundstrand
(UTC) and we also sold our self-
developed Communication equipment
Datalink II for Boeing P-8I project.
The major constrain is that value is
very less and the offset obligation are
huge and cannot be fulfilled by just
this method alone.
Story till Now:
Till now the options available for foreign manufactures were:
1. Purchase or sub-contract the product/job from Indian Manufacturers.
2. Form JV with an Indian firm.
100% FDI In Indian Defence
Production
Author is an IIM
Alumni with 6 years of
experience in Defence
Production.
Can reach him:
jude.pgpex12@iimsh
illong.in
DPP (Defense Procument Procedure) defines
the guidelines which have to be fulfilled while
Indian Army, Navy , Air force or cost guards
and even Civil Aviation makes a procurement
than Rs.300 Crore ( Approx. 50 Million
USD) from a foreign company.
Its has the offset clause stating that 30% of
worth of order (monetary) should be done in
India for the same project or any other, it is
the responsibility of the company to follow
within specified time frame else they will be
facing monetary penalty. It can be done
directly by the party or its Tier 1 supplier.
India has awarded about 5 Billion USD of
orders to Boeing, Lockheed and other
aerospace primes. Which means they have an
obligation of about 1.5 billion USD.
They have penalty clauses sitting on their
head.
Next 5 years India will be releasing about 10
Billion worth of orders. MMRC (Rafael) being
one of them. The offset clause is 50% for
MMRC alone.
2

2. Lorem Ipsum
Indian Defence Offset Policy
DPP (Defense Procument Procedure)
defines the guidelines which have to be
fulfilled while Indian Army, Navy , Air
force or cost guards and even Civil
Aviation makes a procurement than
Rs.300 Crore ( Approx. 50 Million USD)
from a foreign company.
Its has the offset clause stating that 30% of
worth of order (monetary) should be
done in India for the same project or any
other, it is the responsibility of the
company to follow within specified time
frame else they will be facing monetary
penalty. It can be done directly by the
party or its Tier 1 supplier.
India has awarded about 5 Billion USD of
orders to Boeing, Lockheed and other
aerospace primes. Which means they have
an obligation of about 1.5 billion USD.
They have penalty clauses sitting on their
head.
Next 5 years India will be releasing about
10 Billion worth or orders. MMRC
(Rafael) being one of them. The offset
clause is 50% for MMRC alone.
1
2 Forming a JV with Indian Company:
Luckily enough I was also a part of
this. The ratio allowed was 76%
Indian partner and 24% Foreign
company.
It is a long and exhausting process,
took about more than 2 years for us
and still under progress.
Following are the major steps:
A. First both the partners have to
approach with the business
plan and proposal to FIPB
(Foreign Investment
Promotion Board). They have
to meet them and satisfy their
queries. The success rate can
be about 10-20% and there is a
long waiting time.
B. When the FIPB clears the
proposal than officially the
company has to be
incorporated as per companies
of Indian Act.
After that you can start the
business development
activities but not actual
production.
C. For starting the production
you need a Factory License
from the state
Government where the plant
has to be located. This
requires all certificates such as
Memorandum of Association,
Article of Association, Fire
NOC, Factory Layout,
Pollution Certificate
(Electronic industry is
considered green industry
2
hence not required), Board
resolution, Manufacturing
process of product, Lease
documents, Company
Incorporation certificate and
tons of documents. The
application has to be signed by
the factory owner.
Its better to apply for Sales
tax, Excise Tax and service
tax. If any other licenses are
to be taken they can also taken
specially for export/import
the company has to registered
at DGFT (Directorate General
of Foreign Trade) and there
are several other schemes
which allow the exporter to
save import duties those
schemes can also be applied
for.
D. In India for manufacturing
defence equipments a
Industrial License is
required. It may take a year or
two to get this as the
application moves among
three central government
ministries and state
government. Commerce,
Heavy Industries and Defence
are the central government
ministries.
After you get all of this you can roll out your
product from your factory.
The JV setting up, requires about
2-3 years after the FIPB approval
to roll out first product.

3. 3
With proposed 100% FDI. How
things will change?
Now there will be the following options
for foreign companies to meet their offset
requirements:
1. Purchase/Sub-contract from
Indian suppliers:
Low value equipment.
2. Form a JV with Indian
Company:
a. Till 49% of share holding
and no direct controlling of
foreign partner no FIPB
approval will be
required.
b. More than 49% of share
holding and controlling
power with foreign partner
FIPB approval required.
3. 100% owned subsidiary by foreign
company. Will be limited to particular
product types, the exports may be
controlled to some countries. Must provide
employment to Indian Citizens. As still the
guidelines are awaited, we can anticipate
the stated requirements from government,
beside the regular FIPB approval and
licenses.
It will be easier and faster for a foreign
company to go for a JV with 49%
partnership with Indian Companies. This
will give them confidence to have better
control over their processes, IP and
working rather than the earlier 24%
partnership.
It will be easier and faster
for a foreign company to
go for a JV with 49%
partnership with Indian
Companies. This will give
them confidence to have
better control over their
processes, IP and working
rather than the earlier 24%
partnership.
This article is written upon the
assumptions made by various industry
experts on the final shape of FDI policy
in Defence Production as still the policy
is not freezed by the Government of
India.